The Importance of a Written Associate Contract – A Principal’s View

Don’t’ Get Caught Out!


Content of the blog:

·       The relationship between Principal and Associate
·       Dentists renting surgery space
·       Can Associates retain goodwill
·       Should this be part of the valuation of a Dental Practice?



The Relationship between Principal and Associate

There is no doubting that the Principal of a dental practice has a duty of care towards the patients.  This goes well beyond the commercial arrangement that a patient has with the practice (whether NHS or private) and reaches far into the professional obligations of all dental practitioners as defined in the Standards for the Dental Team.
A Principal is required to provide their Associate with patients to treat and with staff, equipment and apparatus for them to do their job.  The Associate receives a percentage of net fees generated after deduction of expenses. 


Dentists renting surgery space

It is not unheard of that a dentist may have a patient list of their own and need a “home” in which to treat them. Surgery space along with nursing capacity can be arranged with the Principal. It is advisable to have a written agreement in place, whether that be a Licence to Occupy or a Lease to provide certainty. The rental payments would cover use of the surgery, nursing and reception (if they are employed by the Principal) and access to the common parts.
Lab expenses can be met by the Dentist or by arrangement with the Principal.  Fees generated would otherwise belong to the Dentist.
There should be delineation in a written agreement between the parties to deal with the apportionment of fees and to ensure that the Dentist is not financially at a loss by introducing their own patients to the practice.


Can Dentists retain goodwill?

In practices that engage Associates who solely rely on the Principal for patients, the goodwill sits entirely with the Principal. Where a dentist introduces patients of their own, it is inequitable to suggest that the goodwill generated as a result should wholly be the Principal’s unless there is an agreement to that effect. The time the dentist has taken to build up a rapport and relationship with their patients and the nature of the dentist-patient connection is such a vital component to the continuing relationship of trust and confidence that a patient has in their dentist.

The commercial position should be that in the absence of the dentist agreeing to transfer all of the goodwill in their “practice” to the Principal, that an agreement is prepared evidencing that the goodwill generated from any patients introduced by the dentist remains with the dentist and that the Principal receives a share of fees generated to cover surgery space, staff, equipment etc.


Should the valuation include this?

When a Practice is sold, a valuation takes place before the practice is marketed. Usually, it is the Principal that owns the goodwill and where there is a written contract, that will be referred to. If a situation arises where there are patients that were introduced by another Dentist and the parties have agreed that the goodwill is retained by them, this should be valued separately as a payment will then be due from the Selling Principal to their Dentist on completion. Alternatively, the figure can be excluded from the sale price, particularly, when the Dentist has agreed terms with the Buyer to remain at the practice.


Thank you for reading, I hope you enjoyed it. 

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Thanks once again, 

Jonathan

Principal vs. Associate-Led Dental Practices: A Financial Analysis

20 September 2024
Understanding the Leadership Structure The leadership structure of a dental practice can significantly impact its financial performance. There are two primary models: Principal-led and Associate-led. Principal-led: In this model, the principal dentist owns and operates the practice, assuming full financial and management responsibility. Associate-led: Here, the dentist is a self-employed contractor to the practice, the principal dentist having the responsibility to provide patients and where necessary, to offer assistance and advice. Financial Implications Income Distribution: Principal-led: The principal dentist retains all profits after expenses, potentially leading to higher income but also greater financial risk. Associate-led : Associates receive a percentage of the fees that they generate as income, providing more financial stability but limiting earning potential. Overhead Costs: Principal-led: The principal dentist is responsible for all overhead costs, which can be substantial. Associate-led: The Associate is responsible for a share of the lab expenses that they generate Debt and Risk: Principal-led: The principal dentist is personally liable for any debts or financial obligations incurred by the practice. Associate-led: The associate is not responsible for the practice’s debts and liabilities. Succession Planning: Principal-led: Succession planning can be more complex, as the principal dentist must find a suitable successor or sell the practice. Associate-led: Succession planning can be easier, as associates may have an option to purchase the practice or continue working under new ownership. Financial Considerations When evaluating the financial implications of a Principal vs. Associate-led practice, consider the following factors: Personal financial goals: Are you seeking higher income potential or a more stable income stream? Risk tolerance: How comfortable are you with assuming personal financial risk? Long-term goals: What are your plans for the future of your dental career? Local market trends: Are there any trends that favour one model over the other in your opinion and experience? Conclusion The choice between a Principal-led or Associate-led dental practice sale and purchase depends on your individual circumstances and financial goals. By carefully considering the financial implications of each model, you can make an informed decision that aligns with your professional aspirations and long-term success. Feel free to contact us for more help and advice.

Purchase Completed in York

19 August 2024
Congratulations to Joanne Nurse on the acquisition of a share in Adventurers Day Nursery in York. Joanne now becomes co-owner of the nursery with Helen Nurse. Many thanks to everyone involved in the transaction, especially Amardeep Nangla for his work done on the property side and all those at Barclays Bank who helped facilitate this transaction. All at Jacobs Legal wish Helen and Joanne all the best for the future and much success in the years to come.
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