QUESTION
I plan to open a new office but want a nondentist family member to be my partner in the practice. My state allows nondentist ownership. Are there any concerns you can share with me that I need to consider before I proceed?"
Peter J. Ackerman, CPA
State laws that address nondentist ownership of dental practices are very controversial in today's market. Significant lobbying efforts are being made on both sides of the argument. I would highly recommend that you begin by engaging an attorney specializing in dentistry as well as nondentist-owned practices to assist you with a proper structure that would survive not only today's laws but crafted in a way that will anticipate future fluctuations in the regulations.
Once you have navigated the structural and compliance issues, you will need to address the operating agreement. Two primary areas of concern relate to control and division of income. In most partnerships, it can be a challenge to resolve these issues. With a nondentist owner, the difficulties are magnified. As it pertains to control, an operating agreement must identify who will have ultimate decision-making authority over the operations of the office - the business decisions as well as clinical. While intuitively you would think the dentist would have ultimate clinical decision-making authority, the nondentist partner may take issue with having no influence on the primary revenue driver of his or her investment. Income distribution must also be addressed. When one partner is the producer in a professional practice and one is not, it can create significant controversy as to a "fair" division of time, effort, and in turn, compensation.
Partnerships are difficult to structure properly and operate; having a nondentist as a partner adds another layer of complexity that, while not impossible to navigate, certainly requires assistance by professionals competent in the issues surrounding these types of business structures. Surround yourself with quality professionals specializing in the field of dentistry.
Peter J. Ackerman, CPA, is a principal of ADS Midwest, a firm that provides practice brokerage, appraisal, and consulting services to dentists and related specialists throughout the Midwest. He is a past president of ADS. He can be reached at [email protected] or at (855) 463-0101.
Tom Snyder, DMD, MBA
The first issue to consider is the role that your nondentist family member will play. Will your relative be the bank for your new venture, or do you need him or her to cosign your practice start-up loan? Will your relative be involved only to provide managerial support? If you need your relative to cosign your start-up loan, most lenders require that you be the majority owner. How you and your partner will be compensated and how profits are shared are very important. A simple way to compensate yourself is to pay yourself a commission - for example, 35% of collected production. Since you will be the only dentist owner, it would not be inappropriate to pay yourself a percentage of hygiene revenue as you will be the overall clinical supervisor. If you had a dental partner, this arrangement for hygiene compensation would not be appropriate as you are normally only compensated for the doctor exam as part of the recare visit. Profits are split after all practice operating expenses, your clinical compensation, and debt service are paid.
It is important to divide responsibilities into clinical and administrative duties. However, you should not allow your nondental partner to have any input regarding clinical care matters; that should be your sole responsibility.
If your family member is a "silent partner" and only involved as your financial backer, consider a 25% profit share as a financial return on their investment. Since you will be doing all of the work, you deserve the majority of the profits!
Finally, if your family member is actually working in the practice on a part-time or full-time basis, paying them a salary for their efforts is a fair approach. Their salary expense would be treated in the same manner as your clinical compensation, with any remaining profit based on ownership percentage.
Having a family member as your partner can be a good thing as long as you clearly delegate responsibilities and address any issues that may create problems down the road.
Tom Snyder, DMD, MBA, is the director of transition services for Henry Schein Professional Practice Transitions. He can be reached at (800) 988-5674 or [email protected].
