Don't get knocked out by a buy-in
Hold on there, Ali. You're about to enter into an important partnership. And business partnerships require good communication and the appropriate documentation to protect your interests. So consider these issues first.
The starting bellThe number one question you should ask yourself is this: Do you share the same medical and business philosophies as your potential partner?
Get the proper legal agreements, such as an employment contract and buy-sell agreement, in place before you proceed with the buy-in. Many of the provisions in these documents are critical to deciding whether you even want to go through with the transaction. And there's much more at stake than just the purchase price. Here's a look at the key agreements:
The employment agreement. A partner employment agreement is similar to an associate employment agreement. It addresses compensation, fringe benefits, termination provisions, and a noncompete covenant if these clauses are enforceable in your state. Make sure the provisions are fair and equitable—here are a few examples of good ones:
Red flags to watch for: unfair noncompete terms and termination clauses that don't call for justification or a supermajority decision by all partners.
The agreement on veterinary pay should take into consideration differences in production levels based on work schedules or performance. With regard to management pay, the agreement should say who will handle different management duties and how partners will be compensated for their time away from seeing clients and patients. Return on investment is what I call the "dividend" payment that comes with the privilege of ownership. (For more on owner compensation, see "Pay Partners Fairly" in the March 2006 issue of Veterinary Economics.)
The practice's cash flow determines the return on investment—and also influences the value of the practice. Most associates use their return on investment to finance the buy-in, so you need to know what that portion of your income will be so you have an idea of whether you can afford the buy-in. (For a more detailed explanation of how to perform these calculations, visit http://www.vetecon.com/ and look under Web Exclusives: "Does Practice Ownership Pay?")