Partnership Consideration

Partnership Consideration

To avoid partnership problems down the road, there are a number of issues you and your potential partner(s) must consider and resolve before signing on the dotted line. A few to consider include:

How to Generate and Distribute Practice Income

Many people go into a partnership making the mistake of thinking their income will be equal. Then, when one dentist starts generating more revenue, problems arise.

It's best to determine variable expenses and income distribution based on each dentist's individual productivity. For example, you may decide that if one dentist brings in 60 percent of the gross, that dentist should receive 60 percent of the income and be responsible for 60 percent of the variable expenses (i.e., staff wages and benefits, utilities and advertising).

As for fixed expenses, these should be identified and are generally split 50/50. Examples of fixed expenses include the lease or mortgage, insurance, telephone and standard maintenance expenses (i.e., snow removal, office cleaning, etc.).

Make sure to clearly delineate authority from day one. For example, make it a policy that unless all partners agree, equipment cannot be purchased out of corporate profits.

The main thing is to determine what works for you and your partner in advance – while everyone is in agreement.

Properly Insuring the Practice

In addition to obtaining professional liability insurance, you should evaluate your other insurance needs.

For example, be certain there is a buy/sell arrangement in place (covered by life insurance). In the event of a sudden death, this arrangement means the surviving partner won't have to worry about obtaining money to purchase ownership. It also can provide the family of the deceased dentist with income.

Cover each dentist in the disability policy. In addition, you should address how to handle the expenses and income distribution of running the partnership if one partner can't work at all.

Develop a Graceful Exit Strategy

Realizing this happens more than 50 percent of the time, it makes sense to establish methods for buy-out and value determination while both parties are in agreement. Also, you may want to consider including a non-compete clause or contract language providing for a lump-sum payout if the exiting partner leaves to open a practice within a defined area. This can always be waived if the break-up is amicable; however, language must be in place for the worst-case scenario.

Have an Attorney Craft Your Agreement

Many relationships last due to trust and the fact that both parties have a high level of integrity and a strong sense of ethics. Relationships often deteriorate because working day to day with others reveal not only their enormous strengths but also their character flaws, which may not be apparent outside a close working relationship. It's advisable to build into your agreement a mechanism for arbitrating issues that could have a significant influence on the partnership.

Of course, it's virtually impossible to build every possible contingency into a contract, especially when you're dealing with people. However, the more issues you can address up front, the better the chances of a lasting relationship. So, enter your partnership by preparing for success, but considering the possibility of failure. In this regard, a properly constructed agreement crafted by an attorney will make any parting of the ways considerably less stressful and costly.

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