The 5 Things Every Optometry Partnership Agreement Needs
By Practice Growth June 23, 2021
Creating a partnership for your optometry practice can be an amazing way to grow your business. A good partnership can grow expertise, give you more time, and create more avenues for revenue. A good partnership can bring in a shared cost of assets, sharing of management and ownership responsibilities, and the possibility of extending business hours.
It’s absolutely critical to get the foundation right when building a partnership. Acknowledging your aspiring partner's goals and mindset will help you to adapt and meet their needs. You also need to be mindful that your partner is ready to meet your expectations and your needs. Partnerships have a higher likelihood of long-term success when the partnership is mutually beneficial and when good communication is placed at the forefront of the partnership. Many partnerships fail because of a lack of communication. A good partnership is easier to foster with someone who shares a commitment to open dialogue. You can also build successful partnerships if the expectations are realistic and are regularly addressed. Accepting and adapting to communication styles is part of a successful partnership.
Make sure there is always a flow of information and open discussions about both good and bad things going on in the practice.
Personal differences and disagreements in management are the two most common reasons that make partnerships fail. The good news is that there are a few key ways you can avoid these issues.
Let’s look at some things every optometry partnership needs and ways to avoid common problems.
A trial period
It is recommended to undergo a trial partnership. This crucial period is kind of like dating a new partner. It will allow you to see how compatible you are and can bring to light any issues that may need to be solved.
The trial period also allows you to work through any differences. A good trial period is anywhere from a year to 18 months. It will give the associate ample time to work with your staff and develop relationships that will prove crucial later.
The pros of a trial period from the owner:
● Gaining confidence in the doctor buying in
● Learning how the partnership will impact the practice
● Gives the owner time to the most trustworthy and profitable partner
● Allows the owner to have time to get help from the partner with business decisions that will actually impact the practice
The pros of a trial period from the associate:
● Allows the associate to feel equal and be on the same playing field as the senior doctor
● Gives the associate more stability and opportunity to grow a business
● Allows the associate to truly see if they can afford the buy-in process
In general, the trial period has pros for everyone.
A team of advisors
Any good team will include advisors. A partnership should always include more people to give the partners guidance and advice when needed.
Your advisors should include an accountant, a lawyer, a financial planner, and an outside business consultant. Make sure they all have previous experience with medical partnerships. Always make sure that you have professionals at arm’s length.
Solid pricing and financing
There are two sides when it comes to pricing. Of course, the seller wants to sell at the top price and make as much money as they can. The buyer on the other hand wants to make sure they are getting a good deal and not being cheated.
Multiple appraisals will always be needed. Both sides also need to be willing to compromise. The owner should try to be understanding and sensitive to the buyer’s needs. The buyer should also realize that the owner has a successful practice that they want to sell to a trusted person for a good price.
For financing, most buyers get a loan from the bank. If financing, most buyers will take a loan for anything they qualify for. Sure, they will make their payments until the loan is paid off, but the first loan offer isn't always the best. Speak with your tax advisor to minimize your tax burden for both the seller and buyer.
Seller financing is also an option and can be more beneficial. The seller will carry the loan note and receive the interest on it. This can be a good way for them to make more money off the sale. Always seek the advice of your accountant before going forward with this step.
This financing agreement can also help solve problems if a price can’t seem to be reached.
Creating an operating agreement
Most operating agreements are set up as a 50/50 agreement. This will give each partner an equal say in the company. If there are multiple doctors or buyers, the agreement is usually split up equally. This allows no room for overpowering or the ability for one doctor to make choices without consulting the other partners.
Each partner should seek their legal professionals to make sure all the terms are equitable. Your team of advisors will be able to access each individual situation and advise you accordingly. Tax implications, management implications, operating agreements, and liability agreements will all need to be discussed.
Prepare for the worst and plan for the best
Of course, you want your partnership to succeed. However, fall-back and disaster-mitigation plans will ensure your success in case of any unexpected setbacks.
One of the best ways to prepare for unforeseen circumstances is to take out term life and disability insurance policies on each other. This will ensure that the surviving partner will still have access to the practice and that all assets are protected.
You should also have a process in place in the scenario in the event that one of the doctors wants to retire. This could include having a procedure for allowing a new doctor to buy in after a certain time frame. You might want the procedure to allow you to buy out the senior doctor, if that is something you might desire down the road.
Always have terms and stipulations in case there is a death, disability, or dissolution for any reason. It might seem weird to look at the bad things that could happen, but it will ensure your partnership is protected and will free up the mental and emotional hard drive space to focus on business growth.
A solid partnership can give you the opportunity to grow your practice. Although this isn’t an exhaustive list, the information presented can help guide you and your partner to establish a solid foundation for your future. Consult your attorney and business advisors to hammer out the fine details. And remember you owe it to each other to be straightforward and transparent with your needs and expectations. As a result, you will have a much greater chance of building a sustainable, thriving practice together.
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