June 04, 2012
By Ruchi K. Sahota, D.D.S.
What was the plan? Build a practice? Build a family? Build a house? Did you plan to do it in that order? Would you do it alone?
Years ago, dentists finished school, passed boards and set up solo shop. That was the most prominent reality we knew.
A 2007 ADA survey showed that, "independent nonsolo dentists accounted for 28.3 percent of all dentists … (and among this group), 46.2 percent were less than 50 years old." The West Coast was also identified as the area with the highest number of nonsolo dentists—or partnerships.
In terms of a business model, partnerships work when one partner complements the other. Each partner contributes to the other’s goals. We understand each other’s weaknesses and are inspired by each other’s strengths. But at the same time, we are not threatened by our own vulnerabilities.
A friend is in a three-dentist partnership. Each partner just gravitated to what he enjoyed doing most, or, in my friend’s words, "what each of us could stand to be doing the most." One partner manages the financial accounts and statements. One partner deals with staff issues. And the third partner administers other outside-the-box tasks like staff trips, meetings with consultants, continuing education management and scheduling, etc.
The big costs, the overhead, property rent/loan payments and marketing are shared. A partnership may give a practice the opportunity to offer a larger range of services or rent a bigger office. The risk of a business loan is shared. This can make a loan application more attractive to a bank as well.
To be by yourself, to face all that we face as business owners every day on your own is difficult. Bill Gates, who started Microsoft with his friend and partner Paul Allen, asserted, "You’ve got to have somebody, one person who you can really open up with, and be weak with, and be afraid with, and be out of control with, or be screwed with."
But there is another type of partnership. One that handles disparate functions, owns separate responsibilities, and does not wander along the border of their black-and-white divisions of partnership. The famed "Last Emperor" of the fashion industry, Valentino, had Giancarlo Giammetti by his side and behind the runway so that he could concentrate solely on his creativity and that’s it.
In dentistry, we see business models that include a nondentist partner, perhaps a spouse who handles all of the finances, staff, marketing and other business aspects of the practice. This allows the dentist partner to concentrate on his skills and the patients.
But how do we choose the best partner? Warren Buffett holds a few workshops a year about the ethics of business. Each student is supposed to select a classmate. They will take 10 percent of the classmate’s earnings for the rest of their life. Even though they are prompted to consider grades, IQ, etc., students inevitably use generosity, kindness and integrity as their gauge to pick their partners for life. Buffett’s lesson to his students is that: "Everyone here has the intelligence and energy, but the integrity is up to you. You weren’t born with it; you can’t learn it in school." He urges students to find what they want to develop in themselves in the partner they choose.
So partnerships also bring risks. They require trust. There are more than a few gambles: loan defaults, unequal production to meet overhead and malpractice/liability risks.
The California Dental Association’s Practice Support Center (cdacompass.com) notes that mutual respect and a common business plan are the foundation for a partnership. The legal reference guide outlines some partnership options, "The dentists may consider establishing a general partnership, under which the partners share decision-making as well as financial risk. However, a general partnership may increase a dentist’s risk. While the sole proprietorship format involves unlimited liability, a dentist in a general partnership is exposed to potential liability for the actions of each of the partners as well as for his or her own actions."
The guide addresses risks, legal considerations and factors that should be taken into account with regard to business partnerships. Like any friendship or even marriage, disagreements, miscommunications, deviations from the original visions and passions occur. A written agreement and involvement of an attorney is imperative.
My partner set up "shop" in a farming township, which would eventually grow to become one of the commuter suburbs of Silicon Valley and the fourth largest city in the San Francisco Bay Area. Almost 30 years ago, she found an open office space in the town, so she picked Fremont. And she started her practice from scratch. Was it good planning and intuition, just luck or the benefit of having established her business in simpler times that made her successful?
This is not a common story these days. California has undergone immense growth and thus incredible urban saturation as well. The new economical situation presents barriers to practice growth. A recent ADA Health Policy Resources Center report noted emerging challenges and strategies with respect to the current economy:
- Existing patients, because of economic uncertainty and job loss, are reluctant to accept treatment plans.
- Patients are reluctant to use their discretionary dollars for dental services, except for acute care.
- Reimbursement issues with insurance carriers/managed care plans are increasing.
- New patient volumes are down.
According to the HPRC, dentists across the country are reviewing and lowering expenses and trimming down overhead. We are wracking our brains. How do we help our patients? How do we help them understand the cost of delayed treatment? If our schedules lay open and patients cancel their appointments, how do we stay afloat?
These are hard questions. It is hard to sit in that office alone and come up with answers. Our minds work at an electrifying pace, especially when times are tough. Expression. Interaction. Digestion. It is nice to have someone to bounce ideas off of and learn from.
A business partner. A dental society colleague. A friend. A spouse. A partner can help enlarge our vision but contain our egos. A partner can shield us from embarrassment in the case of a potential wrong decision. And a partner can also push us toward the right direction in the case of a possible life-altering decision.
Dr. Sahota is the associate editor of the Journal of the California Dental Association. Her comments, reprinted here, were originally published in the February 2011 issue of that publication.
Editor’s note:The ADA offers a number of resources to help dentists run their practices more efficiently and treat patients more effectively. More information here.