Dental practice owners take a huge leap of faith when they first bring in an additional owner. Often, this is the first step in a succession plan to monetize their life’s work. Other times, it’s done to merge with other like-minded dentists and their organizations in order to realize some economies or diversify their risk. Growth capital and leadership resources are often desired as part of a larger growth initiative and private equity capital or other similar funds take an ownership stake as a result. 

Regardless of the reasons for bringing in additional owners, or what the new owners bring to the table, it’s crucial to establish the proper structure and expectations. Here are some important things to keep in mind: 

Ownership Helps Attract Top Talent

Competitive advantages are vital in attracting top talent to your dental organization and driving excellent, consistent patient care. However, it’s becoming harder and harder to gain competitive advantages in recruiting due to the breadth of ideas and resources that the larger DSOs have. One of the key offerings that tend to attract key providers and leadership is ownership in the organization. 

Mature, productive providers that don’t want to buy their own practice tend to seek out organizations that have ownership opportunities. 

Even though some doctors may not be as concerned with ownership in the early years of their careers when they’re more focused on developing their clinical skills, paying off student loans, and getting their personal lives started, as they ascend in net worth and clinical confidence, they start looking to benefit from the profitability they are bringing to the organization and build wealth. And, offering ownership opportunity makes sense for the organization so it can retain the provider in their more mature and productive years. This retentions gives the organization a return on its investment in the provider’s development.

When considering bringing in a partner and exploring ownership options, here are 2 important steps to take: 

Step #1: Evaluate the Structure of the Organization

First, look at the organization’s current structure and identify what elements would need to change to accommodate the future state. 

Other key questions to assess feasibility include:

• Does it make sense to create a DSO to accommodate non-dental licensed owners?
• What additional legal documents are needed (e.g. operating agreement, buy/sell agreement)?
• What are the additional one-time and ongoing professional fees needed to accommodate expanded ownership?
• How will you value the investment they will be receiving? 
• Are they able to earn through sweat equity or will it be a funded cash investment?

Step #2: Evaluate the Potential Partner

Ownership and the inherent risk involved may not be for everyone. If there is a divergence in the long-term vision and objectives of the owners and/or a downturn in business performance, the stress on ownership can have some seriously negative implications on everything from the patient experience to the value of the organization. 

Therefore, the more important step is to analyze the potential owners by asking yourself the following:

• Is this person a good culture fit?
• What is their business acumen? 
• Does this person meet the definition of a qualified investor?
• If I offer this to one provider or executive, do I have to offer it to all or risk losing other contributors?
• Are there other comparable ways to incentivize or reward great employees, such as phantom stock?

One of the biggest decisions a dental owner can make is who to invite to participate in an equity position in their company.

Ownership is generally a result of large financial investment, often utilizing debt, which can be stressful. These stresses surface most when owners feel their influence is inconsistent with their investment. Therefore, it’s important to thoughtfully consider all the facets of new ownership, and talk to your trusted advisors. 

Here at Spark, we’re always happy to help talk through your options for inviting new owners. When well planned and executed, expanded ownership can provide increased motivation, retention, and improved performance.

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