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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