Protect yourself from poor practice partners
A practice partnership is like a marriage. No matter how well couples think they know each other, there are bound to be a few surprises down the road. It's no wonder, then, that I field at least a dozen calls a day from colleagues seeking management consultations about problems in their partnerships.
I recall vividly a Florida veterinarian calling me for advice about his partnership. "Just a simple question," he promised, and then launched into a 10-minute story.
His practice was located in a bad neighborhood full of drug dealers, some of whom became clients when he agreed to board their six dogs and two parrots at his facility. The clients would leave their pets and then hit the road to South America with no word of when they were coming back. They always did come back, though, and they always paid in cash. After one trip, the bill was $2,600, and they counted out 26 brand new $100 bills."I didn't want to leave that up front," he said, "So much cash! You know what I mean?
"So, I took it back to my desk. I was just playing with it and counting the bills again when I noticed that some of them felt funny. They were too thick and I was able to separate out 31 bills instead of 26."
I could tell where this was going, so before he could say more, I offered, "That money is drug money from a low-life who doesn't deserve it, and you want to know whether you need to call the drug dealer and report the overpayment, right?"
"No," he replied. "I just need to know whether I should tell my partner!"
We can all get a hearty laugh from a story like this one — and believe me, this is a true story — but it's just one example of how some veterinarians' loose ethics in practice economics are tearing at the fabric of partnerships all over the country. The problem is exacerbated when doctors enter into partnerships without laying out ground rules. Entirely too many of today's partnerships have been created over a handshake. Many others appear to have been drawn up by cavemen.
Craft a contract
Expectations such as showing up for work each day or charging fees for services may seem like no-brainers for the budding partnership. Take my advice: Put it in writing.
I've received calls from veterinarians whose partners suddenly decided not to work anymore. In one case, the offending partner just woke up one day, picked up the phone and called in permanently sick and tired of the hassle, saying, "Just send me my half of the profits!" What did their partnership agreement say about that? Nothing! Neither ever anticipated that the other wouldn't put in 50 percent of the labor.
At another practice, one partner decided that material things no longer mattered to her and so she stopped charging fees for her services. Her nickname was "No Charge Sally." What did the partnership agreement say? You guessed it! Zip, zero, nada! Nowhere did it specify that fees were to be charged.
That was an extreme case, but I have seen hundreds of similar instances of "nice guy/nice gal" discounting. "We gave three injections, but I just charged you for two," says nice guy. "Oh, I didn't charge you for the follow-up X-ray," says nice gal. Soon one partner's average client transaction is $50 less than the other's.
"Oh! You don't like that?" asks the discounting partner. "Then buy me out. I'll take a million dollars for my share. So what if the practice only grosses $900,000? We don't have anything in writing that sets a price on the practice. I'll stay and do what I want because I own 50 percent of the business and you can't vote me out. The clients like me better anyway because I don't rip them off charging full fees all the time, so what are you going to do about it?"
This is when you need a consultant, an attorney and an accountant. Working covertly, you can build a case against the offending partner using computer records to show a type of internal embezzlement. This is as nasty as it gets, but you won't succeed without a lot of preparation and sweat. Did I mention yelling and heartburn? I probably left out a few other things, too.
Plan for differences in work ethic
I recommend that you take to heart this maxim: All business partners are not created equal. One partner usually works harder than the other. One builds up the practice more than the other. One sticks to the practice fees more closely. One takes more time off than the other. The only true equality among partners is in the grave.
Oh, the marriage ceremony and the honeymoon are usually fine. It's in the long term that problems rear their ugly heads. The two main destroyers of practice harmony are time off and productivity. As a practice matures, these potential flashpoints must be dealt with in an equitable manner.
Take for example, the junior-senior partnership. As the senior partner gets older, he will want to take a little more time to enjoy life, travel, attend "necessary" meetings in New Zealand, and so on. This may create resentment in the junior partner. Even if the younger doctor took equal time off, these luxuries are unaffordable in the early years, just as they were to the senior partner when he was busy building the practice. Extra compensation for covering the senior doctor's absence helps melt away any resentment the junior partner might feel.
Resentment can also cause problems when one partner is more ambitious than the other. Say one partner's thirst for knowledge and newer techniques develops into a more profitable specialty. If the specialist is bringing in considerably more than 50 percent of the revenue, he or she is certainly deserving of more compensation for the extra effort.
Performance of management duties should be taken into account as well. When it comes to management, continuing education and vacation, all partners should be equal from the first day. Does this ever happen in the real world? Not very likely!
That's why I recommend that all partners use percentage compensation from day one. That way, everyone's gains are proportionate to the amount of effort they put in. By contrast, a simple equity-based distribution of net profits favors the least-productive partner and stirs up enmity that can tear a staff and a practice apart. When drafting your compensation plan, be sure to factor in time worked and productivity as measured in average client transaction, and, of course, don't forget to account for equity.
Make partnership policy documentation a priority
Why should you anticipate these scenarios? The real question is, why shouldn't you? Veterinary partnership?— like marriages — are long-term commitments entered into with varying expectations. With 60 percent of marriages ending in divorce, it's no surprise that professional partnerships run onto the rocks as well.
Even if you're many years into your partnership, it's never too late to have a real discussion about your prospective roles as your practice grows. Not having any problems? That's great! Take time for a preventive health examination of your partnership documentation, if you have any. It's a whole lot better to anticipate and forestall problems than to try treating them after they've started.
Dr. Snyder, a well-known consultant, publishes Veterinary Productivity, a newsletter for practice productivity. He can be reached at 112 Harmon Cove Towers, Secaucus, NJ 07094; (800) 292-7995; Vethelp@comcast.net