Los Angeles Associate Buy-In Attorney
Right now is a good time to be a dental professional who owns their own practice. No matter if you are an owner looking to expand or sell, or you are already a dental associate seeking to grow your claim in an existing practice, the fact is, a minority interest transaction, also referred to as an associate buy-in, can be to the benefit of both the seller and the buyer.
From a dentist or owner’s perspective, an associate buy-in could be a great way to transition an existing dental practice. Instead of just hiring another employee, a dental associate will become part owner of the practice. The main advantage to this is that the junior or associate dentist becomes heavily invested, figuratively and literally, in the practice. There is a greater likelihood that they will remain with the practice and be willing to work harder to ensure its success and growth. Since they have more to lose, the associate will take a longer view of the practice’s development. Additionally, when the senior dentist is ready to retire, they will already have someone available to take over the practice who is familiar with the ins and outs of the practice and knows the community, patients, and staff. All of this aids in making the practice transition as simple and smooth as possible. Employing an associate and letting them go through the buy-in process allows you to essentially cherry-pick your replacement.
Furthermore, when a junior and senior dentist form a partnership agreement, the latter is assured of the practice’s longevity should they become disabled or die. Generally speaking, partnership agreements require that the surviving party buys out the other, ensuring the practice prevails. In the absence of this arrangement, it is conceivable that the practice the senior dentist has spent years endeavoring to build up and make successful will have to shut its doors without any of the practice’s assets or value being passed on to the dentist’s surviving family members.
For an associate, a buy-in could be a fantastic opportunity. It allows them to reap the benefits of owning a practice rather than just being an employee who clocks in, clocks out, and collects a check. Instead, they learn how to manage, operate, and grow a dental practice under the tutorship of an experienced business owner and dental professional. It also gives them the opportunity to learn business acumen and other skills that are not taught in any school. Basically, the associate is able to learn how to run a successful dental practice without any of the risks that come with ownership. It also helps ensure that they are taking steps to secure their own future.
The Los Angeles associate buy-in attorneys at Leiva Law Firm have decades of experience in handling business law issues for clients throughout Southern California. Our legal team can assist you with associate buy-ins to make sure you know and understand what your rights and responsibilities will be as you move forward. Our team can also help you understand the options available to you and walk you through the buy-in process. The skilled attorneys at Leiva Law Firm are here to help. Contact our law offices today and schedule your free case review so we can get to work on your associate buy-ins right away.
Associate Buy-In Timeline
Selling a practice to an associate usually takes between three and four years. On paper, this is the fastest route since usually, there are a lot of candidates. Unfortunately, with only a 20% success rate, finding the ideal match for your practice can be challenging.
Dentists in group practices tend to be hesitant to offer immediate equity positions to new candidates. Picking the wrong partner can have devastating repercussions for the group’s future. Due to this, most dentists would rather hire an associate and really get to know them before offering them an equity opportunity.
In terms of concluding an associate buy-in, every transaction follows a general timeline from beginning to end. Having a strong understanding of how the process works can help you foresee potential problems, help you avoid them, and confidently move forward with your transactions.
The Honeymoon Phase
The honeymoon phase gives the associates time to get to know each other. This window may also be used to decide if the relationship could be permanent. It is essential that dentists use the honeymoon phase to look at the practice’s principles and compatibilities. At the start of the phase, each associate should be given an associate employment agreement to sign. It is important to set goals early on and devise a compensation formula that everyone agrees on. This is also the time for the dentist to have their practice appraised and establish the financial framework for future associate buy-ins as well as devise exit strategies that enable both parties to bow out gracefully while having virtually no impact on the practice’s financial stability. Drafting restrictive covenants is also a necessity during this time.
The Commitment Phase
Once a few months have passed, the honeymoon phase will be over, and the parties will enter the commitment phase, which can last anywhere from six to 18 months. By this time, the owner of the practice and the associate should be able to commit to one another. During the commitment phase, the owner will draft a letter of intent that outlines the terms of their associate buy-in. The letter will be signed and accompanied by a practice-management agreement. Any modifications or rewording to the agreement will also be submitted at this time. The commitment phase is typically when the associate agrees to accept the role as a future partner. If the owner plans to retire, a plan to transfer patient referrals and records must be developed.
The Buy-In Phase
If everything has been handled properly up until now, then the buy-in phase will be the simplest. Committing to the actions following the honeymoon phase and maintaining a written log of all the actions that were taken will help ensure that both parties are capable of honestly evaluating how the relationship will work out.
Hiring an experienced Los Angeles business attorney will ensure that your associate buy-in goes as seamlessly as possible. The associate buy-in lawyers at Leiva Law Firm have spent decades developing client relationships, helping clients understand the law, and designing associate buy-ins that work for them. Contact our Los Angeles area law firm today to find out what we can do for you.
What to Address in a Buy-In Agreement
When preparing an associate buy-in, you need to address multiple issues that could arise somewhere down the road. In order to avoid dissension in your practice, it is necessary to summarize the procedures you will use when dealing with specific issues. By drafting an associate buy-in agreement that represents the ideologies and ethics of your practice, both parties will be on the same page and the practice will be set for success.
The Purchase Price
First things first: both parties need to agree on a price for the dental practice. Having the practice professionally appraised is crucial in determining its fair market value and avoiding any dissatisfaction as the buy-in progresses. When calculating the overall value of a practice, you should take into account its location, the ease with which goodwill can be transferred to a future buyer, how long the practice has been around, its revenue growth, and the caliber of its employees.
The Purchase Agreement
Addressing any liabilities that could arise from other dental professionals in the practice is another critical step. Keep in mind that these can include liabilities that took place before the buy-in was finalized. You need to consider whether or not you want to draft an agreement that stipulates whether the junior dentist will be required to guarantee existing leases and loans.
The Structure of the Buy-In
Including details covering exactly how the buy-in will be financed is vital. In most cases, an incoming partner will pay anywhere from 10% to 20% of their fees upfront, and the remaining balance will be paid off over time, although this portion of the agreement can ultimately be structured based on whatever the parties have agreed to.
The Establishment of the Partnership Agreement
A partnership agreement should address precisely how the dental practice will be managed. It should also specify who will be in charge of the daily operations and duties and how input from each party will be weighed on major decisions that affect the practice. The agreements will cover several other topics, such as how each party is liable for the business and to what extent.
The operating agreement should outline in great detail how each party will be compensated. For example, earnings could be based on a predetermined percentage of each dentist’s weekly output. This will ensure there are no misconceptions about compensation.
It is important to outline how any profits will be split. Once the practice’s expenses are covered, how will the remaining profits be divided? Will it be based on the percentage of equity invested by each party? Or will they be saved for improvements?
The Plan for Dissolution
Nobody ever wants to consider their carefully cultivated partnership coming to an end. However, during the associate buy-in process, it is necessary to plan for dissolution. By resolving these crucial details before they are prevalent, and while both parties are thinking clearly, you will be in a better position to navigate the dissolution process should these unfortunate circumstances arise and need to be dealt with.
The Plan for Retirement
The final important factor that must be decided is whether the senior dentist will have the option to retire first. By what terms is the buy-out process guided? Is there a mandatory buy-out for the party who stays? Can the senior partner bar the junior partner from retiring first?
Clearly, there is an abundance of problems and questions that need to be addressed when you are planning an associate buy-in. Working with an experienced business law firm in California will help you confront any issues that could possibly arise during the operation of your dental practice.
Leiva Law Firm Can Help You
There is no question that a dental associate buy-in and subsequent partnership are serious commitments undertaken by both parties. These actions require a strong legal agreement, honest communication, and mutual respect. The most contentiously negotiated element of an associate buy-in isn’t the purchase agreement, but, rather, the partnership agreement. Each party has to be very clear about their wants and expectations, and those expectations have to be in agreement for the partnership to work. These agreements are extremely technical and detailed. Whether you are the senior dentist or the junior, you need an experienced lawyer to provide reliable counsel along the way.
Taking these steps is especially important when you decide to undertake an associate buy-in in California. While the process might seem simple enough to manage on your own, it is important that you take all necessary steps to ensure that your best interests and legal rights are protected.
By working with a knowledgeable Los Angeles area business attorney, you can avoid many obstacles that those without legal representation will have to struggle through.
The Los Angeles associate buy-in attorneys at Leiva Law Firm have decades of experience in assisting business owners all across Southern California to understand associate buy-in agreements and successfully complete the buy-in process. Our law firm works hard to ensure that our clients are aware of the legal options that are open to them. This allows them to make an educated decision about the specific criteria they need to include in their agreements to make sure their business needs are met.
If you are considering opening a business with one or more shareholders, contact an associate buy-in attorney at Leiva Law Firm today. Reach out to our legal team at (818) 703-1777 and schedule a free, confidential consultation so we can discuss your options moving forward.