Michael Royden looks at the pros and cons of becoming a partner in a dental practice.
Many associates have a dream of owning their own practice.
With finance ordinarily readily available for the right practice, they have been able to look to the market to find the practice which suits them best.
I say ordinarily, as the current situation arising from the pandemic is making banks slightly more cautious. Hopefully, like the virus, that will pass.
However, associates who want to be their own boss shouldn’t overlook the route that was the most common one to becoming a principal. Becoming a partner in your current practice.
After all, you have worked there and have a good idea what you are taking on. Unlike another practice where your knowledge will always be limited to an extent.
So that sounds pretty simple. Where do I sign you say?
Well, before rushing off and getting a new partner nameplate for the front door, there are various aspects that a prospective new partner should think about before deciding that they wish to proceed:
- Finance – most partners will need to put capital into the business to become a partner. Banks will fund such an investment but, like any other bank finance, they will need convincing that they should support you in your buy in. That can take time, so start talking to banks at an early stage
- Value – your current principal may have an idea of how much they think you should pay for your buy in. However, that may not reflect reality. Once again a bank will need to be happy with the numbers. It is therefore advisable to have an independent valuation carried out to give everyone comfort that the figures stack up
- What are you buying into – for example, are you buying a share of goodwill and equipment alone, or will you also have a share of the surgery premises? If the practice owns its own surgery, then you should ensure that your solicitor transfers the title deeds into the name of the new partnership
- Profit sharing – as a partner, what will you be entitled to each year as your share of profit? How will you calculate that? How much will it entitle you to take out each month by way of drawings, etc? Take a fair degree of care here as partners (new and old) often make assumptions regarding profits that aren’t accurate. Bear in mind that you need to live off the monthly drawings. And that you will also have additional expenses to cover, such as bank repayments.
Beginning of a long road
These are some of the main issues to think about before entering into a partnership.
You should consider all of these points carefully and agree them with your principal. That way the potential for confusion on any of the key aspects is significantly reduced.
Becoming a partner isn’t the end of the road though, indeed it’s only the beginning. You have a whole career in front of you. And you will want to ensure that you have a strong basis for your working relationship with your co-partner.
With that in mind, there are a number of other areas that you should agree with your principal including:
- Decision making – having become a partner, you have the ability to make decisions about the practice, as of course will your co-partner. Either one of you might make most day-to-day decisions. However, you may feel that there are certain key decisions which neither of you should make without both of you being comfortable. That would tend to be more major decisions like hiring and firing staff, taking on new associates, etc. It is fairly simple to create a list of categories of major decisions which need unanimity
- Absences such as sickness absence, maternity and paternity leave and so on. The absence of a partner, in any circumstance, can have significant impact on a practice. So you should agree how to handle any such situation in terms of locum cover, sharing of profits during the absence, and so on
- Future retirement – it is inevitable that one or other of the partners will wish to retire at some point. You should therefore seek to agree what will happen when that time comes. That would be in terms of how the retiring partner’s interest in the practice would be valued and paid for, and so forth.
You might not view all of these topics as pressing issues at the outset. But they will become relevant at some point.
It tends to be much easier to address matters such as this at the start of the relationship, rather than leave them until they are a current issue.
The partnership agreement, drawn up by a solicitor experienced in advising dentists and so can readily advise you on the terms which you should seek to agree, should cover all of this.
With all of these areas covered off at the outset, you should hopefully be able to just get on with things and start to enjoy the benefits of being a partner.