Commentary

Observations on Achieving Total Practice Success

Mr. Berning will present "How to Achieve Total Practice Success," "Strategy and Options: Have Exactly the Practice Transition You Want," and "Nuts and Bolts: Have Exactly the Practice Transition You Want" at the CDA Scientific Session in Anaheim. His presentations will be from 9:30 a.m. to noon and 2 to 4:30 p.m. on Friday, April 14, in Room 208 A/B of the Anaheim Convention Center and from 9 a.m. to 1 p.m. on Sunday, April 16, in Room 209 A/B of the Convention Center.

"The used key is always bright." -- Ben Franklin.

What makes up total practice success? I’ve been asked this question repeatedly and have accumulated observations and studied practices for answers for 20 years. What follows are thoughts on practical action-oriented steps a doctor can take to define and achieve success for his or her given situation and practice. The basis for the inquiry is the common observation that there are those doctors in practice who are getting along fine for the most part, and then there are those that seem to have arrived at a different plane -- one in which they have achieved an integrated and well-developed growing practice that is also personally fulfilling. What is it that has enabled one doctor to have a dream-come-true practice and another a passable, perhaps only marginally fulfilling, practice and career?

Observation. To achieve anything of importance, a doctor or a group of doctors must have a known result that provides what the practice is to be and how that translates into an overall strategy. The description here of the "what" can be easily confused with a business-planning vision process. One contemporary business-planning writer states that vision is "The view of the future of the organization, which stresses what the visionary wants the organization to become. It is the integration and synthesis of information and dreams."¹

But, in the professional practice context, more is at work than merely the vision for a business enterprise because the individual and family goals of the professional often act to override otherwise valid business-planning goals. In some cases, the individual and family goals become primary, placing the business in a merely adjunctive position.

The known result referred to above is more than some of the typical quests. Typical quests include, for example, the younger professional’s dream of being in practice; the mid-term doctor’s goal of keeping the practice going, getting better facilities and equipment, and maybe having an associate or partner; or the end-stage doctor’s goal of finding out how to transition out of practice.

Instead of what, most doctors start with thinking how they want to go about doing something. For example the mid-term doctor’s efforts at keeping the practice going, upgrading a facility, implementing a powerful marketing program, or planning for an associate or partner all begin with a thing(s) to do. But this is not the course very successful practices follow. Instead of how, most very successful practices -- intuitively or deliberately -- have a what that guides all decisions. For example, consider the following what statement: "This practice will be the friendliest, most accommodating practice patients have ever encountered." That kind of what touches every aspect of the practice. Friendly and accommodating means the facility is well-located, hours of care fit the demographic area of the patient area, and staff and doctor are consistently outreaching and helpful. The practice communication and marketing themes and materials, including a Web site, have a tone that carries through the core what of the practice. People reading or learning about the practice who are seeking a friendly and accommodating dental office will have their first impression from marketing materials confirmed when they experience the real staff and doctor because the what has been a consistent guiding strategy.

In short, there is a big difference in approaching setting the direction of a practice and a career by thinking how vs. thinking and implementing a what action-based approach. Doctors guided by how mostly have only an operational paradigm, often reduced to thinking "How will I do more than last year." This generally means, how will I see more patients, do more production, and make more net income. It does not have to be a difficult step to break out of the rut of thinking how to thinking what. It takes a commitment to re-think the fundamental aspects that drive the practice and, after nailing them down, returning to setting how-to objectives that will favorably implement the driving force for the practice.

Observation. Too many doctors and groups cannot specifically state what they want in totality.

An unusual aspect of professionals in practice is that the business aspects and personal aspects blend at important points. The blending, in an overly simplistic view, occurs in three pivotal areas: the practice, the family, and the self. Conflict immediately arises when a doctor states an ambitious development or growth plan for the practice, implements the plan, achieves some success, and then grouses that there is not enough time to enjoy personal hobbies or family time.

In contrast, starting with a comprehensive view and asking the following type of probing question will prevent the tug of war between practice quests and personal goals and can give an entirely different result. "What should this stage of my life be like (starting career, mid-point, or exiting) for each of the three areas (practice, family, and self)?" This type of question recognizes the need for inherent balance between the three areas and that during certain stages one area may in fact be the driving force. Asking this question frequently can help keep the professional focused and, in the words of Ben Franklin, keep the mental "key" bright. Communicating this same approach to staff and family can often relieve significant pressure and doubts.

The point of arranging for personal and family areas to receive attention in the process of practice planning can be critical in the group practice context. Individual practitioners tend to be a world unto themselves and can affect their situation with singular effort. Many groups tend to be mere loose affiliations based on economic interest rather than integrated enterprises that recognize the fundamental requirement of meeting younger and established doctors needs, both professionally and personally, to consistently maintain success. Nowhere is this more important than in groups with new female doctors. The need to blend and not fight the personal needs of these doctors for family and personal time can make or break a group over time. As most dentists are aware, there have been significant changes in the ratio of men to women in dental school graduating classes during the last 10 years. These changes have manifested themselves in the composition of dental practices and must be taken into account in planning for any practice growth and development strategy and practice transition and succession-planning strategy.² In groups governed only by economic interests, there is often a lot of flailing about and tensions not directly attributable to the practice in significant part because the practice needs tend to overshadow the legitimate demands of the personal and family life of the practitioner. The more specificity of the known result for the practice and the better the effort at seeking to incorporate a complete overview of the life and career of the doctor(s), the better the long-term practice-planning result.

Observation. Part of any contemporary well-thought-out what includes planning for various growth, transition, or succession results.

Simply put, early planning in the areas of growth, transition, or succession allows for a successful result, particularly since these initiatives are part of both the business and the family sides of a professional’s life. With a view toward early planning for each category of transition or succession, there are items that can help younger and senior practitioners arrive at the desired result. They are provided below.

Associateship

Given the increasing population growth from domestic births and immigration, both younger professionals and practice owners have to rethink the approach of the last decade that it was more cost- and time-effective for most young professionals to join an existing practice rather than start a practice from scratch.³ With high student debt, many younger professionals still assume that their only option is associateship and then ultimately a buy-in or buy-out of an existing practice. In fact, with far greater availability of funds from finance companies and banks than in the past, there is a significant argument for younger professionals to negotiate harder for an immediate practice buy-in to the larger practice or specialty practice or purchase the entire practice coupled with a hire back of the senior doctor when economically appropriate. This approach can expedite getting the younger professional into an equity position to allow for faster school and practice debt repayment and it can facilitate a significantly less encumbered exit for senior practitioners. Although group and specialty practice partnership buy-in and buy-out arrangements are appropriate in many cases, the time and cost can be significant in contrast to straight purchase, sale, and re-hire transactions when appropriate arrangements are made for protecting both parties.

Owners seeking an associate are well-advised to have the following items prepared and ready to provide to the prospective party:

* A draft associate agreement prepared by a competent adviser;

* Background information on how a fair level of compensation was arrived at and a break-even analysis, both of which can be provided from a neutral and authoritative source, the American Dental Association publication, Associateships: A Guide for Owners and Prospective Associates.⁴

* For those prospects interested in moving from an associate to an owner, what the time frame is for the right associate to become a partner or purchaser of the practice.

Partnership and Related Options, Including Solo Group and Sale

Partnership and other forms of group practice can occur in many situations, including the following:

* When a practitioner is younger and has experienced significant practice growth to the point that the practice is more than can be handled comfortably by the solo doctor;

* When a practice of whatever kind wants to "control" or significantly affect a practice market area;

* When specialists see the wisdom of not allowing competition in a market area because of lack of coverage or capacity; and

* When end-stage practitioners are looking to transition out of practice and want a buy-out arrangement to cover a period of several years.

In all of the foregoing situations, issues occur relating to how best to maintain the momentum of the practice, capitalize on the return of the investment made, and optimize transition of the goodwill.

Owners in the above situations should keep the following in mind:

* An overall business-planning effort tied to an approach for the entry of new doctors;

* The compensation needs of all doctors and retirement timeline for founder doctor; and

* A contractually established valuation methodology that meets the contingencies for use in the following areas: buy-in, buy-out, permanent disability, death, voluntary exit, and true retirement.

The overall business plan is needed because a solo doctor practice, and even a solo owner with an associate practice, is not the equivalent of a group of equity owners where consensus as to practice direction and an established approach to buy-in and buy-out, compensation, and retirement issues are essential for the future security of all group members. The need to avoid the primary area of dispute within groups that are undergoing transition or succession planing, namely how to arrive at value, is materially facilitated with a well-recognized methodology. All doctors -- younger, mid-term, and those planning for retirement -- should read and be familiar with valuation methodology applied to dental practice as discussed in the American Dental Association publication Valuing a Practice, A Guide for Dentists, particularly Chapter 3: Valuation Methods and Chapter 4: Factors Complicating the Valuation Process.⁵

Solo practitioners who wish to maintain control of their practices up to the point they retire or leave practice and do not relish having a partner have several options. Some practitioners may desire an immediate sale. That well-understood route can often be achieved without great difficulty, with one caveat. If the practice is larger or uses unusual procedures or materials, it can be challenging to find a younger practitioner that can purchase the practice and immediately be effective producing patient care at or near the same level of the exiting doctor while handling significant burdens in overall practice management, particularly personnel management. Therefore, a hire-back of a well-defined nature in duration and scope of assistance should be provided, and any marketing or other services should be developed as part of the hire-back employment agreement. If the practice is smaller or the founder wants to have a "hobby" practice, exploring a solo-group format can be beneficial. A solo-group approach to sharing expenses and having a buyer in place for the sale of whatever is left of the practice on exit can generally be beneficial only if getting every last dollar from a practice sale is not a priority.

Summary

A doctor or group practice that understands the design of what the practice wants to be and develops a strategy to accomplish that end will invariably achieve a high level of performance. Performance areas in contemporary practice administration cover a wide area including growth, transition, and succession. Due to the wide and demanding areas in practice administration, it is important to address any practice planning effort in a comprehensive manner rather than a piecemeal approach. The foregoing will materially assist any practitioner to achieve the level of success they seek.

Author

Randall K. Berning, JD, LLM, is president of Berning & Affiliates, Inc., a national health care consulting firm serving dentists and dental specialists. He is an adjunct professor of dental jurisprudence and director of practice administration at the University of Illinois College of Dentistry and adjunct faculty at the University of California at San Francisco and the University of Maryland.

References

1. Burton EJ, Total Business Planning: A Step-By-Step Guide With Forms, 3rd ed. John Wiley & Sons, 1999.

2. American Dental Association, 1997 Survey of Dental Practice, Characteristics of Dentists in Private Practice and Their Patients. Chicago, 1997.

3. For one of the more recent discussions of the broad sweeping changes in the country’s demographics and aspects of finance, see People patterns: How to play the changing demographics in the coming years. Wall Street Journal Nov. 29, 1999, Personal Finance Section.

4. Berning RK and Domer LR, Associateships: A Guide for Owners and Prospective Associates. American Dental Association, Chicago, 1996, Chap 6.

5. Domer LR, Berning RK, Valuing a Practice: A Guide for Dentists. American Dental Association, Chicago, 1997.

To request a printed copy of the article, please contact/Randall K. Berning, JD, LLM, Berning & Affiliates, Inc., 3400 Tamiami Trail N., Suite 201, Naples, FL 34103.