Avoiding the Pitfalls of Dental partnership Transitions – Identifying the “What ifs”

My last three blog posts have discussed some of the issues to be aware of regarding the valuation, financing, and timing of dental partnership transitions. I would like to finish up this series with some thoughts on additional stipulations that must be included in a partnership agreement. These are incredibly important, and probably where the most time–many meetings and discussions- needs to be spent when designing the partnership documents. These are what I call the “what ifs”. And contrary to my normal optimistic approach to life, since I have seen so many bad situations–and since partnerships don’t always last–I have to be almost pessimistic at times and design essentially a pre-nup in order to try to anticipate what might happen in the future.

If you agree that the value to the buyer is based on the seller staying on board and being involved in the practice to continue to transfer goodwill and to continue to produce at a high level in order to help pay the bills, then all kinds of financial penalties have to be written into the agreement to prevent the negative ramifications to the value of the second half of the practice in the event of the death, disability, early retirement ( earlier than agreed to) or professional disgrace to the older partner.

In addition to the above, the challenge is to also try to anticipate every other possible contingency or policy decision that if not identified and planned for has the potential to undermine the expected financial solvency of the dental practice going forward.  Some examples would be technology purchases, physical expansion, dental insurance participation, job responsibilities–a methodology for making these kinds of important decisions must be outlined  and agreed to. I can tell you that based on my own experience over the past 20 years–this is unlikely. I keep learning from every situation. So please make the time and put in the effort to be as explicit as possible.

I was not kidding when I described partnership documentation being over 100 pages long. I would categorically suggest that a partnership agreement written WITHOUT these many contingencies identified and clarified, is not worth the paper it is printed on.