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2009 Student Event: Associateship and Partnership

Dr. Paul N. Tolmie answers questions about his experiences joining a group perio practice as an associate and eventually becoming a partner.

Photo of Dr. Tolmie Dr. Tolmie is in practice in Charlotte, North Carolina. He completed his periodontal residency at Boston University in 1987.

What was your plan after graduation? What appealed to you about starting as an associate?

I completed my residency in Periodontology from Boston University School of Dental Medicine in 1987. I started looking for practice opportunities halfway through my first year. Personally, I thrived on the interaction and camaraderie that the residency program provided. I knew early on that I did not want to spend my career in solo practice and began immediately looking for group practices with at least two active partners. Geographically, my only parameter was that my wife and I wanted to live on the east coast. I also wanted an associateship that would lead to partnership.

What resources did you find the most helpful?

The best resources for locating associate opportunities were the faculty and the department chair of my residency program. Although the AAP did offer resources for practice opportunities, I was certain that a contact obtained through a personal relationship would offer the best fit both for me and the practice searching for an associate.

What were you looking for in a practice?/ Was the location of the practice important to you?

At that time, I was given leads on practices in Boston; Washington D.C.; Jacksonville, Florida; and Charlotte, North Carolina. Each of these practices had two or more partners, was very highly respected professionally, had direct contacts and relationships with my residency program, and was searching for not just an associate but a future partner. After an initial exchange of phone calls and letters, my wife and I made a personal visit to each city and practice.

During my practice visits I spent time in the office observing the doctors and practice operations. I spent time with the staff, trying to learn as much as possible about how long they had been with the practice and their relationship with each other, the doctors, their patients and referring practices. Time spent with the doctors away from the practice was focused on their commitment to the art and science of periodontics, to their practice and referring doctors, to their community and professional involvement, and to their fellow partners. To me, these are the key elements of a successful group practice. The personal relationships and professional commitment were the core elements that I was looking for.

The practice in Charlotte offered the best blend of these core elements. The group was very compatible and had shared values of patients, staff, practice and profession first. I was told that personal gain was a by-product of maintaining these core values. Naturally, I looked at all of the financial numbers, the referral patterns, etc; but, it was these core values that mattered most. Unfortunately, these values cannot be measured or reported on a spread sheet or practice report. It is simply a matter of what feels like the right fit. Difficult, if not impossible, to put in words but you know when it is the right thing to do.

I joined the practice as an associate with a 12-month contract. I was paid a salary that was calculated on a minimum base collection of fee income. Above that minimum I was paid a bonus of 35%. Along with the associate contract, I had a letter of intent stating that the goal of the associateship was for me to transition to a full and equal partner after 12 months. This was not a contract for partnership, but a written letter of intent of both parties. We also agreed on a purchase price of the partnership early in the process, so I knew what to expect. I was allowed to review all of the financial numbers and utilize the expertise of my own accountant, lawyer and other professionals (at my expense). I would encourage the use of other professionals and would be wary of any practice that does not allow an opportunity for an outside source to review financial statements, contracts, etc.

How did you obtain new patients?

There was no ownership of referral sources. The practice assigned new patients to each doctor based on appointment availability and patient convenience. If patients or referring doctors stated a preference for an individual partner, that was honored. However, the practice encouraged all referring doctors to refer to the “practice” and not the “individual”. By doing so, we promote the practice as a whole. This has worked extremely well for the practice for over 35 years.

Did you and your associates work with an attorney or transition consultant to develop an employment contract? If so, what advice do you have for a new associate?

The expectations of me by the practice were simple. First, I was to spend that first twelve months as an associate developing my skills and learning how to be the best clinician possible. Second, I was to get out and meet as many existing and prospective referrals as possible. Maintaining existing relationships and developing new ones were critical to my success as an associate and future partner.

Please explain your financial compensation agreement, using real or fictitious figures.

After twelve months, I became a full and equal partner in the practice. The buy-in was substantial and I paid the amount in full with outside bank financing. It was arranged this way for two primary reasons. First, the existing partners could treat the buy-in as capitol gains as opposed to ordinary income; this gave them a significant tax advantage. This allowed the buy-in amount to be lower than other practices that are financed by the doctors/practice internally. Additionally, I could deduct the interest on the financing loan against my own future capitol gains (this was significant when I was later on the receiving side of a buy-in). Second, by having outside financing, it eliminated the personal feelings and potential ill-will of owing my partners money until my buy-in was paid off.

There is no buy-out of a retiring partner. The retiring partner does get an equal share of a new associate/partner buying in to the practice if it is within two years of retirement. Otherwise, the retiring partner’s exit compensation is minimal (accounts receivable, etc.). The philosophy is that, as a partner and practicing periodontist, one should provide for their own retirement and not rely on or burden the remaining partners to fund a retirement.

The concept of buy-in with outside financing and no buy-out are relatively uncommon in practice transitions. However, we have found, for the reasons above, that this is the most equitable and cleanest method.

What is your situation now?

Since becoming a partner 21 years ago, our practice has grown significantly. Two existing partners have retired and have been replaced with new associates/partners. We opened a satellite office eighteen years ago which is now an independent practice with two full time partners. The practices share practice philosophies and there is a significant overlap in referral sources. By maintaining an “all-for-one” philosophy, there is no competition between the offices.

At one practice we lease our office space. At the other, we own the space. There are pros and cons of each arrangement. However, if started early in the process, owning real estate in a growing city can have significant financial rewards.

What is the most important thing you have learned?

The most important thing that I have learned as a partner in a group practice is that success and enjoying your job is all about relationships. You absolutely have to like and be compatible with the people that you practice with every day. Although this is difficult to measure early in the process of seeking a practice, it is possible to put all of the financial statements, referrals reports, etc. aside and look at the people. As a wise investor once said about financial investing, “it’s not important what the deal is, what’s important is who’s in the deal.”

What do you like most about being a periodontist?

There are so many things that I like about being a periodontist. It is a challenging profession that is dynamic and changing. Our academy and academicians/researchers worldwide have done an awesome job leading our profession and opening up new avenues for serving our patients’ needs. Additionally, there are countless opportunities to serve the profession. I continue to be involved in teaching at the university level as well as through study clubs and local societies. In the group practice environment, being part of a winning team and sharing common goals is a personal thrill that keeps the business vibrant. Finally, the opportunity to help our patients and serve our referring practices, along with the personal relationships that develop with each, are incredibly rewarding.