Equity Models
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Equity Models

Navigating Associate Equity Models: A Deep Dive into Buy-In and Earn-In Strategies 

Associate equity is a nuanced topic, and in this post, we’ll break down some key concepts, strategies, and considerations discussed in a recent podcast episode. Whether you’re running a dental group, planning a multi-location expansion, or simply considering how to structure equity for associates, this guide will clarify the major models and their implications. 

There are two primary approaches to associate equity: buy-in and earn-in models. Each has distinct structures, benefits, and drawbacks, depending on your growth strategy, legal setup, and goals for associate involvement. 

Buy-In: The Traditional Path 

A buy-in model involves an associate purchasing equity outright, typically with an upfront payment. Ownership transfers immediately, which can be appealing for associates looking to take on significant responsibilities from day one. 

Pros: 

  • Instant Ownership: Once the transaction is complete, the associate becomes a partner immediately, with associated rights and responsibilities. 
  • Predictable Transaction: The terms, price, and ownership percentage are clear from the start. 

Cons: 

  • Dilution Risk: Founders may inadvertently give up too much equity early, potentially losing out on future growth benefits. 
  • Debt Burden: Associates may have to rely on personal notes or cash to avoid liens and guarantees by the business for their buy-in notes.  

Structured buy-ins can address these issues by staggering ownership transfers over time, such as granting 5% now and more in subsequent years based on performance or other milestones. 

 Earn-In: Performance-Based Equity 

Earn-in models, on the other hand, tie equity to the associate’s performance over time. Popular in corporate settings, this approach incentivizes associates to meet specific benchmarks before they are granted ownership stakes. To fully understand this model, you also must consider the two key variants. With Restricted Stock Units (RSUs), equity is tied to the associate’s individual contributions, such as exceeding a collections threshold, with vesting periods providing a buffer for the business owner. With Profit Interest Units (PIUs): Often used at the practice level, these units require the associate to exceed a set valuation threshold for the equity to hold value. 

Pros: 

  • Incentivizes Growth: Associates are motivated to exceed performance benchmarks, driving business value. 
  • Gradual Transfer: Equity is granted incrementally, reducing risk for the owner. 
  • Flexibility: Works well for growing businesses, especially those expanding across multiple locations. 

Cons: 

  • Complexity: Requires clear structures, agreements, and projections to ensure fairness and transparency. 
  • Potential Misalignment: If the business doesn’t grow as projected, equity could be granted at undervalued rates.  

 Choosing the Right Model for Your Practice 

The decision between buy-in and earn-in models depends on several factors, including: 

  • Growth Strategy: Are you scaling a multi-location business or maintaining a single-location practice? 
  • Ownership Goals: Are you looking for a quick exit or gradual transition to shared ownership? 
  • Associate Roles: Will equity be offered to lead associates only, or to all associates in the business? 
  • Legal and Financial Considerations: What are the tax implications, valuation requirements, and entity structures needed to support each model? 

Associate equity is a powerful tool for growing your business while fostering associate engagement and commitment. By choosing the right model and thinking through long-term implications, you can create a win-win situation that propels your business toward success. 

If you’re considering implementing associate equity in your practice, learn more about our process on our website or reach out to Mark Flock directly at .  

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