TRANSITIONS ROUNDTABLE

We ask two experts the same question to give you two different answers on a complex issue

QUESTION “My partner and I have been together for over three years. When we formed the partnership, I assumed that he was going to become more involved in the management of our practice. However, to date, I am still the only one spending at least eight hours a week handling all of the management duties. I am not getting compensated for my efforts. Any suggestions?”

GARY SCHAUB, MBA

It may not be too late to close the barn door, even though one horse has escaped. To keep the rest of the herd in the barn, several steps need to be taken now.

A key document for any partnership or corporate entity is an Operating Agreement. In the ideal world, this agreement would be negotiated and approved in advance. One element of the agreement is the management duties for each owner. These duties are typically broken down into three categories:

Practice Administration
Clinical Oversight
Marketing Management

The duties are usually assigned based on inherent interests and abilities of each owner, and perhaps changed on a rotating basis every year or two.

I would suggest that the questioner document the duties that are now being done, see if they adequately cover the above categories, and work with the other partner to share the responsibilities more equally. Also, now may be the time to delegate duties to the staff. If this is not feasible, then an outside part-time practice manager could be hired to handle the majority of the duties, and the cost shared between the two partners. Typically, partners are not compensated for any management duties.

Another critical element of the Operating Agreement is how to close the partnership. Determine answers now to what happens in the case of death or disability of a partner, loss of license, inability to work together, and partner relocation. I sometimes appraise practices for marital and partnership dissolutions, and it can be nuclear war if these questions have not been answered.

Other areas to consider are how income and expenses are divided; lease considerations; patient allocation; and mutual equipment purchases.

Hopefully, your current situation is a wake-up call for further action. Close the barn door now.

GARY SCHAUB, MBA, is the founder of ADS Oregon. He has been appraising and selling dental practices for over 25 years and can be reached at (503) 223-4357 or [email protected].

Tom Snyder, DMD, MBA

You definitely should be compensated for your efforts. We recommend the payment of a management fee for situations such as you described. This management fee should be considered an operating expense of the practice. This fee is an appropriate and fair consideration for the time and effort you’ve put in. The administrative time you have been investing over the last few years could have been spent at the chair or used as personal time. In any case, it is an imbalance in your partnership that should be corrected by you receiving additional compensation. We have seen fixed payment arrangements that range from $2,500 to $ 3,000 per month.

If a fixed amount is objectionable, consider getting paid a lower fixed monthly amount accompanied by a percentage of practice collections or net profit. If the practice does well you benefit, and if not you only receive the fixed monthly payment.

Another approach would be for you to receive a percentage of total available partner compensation for that year. Available partner compensation is defined as practice revenue (collections) minus practice operating expenses. So if available partner compensation was, for example, $400,000, and you were paid 7% of that, you would receive $28,000.

There is no one correct, absolute way to compensate you for your time and effort, other than to say it has to be fiscally sound, realistic, and fair. The truth of the matter is that partners should share management responsibility equitably, so that a management fee or other financial incentives don’t need to be created. However, in your situation it appears that your partner is only interested in providing clinical services and has no management interest.

Perhaps if you start getting paid for your efforts, he may suddenly express an interest in assuming some management responsibilities.

Tom Snyder, DMD, MBA, is the director of transition services for The Snyder Group, a division of Henry Schein. He can be reached at (800) 988-5674 or [email protected].