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How to Identify a Great Dental Associateship Employment Contract From a Financial Perspective

Every year 1000’s of dental students graduate and find themselves with a multitude of options.  Do I go into corporate dentistry, or accept that associateship contract?  Usually each of these soon to be dentists are deciding between two or more dental offices.  How do you know which contract to accept and which one to reject?

The Answer is in the Details

The main components of a dental contract that I key in on are:

1.) Compensation clause 

2.) Non-compete clause

3.) Buy-in provisions

These are the meat and potatoes of the Employment Contract.

Compensation Clause

We usually see for a W-2 Associate Dentist compensation is some sort of modified gross income percentage.  Usually 28%-32% of collections.  Lab bills are usually covered up to at least 50%, more commonly 33%.  If you are an independent contractor then the payout will be closer to 35%.

Non-compete Clause

This is one of the most important areas of the actual contract.  What is usually typical is a 5-15 mile radius of non-compete and a maximum of 2 years.  (more commonly 1 year).  This can differ greatly depending on what part of the country you are practicing in.  For instance, if you are practicing in New York City, your non-compete could just be a few blocks.  If you are practicing in the middle of no where (more rural) it can be closer to 15-20 mile range. 

The big take away from this, is think about your career and your plan “b”.  Open up the google maps and see if your plan “b” works given your non-compete, just in case your associateship turns sour.

Buy-In Provisions

If you are a newly minted dentist, I would keep your first iteration of your contract directly as an associate.  It will give you an opportunity to see if you like the dental practice, and how it is ran.  Attorneys do have other creative strategies to give you more power with providing you the option to buy in or not.  The opposite is true for the employer side, so be cautious.

It is always important to mention, that hiring an experienced attorney to review any type of employment contract is a sound business practice.  Most of the dental contracts that come across my desk are poorly written and are sent to an attorney that specializes in these contracts.  It is worth every penny to spend the $700-$1000 on this legal advice.

The most important part!

The practice you will be joining needs to be able to support your income needs.  You need more information than that of reassurance from the hiring dentist.  What I always recommend is asking the employing dentist to run an office report.  Search for the medical codes 150 and 180 for the past 12 months.  Divide that number by 12, and that is your new patient per month average.  If this number is not above 45 per month, you might run into volume issues in a two dentist office, which means not making even $100,000 your first year.  Other considerations, are an accurate account of active patients, and total gross revenue from the practice.  Since most compensation structures are a percentage of collections, we like to see account receivables above 96%.

We often see individuals who accept the first position out of school without doing their due diligence.  These individuals are lucky to make $75,000 their first year of employment.  Which if you ask me, is not acceptable and easy to avoid if you do a little homework on the financial side of the practice.

As always, if you want White Coat Wealth Management to take a look at your employment contract and access the financial probability of success with your new employer, you can schedule a free consultation here.

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