We are often asked if it would not be prudent to hire an associate, practice together for a while and then if both parties decide they like each other, draw up a contract at that time. The purpose is to discover more about the other party before making any long-term commitments. This is probably the most widely used approach by dentists, and unfortunately, the most often abused.
The failure rate for this kind of professional relationship is approximately 85%-90% but continues to remain the first choice among many dentists who want to believe that the potentially disastrous results can't or won't happen to them. That non-committal approach is merely another way of saying that both parties don’t trust each other enough to make any commitments to each other on the front end of a relationship.
It is evident that this approach is not conducive to formulating a long-term working relationship. However, if the parties can survive the disadvantages and risks using this arrangement, then they may really be meant for each other! In the interest of understanding and fairness, we have listed all the advantages and disadvantages of this type of a working relationship.
* No immediate expenses incurred by either party for drafting a contract.
* No defined commitment from either party; you are hesitant to refer patients to an associate who may not be with the practice six months from now.
* The associate's income is lower because of few patient referrals. Associate's income is disappointing, and the associate leaves for another "better opportunity," or opens his/her own practice nearby and competes with your practice.
* The value of your practice is instantly compromised if you become disabled or die because it opens the door to graveside negotiations with your spouse. At best, it is doubtful that your practice could be sold for 30% of its fair market value under those circumstances.
* If the associate refuses to buy the practice in the future, the marketability of your practice is compromised; any other purchaser candidate would be concerned that the patients would go with the associate if he relocated to another office nearby.
* You may discover that the associate's demands don't meet your needs, so you dismiss the associate and start the process all over again, becoming a revolving door for associates. The dismissed associate may have acquired a patient following that would justify him starting a practice in your area. Your practice became the launching pad for a competitor's practice.
* The associate can make a list of your current patients and move to another office nearby and take many of your patients and staff with him to the new location.
* Each day that the associate adds another patient to his/her following, he obtains a stronger position to exercise more control over the eventual “negotiations” involved in buying your practice. The associate has nothing to lose, nothing to stop him from relocating to another office nearby and taking his following with him.
* The associate can solicit your staff and persuade them to leave the practice for a better opportunity with him/her. If the associate can convince the staff to move, they can solicit all of your patients. We've seen practices decline by 50% when this happened in the past.
* Your practice becomes a revolving door for new associates as the Host tries the same thing again...the same way.
* You get a reputation for not being fair to associates, and future associate candidates don't even apply after a while. Many times the associate “bad-mouths” his/her former employer to others in the community.
* Patients of the practice treated by the associate may feel abandoned when and if the associate leaves the practice sometime in the future (if he/she does not set up a new office nearby).
Adding an associate to your practice can result in tremendous rewards, but the current owner should be aware that there are many risks as well. A comprehensive approach, with defined commitments conditioned on compatibility, considerably increases the chance of success. No two parties can predict compatibility, but they can at least be aware of what the future holds for them if they find they are compatible.
Using a comprehensive contractual approach to safeguarding the value of your practice can eliminate all the disadvantages above. Many practices today are selling for $500,000 to $1,000,000. To risk losing that substantial amount of money and increasing the likelihood of a failed associateship is not worth the risk. Think about it before you act then decide what is best for you… and your future. It's time to call AFTCO!