Taking on a Partner – Part 4

Last week we presented on several of our Silkin Management Group blog sites 3 different articles concerning vital points to consider when bringing on a partner into your medical practice. Many Silkin Management Group clients are looking at the possibility of a partnership either to continue the expansion of their practice and/or to have someone to eventually sell the practice to when they are ready to retire.

Today we’ll go over a very important point to consider: making sure you get a firm agreement on how profits are to be divided between the partners. Obviously if a person owns a certain amount of the practice then, unless otherwise specified by the contract, they would get part interest in the profits. This ideally would be part of your partnership contract but, if not, it should be clearly spelled out in writing with both parties signing that they agree to the points.

Here are several things to keep in mind on this:

• Define what profit is. Profit is what is left over after all the expenses of the practice have been paid.

• Thus it is very important that all the expenses are well defined.

Typical expenses that aren’t included in profit are:

1. Doctor salaries. This means that you can’t have a draw; you have to be on a set salary.

2. A set percentage set aside monthly for reserves.

3. A set percentage set aside for staff training.

4. A set percentage set aside for equipment replacement.

• You then need written into the agreement what the mechanism is for adding to the base line expenses. For example, you may feel that liability insurance should be an expense of the practice and you want to add this in. However, your partner may disagree because your liability insurance will be more than his. Since by adding in your liability you take away money that could have gone into profit: i.e. his/her money. Therefore you need a mechanism to add to the expenses.

• Define how profit is going to be distributed. The easiest way is according to shares. If you have 51% of the practice, you get 51% of the profits.

We have a few more important points to cover concerning partnerships which we will present in future blogs.

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