Understanding and Evaluating Associateship Opportunities
Features of Successful Associateships

Course Author(s): David G. Dunning, MA, PhD; Robert D. Madden, DDS, MBA

Features of Successful Associateships

A successful associateship can be broadly defined as one meeting the career goals of both the associate and the owner-dentist. Some associates may not have an interest in ownership, and so a long-term associateship would be considered successful in such a situation. Most dentists still have an interest in an equity position in a practice—partial or complete ownership. Consequently, we will focus on the associate to owner transition in addressing a successful associateship while acknowledging that this does not always apply.

Clearly, it is necessary to address the previous reasons associateships fail in order to pave the road toward a successful associateship, including initial conversations establishing compatible philosophies. Several other building blocks deserve special mention.

The first building block for a successful associateship is a thorough written agreement detailing expectations for both parties. Even if you have known the owner-dentist your whole life, you should never, ever enter an associateship without a thorough written agreement or contract. A later section outlines contractual elements and potentially troublesome areas. Associateship agreements or contracts vary in length—some may be as few as two pages and some may be dozens of pages. It is simply not possible to establish clear expectations in a two page document. Typically an 8 to 20 page document, if well written, may address the essential expectations, though we are aware of agreements in excess of 60 pages.

A second building block for a successful associateship is sufficient compensation for the associate. Note that we did not say “impoverished” or “exorbitant” compensation. Every associate will present with a unique set of lifestyle and financial parameters. Compensation will be covered in more detail in the next section. Our advice to any associate candidate is quite basic when it comes to compensation: determine your basic personal/family budgetary needs (also discussed in more detail later), and negotiate toward that amount.

The third building block for a successful associateship is to acknowledge the need for risk-reward balance for the owner-dentist. The owner may have to equip additional operatories, will probably have to share patients in some equitable manner, and will have increased overhead costs (both fixed costs such as additional staff and variable costs such as supplies). To some extent, just as “associates” at Wal-Mart are from a certain vantage point a type of profit center for the corporation, so, too, a dental associate is within reasonable levels of a profit center for the owner-dentist. The owner-dentist should not be put in a position of financial loss for having an associate, at least not over the long-term. Owners may incur a loss for the first few months an associate works in the practice, but a loss is obviously not sustainable in the long-term.

What is the fourth building block? Having reasonable advisors providing competent professional advice-the flip-side of the tenth reason for associateship failure in the previous section. Given the complexities involved in associateships and in practice valuation/purchase, both parties must have at least an attorney and an accountant in their respective corners to give insights and to provide for a legally and financially sound transition. This is an ideal place in the course to mention that some consulting firms offer “dual-party representation.” This means the same consulting firm espouses a philosophy of providing professional advice to both the owner and the associate candidate. It is our opinion an associate should retain the right to select his/her own independent advisors even if offered by a consulting firm offering dual-party representation. To a certain extent, bias can enter into any negotiation and relationship, and biases must be managed.

Many associateships present and require management of unique circumstances. These can potentially include a long laundry list of items such as: the role of family members in the negotiations or actually working in the practice, staggering of office hours if the facility lacks a sufficient number of operatories for the dentists and hygienists, firm contractual commitment from the associate especially when the owner incurs significant expenses to build and/or equip additional operatories in which the associate will work, how any lab-related “redos” will be handled (sometimes the additional laboratory expense must be paid by the associate), history of substance abuse on the part of one of the dentists.

Finally, while not designated as building blocks in this section, a number of key practice variables greatly facilitate a successful associateship. These are discussed in the section on vetting an associateship opportunity and include: desirable overhead levels (~60% +/-), minimum active patient base (1500–1800+, the more the better), and adequate revenues to support both the owner and the associate: ~$900,000 to $1,000,000.