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CAD/CAM - international magazine of digital dentistry

the practice in some years hence. The employed dentist continues to work as an associate, and the transaction is settled after the agreed time. This technique assures Dr Senior both a buyer and extra income from Dr Junior during the years as an employee. Through the incremental percentage technique, after a similar trial period, the practice contracts are exchanged and incrementally each year a further percentage of the practice changes hands from Dr Senior to Dr Junior. In each case, after the practice is sold, the ex- owner commonly takes the money he made from the sale, goes on a holiday and then invests what- ever is left in real estate or the stock market to fund hisretirement.ForapracticehereinAustraliagross- ing say AUS$800,000 per year, if sold on the open market could bring up to AUS$500,000. If that entire sum were used to purchase a residential in- vestment property, one would be lucky to net more than AUS$30,000 per year, and probably less, to fund retirement. Another way to exit plan and fund a dentist’s retirement is to establish the passive income prac- tice, also known as the “never sell concept”. Using this method, the practice is set up in such a way as to be self-managed, with little effort (1 day/month) neededfromtheownerwhenthepracticeismature. The profit from the practice can be as high as 30 % afterpaymentofallnormalexpensesandclinicians’ wages. If maintained as a going concern and run prop- erly, there is no reason to expect a return from the AUS$800,000 grossing practice of less than AUS$200,000p.a.(andstillmaintainanassetworth at least AUS$500,000). Obviously, for this option to work, the practice and the staff need to be trained to be self-managed and to provide a certain level of service and com- munication. Basically, they would need to have a deep knowledge and understanding of the systems needed to run a practice. Some degree (the more, the better) of manage- ment, leadership and business skills is also required by the owner, including the ability to look at and analyse the right numbers or to motivate key staff members to manage the practice and outperform through the judicious use of incentives, including well-designed bonus systems. As the owner dentist is no longer present full-time in the passive income practice, there also needs to be regular training in communication and the provision of service, i.e. clinical training. There definitely needs to be more than one clini- cian. Rarely is there sufficient profit over and above theemployeedentist’swage(40%afterlab)towar- rant running the practice as a business with such a small staff. There are plenty of horror stories out there, especially after the global financial crisis, of retired dentists needing to return to practice because the practice sale did not fund their retirement the way theyexpecteditto.Theneversellconceptrepresents a new way of looking at the asset that is your prac- ticeandhowitcanbringyoureturnslongafteryour clinical career comes to an end._ I 27 practice management _ passive income I CAD/CAM 3_2011 Former dentist Dr Phillip Palmer is currently Director of Prime Practice and Dentist Job Search and regarded as Australia’s leading expert in the business of dentistry. He can be contacted at info@primepractice.com.au. CAD/CAM_about the author