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The Top 10 Failures of Multi-Practice Ownership

May 31, 2022  By: The New Dentist
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The drive to grow a business without performing some due diligence first can be a major failing, especially in the dental world. During a presentation at Seattle Study Club’s 2021 Symposium, attorney David Cohen explained why multi-practice ownership can either be a dentist’s greatest dream realized or the undoing of their career.

While Cohen, a Dallas, TX-based lawyer specializing in the dental industry, has helped countless dentists grow their businesses into successful multi-practice operations, he’s seen others suffer a crushing defeat. That’s why Cohen came up with a list of the 10 failures he sees most often, as a warning to ambitious dentists who are eager to grow a solo practice into a multi-office business.

Failure #10: Failure to build a dental-specific team 

“It’s truly critical when you endeavor to create multi-practice ownership that you have a dental-specific team” from lawyers to marketers, says Cohen. Cohen explains that staffers who know the dental business well always make the process of expanding a business easier on the owner. Better yet, they won’t get caught up in the minutiae that might confuse workers who are less familiar with the ins and outs of the dental industry.

Failure #9: Failure to consider a multi-business entity approach

Though you may want your multi-practice operation to work cohesively, failing to legally define your businesses as separate entities could mean you’ve got a house of cards on your hands.

“If a plaintiff files a claim against one practice, but all practices are looped in within the same business entity, then all practices are exposed,” says Cohen. In addition to this being a liability issue, Cohen explains that this also means that you can enable individuals within your organization to become partners of specific practices under your umbrella without making them partners of all of your locations at once.

Failure #8: Failure to value quality over quantity

It may be tempting to grow your empire quickly, but if you’re prioritizing the wrong things, you may be setting yourself up for failure.

“Value quality over quantity. Make sure that the practices that you’re owning are quality, because it only takes one bad practice to halt your operation, and that’s not what you want,” says Cohen.

Failure #7: Failure to obtain a non-compete assignability

“The last thing you want is to go into this new practice and find out that the dentist who sold you the practice can open up right next door to you,” says Cohen. He explains that without a non-compete assignability, you can get “blindsided by a current associate or a former seller or owner of the practice surprising you and competing with you.”

Failure #6: Failure to provide equity to associates

Want to build long-term relationships with a great team? Give them more than just a salary and benefits.

“Most associates nowadays want ownership. They’re very entrepreneurial. They have a business sense. They want ownership in a practice. To incentivize them to want to work with you, usually you have to dangle the carrot and say, ‘You’ll be able to buy in,’” Cohen explains.

Failure #5: Failure to secure proper leases and building ownership

“It’s really critical to have your team involved and to review the legal documents in connection with the lease or building purchase because that is a major component of your due diligence,” says Cohen. “You could have done everything right, but if you get into a bad lease that also can hamper your ability to continue to grow and to prosper.”

Failure #4: Failure to have an investment or management structure

“One of the biggest advantages to owning multiple practices, particularly when you have associates buy into the practices, is to create your own management structure where you set up a separate company that provides bona fide management and administrative services to the practices in exchange for a fee,” says Cohen. 

Failure #3: Failure to negotiate fairly and reasonably

“Negotiation is not about winning or losing. Negotiation is not a game. Negotiation is about getting what you want without the other side being left below the status quo,” says Cohen.

When expanding your existing practice, Cohen has one important piece of advice: “Don’t lose deals negotiating over things that are not critically important.”

Failure #2: Failure to position the property for sale

If you’re looking to sell your practice, you’ve got to make every part of it seem worthy of the high dollar figure you’ve assigned to it.

“The last thing you want is to have a really valuable asset that is not appealing to someone else,” says Cohen. “If they’re going to spend a lot of money, they’re going to want all outstanding issues resolved by the time of the transfer of the asset.”

Failure #1: Failure to expand with a purpose

Perhaps the biggest mistake Cohen says he sees people make when expanding into multi-practice ownership is going into the process without a clear “why” in mind. Before you start making moves to expand, Cohen suggests asking yourself ‘why do I want to expand and what goals will I be achieving through the expansion.’ 

“There are many doctors out there who buy practices just because they want to own multiple practices without having really identified their purpose in doing that,” says Cohen.  “When you don’t have a purpose and are just buying to buy, you’re more susceptible to violating many of the items on this list.”

Cohen Law Firm, PLLC

Cohen Law Firm, PLLC is a multi-focused law firm serving individuals and businesses with a unique focus on work with dentists and dental specialists including General Dentists, Orthodontists, Periodontists, Endodontists, Pediatric Dentists, Prosthodontists, and Oral Surgeons.

David Cohen, Managing Partner

David Cohen has extensive experience in representing individuals, mid-size corporations and small-size corporations in partnership and limited liability company law. He regularly counsels clients ranging from start-up ventures to large companies to nonprofit/charitable tax exempt organizations and professional corporations.

Cohen also has expertise in contract negotiation, review and construction. He also takes a proactive approach for clients by regularly constructing Non-Disclosure Agreements, Confidentiality Agreements and Non-Compete Agreements.

Cohen’s experience extends to the labor and employment realm, where he consistently advises employers about their relationships with their employees and independent contractors, as well as creates legally binding agreements documenting the details of those relationships.

Dental Slang Podcast

You never know who you’re going to meet in life, or where these people might lead you. In this podcast, Dr. Seay takes us down all the twists and turns of her career and shares her thoughts on not being afraid to try something new.

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