What to Consider Before Starting a Partnership

Some Doctors of Chiropractic choose to form a group practice with other D.C.s. But if you want to avoid problems down the line, there are a number of issues you and your potential partner(s) must first resolve. Here are a few issues to consider before signing on the dotted line.

Practice Income

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

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

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

On a related note, 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.

Insurance Coverage

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 be concerned with obtaining money to purchase ownership. It also can provide the family of the deceased doctor with income.

You'll want to have each doctor covered by a 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.

Exit Strategy

Realize that since 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 noncompete clause or contract language providing for a lump-sum payout if the exiting partner leaves to an 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.

Attorney and Partner Reviewed

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 someone reveals not only their enormous strengths but also character flaws, which may not have been 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 upfront, 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.

Tax implications

Another important factor to consider is the tax implication of partnerships. For information about tax implications and other issues with a partnership, read the article on how to determine your practice's business legal structure.

Knowing the pros and cons of each type of business legal structure may help you decide which one is best for you.