This is the first in a two part series dedicated to helping senior docs and future associates avoid getting dragged down into ASSOCIATE HELL.
You know that place where no one wins and everyone loses…
- The place where people leave in the middle of the night with a bunch of photocopied files and setup down the street!
- The place where people are fired unceremoniously for no obvious reason and left wondering what they did wrong!
- The place where people leave with hurt feelings and years later when they see each other at a seminar they awkwardly avoid eye contact!
Yeah …… that f#$#[email protected]# up place!
I have wrote in previous blogs about the $1,000,000 associate lesson I learned the hard way years ago. If you want to avoid “associate hell” and have not had a chance to read it yet, I would encourage you to click here and read it at your earliest opportunity.
What I want to accomplish in this blog entry is to review the biggest issue that comes up with being an associate/hiring an associate.
After 20 years of coaching I’ve seen everything that can go wrong in these agreements, but I’ll reserve the other issues for Part 2 of this series.
By writing this blog it is my intention that other teams and/or families will not have to suffer the mental, emotional and financial pain that many of my past clients have had to endure.
So here is the number one issue you need to be FULLY conscious of to avoid ending up in associate hell.
As I have written previously, this is the number one reason why most associate relationships fail.
Many associates get “pie in the sky” ideas about their worth as a chiropractor and are asking for ridiculous amounts of compensation in the form of either a salary or % of billings model.
I am a much bigger fan of a % of billings model for most associate relationships where the hiring doc is planning on having an associate or eventual partner for a long time.
The reason behind this is it more closely resembles the “real world” and teaches the associate about self responsibility, accountability and entrepreneurship. This better prepares them for practice beyond the associate role and helps them appreciate the “leg up” they are getting by working with, and learning from, the senior doc.
The gold standard for % is that the associate should NEVER take home a higher % of their billings than the senior doc.
The industry average for overhead in chiropractic in North America is currently 50 to 55%. Therefore the highest % the associate should ever take home is 45 or 50% in an average chiropractic office, the same as the senior doc. However the actual overhead of the practice needs to be clearly elucidated, as the % may be higher or lower than the national average.
To determine the actual overhead you should take the past two years unaudited financial statements and review them with the book keeper or accountant and find out where the “ethical deductions” have been taken and subtract them from the final gross expenses category.
In other words… where are the “grey” areas in the expenses where it is not a true expense to run the business.
Things like personal cell phone bills, office supplies that go home, dinners out with family that get billed to the office, extra days of holiday tied to a seminar that get billed to the company, and repairs and maintenance that get billed to the company but actually happen at home are some of the more common ones we see.
Using real life numbers as an example, let’s say the revenue of the practice was $200,000 on expenses of $100,000 for a 50% overhead practice.
Once the ethical deductions are removed we end up with actual expenses of $90,000 taking the overhead from 50% to 45%. This means that the maximum % the associate could take home has now risen from 50% to 55%.
This may not seem like much but if you review this over a 3 to 5 year associate contract, it can mean tens or even hundreds of thousands of dollars!
So now that we know what the maximum % is, let’s look at how to figure out what the starting % should be.
There is always a cost to have an associate in a practice. There are extra costs relative to marketing, stationery, advertising, signage, print cartridges, toner, hydro, heat, maintenance and likely team costs for extra book keeping and assistants to cover the front desk or manage the technical side of the practice.
Getting accurate estimates of these costs and totalling them up is the next step in the process. You now know how much it is going to cost you to have an associate on the team.
My last associate cost me $2700/month, which seems high enough, but I consulted with a senior doc this year that had guaranteed his associate a small salary every month so his costs were $4300/month.
The economics of business is to produce a profit. As a smart business owner, the senior docs wants to get their base costs back as soon as practical.
Therefore the starting % is going to be highly in favour of the senior doc so that they are not left losing money every month in their own practice.
There are many other costs to having an associate in the practice, like training time for the associate and the rest of the team, marketing meetings, planning meetings, and the emotional cost of now sharing your space with someone.
If you combine these costs with losing money every month you have a price that most senior docs are not willing to pay.
Going into the relationship with everyone’s eyes open is one of the keys to avoiding this aspect of associate hell.
I highly recommend that the associate doc put together a two-year business plan that is fully backed up with a marketing plan. This plan will review how many new clients they are planning to attract each week and what marketing they are going to do to earn that right.
Then based on their clinical model of care they will estimate the average number of services they will provide to each of those new clients and how long they will provide it for.
We can then plug that data into our proprietary Full Circle Associate Doc Decision Maker spreadsheet and see how the money is going to flow based on the revenue generated and the costs to create that revenue.
In the last associate contract I worked through with a senior doc, the first $6,000 in billings was split 70/30 towards the senior doc so he could start to get his monthly costs covered.
Don’t forget in that scenario the associate was taking home 30% of the first $6,000 so they were making bank while the senior doc was almost covering their costs.
The next $9,000 was split 60/40 towards the senior doc so that the costs of the training they were doing every week with the associate were getting covered.
The next $10,000 was split 50/50 as the senior doc was now actually starting to see some ROI (return on investment) for the time and money he had invested in the associate.
This extra income would not drop the senior docs overhead so the next $10,000 was scheduled to be split 60/40 to the associate.
Based upon the associates business plan and the knowledge we gained from the Associate Doc Decision Maker tool we were able to see how much each doc was going to make each month …… at least in theory.
I then set up a rhythm where by the 10th day of each new month they would review the ACTUAL stats/results and either celebrate the level of manifestation, or ask why they weren’t manifesting at the level intended and what to do about it.
Last I heard, this associate arrangement was working out marvelously!
I contend the biggest reason why is because they did the due diligence and invested in some consulting help to ensure it was set up fairly and properly.
I hope and pray that this blog will help other docs set up proper associate arrangements so that there will be less heartache and chaos in our profession and we can all get busy at what we should be focusing on… which is looking after the health and well being of our communities!
Stay tuned for our next installment in the AVOIDING ASSOCIATE HELL series which will focus on expectations and accountability.
If you would like to connect with me about your particular needs for an associate I can be reached at [email protected]