Practitioners need to decide whether to practice with other doctors or on their own. Choosing to work with other co-owners could have numerous benefits including:
- Sharing of expenses;
- Sharing workload, both medical and administrative;
- Knowledge sharing and intellectual advancement;
- Learning from one another’s work experience;
- Attracting more patients due to each doctor’s credentials and specialties, for example, employing a female doctor could attract a specific demographic of patients who may have not come to the clinic otherwise if only male doctors practiced there; and
- Being able to offer patients a versatile set of skills
These benefits, however, are very minimal if the co-owners of a practice do not work together or more importantly do not completely trust each other as business partners. Partners or associates may be held liable for another co-owner’s actions under some legal structures; therefore an ultimate level of trust and confidence in the legal structure selected is imperative.
Advantages of Practicing Solo
If finding a suitable group practice is difficult, then consideration should be given to practicing autonomously. The advantages of practicing solo include:
- Retaining all the practice profits;
- Limited liability;
- Making decisions on what to purchase or how to spend the money;
- Making decisions about the practice without seeking others opinions;
- Having no one else to blame for outcomes; and
- Being the boss.
The doctor who chooses to operate alone can still engage other professionals as independent contractors. This provides the following benefits:
- Maintaining a versatile level of skill and expertise throughout the practice;
- Attracting more patients due to the versatility of the team;
- Being able to control a heavy workload, delegating some patients to other doctors and/or technicians such as practice nurses; and
- Being able to operate as a business for tax purposes. The ATO states that a practice will be a business for income tax purposes where it employs, or otherwise engages, a greater number of non-owner doctors (or practitioners, including practice nurses) than owner doctors, on an equivalent full time basis.
Finding the Right Co-Owner
A doctor may decide to share ownership of the practice but is unsure which candidate will be the best for the job. Apart from trust, there are no formulas for the ideal partner. It may be someone very close, like a long term colleague or a friend known from medical school. It is important that the prospective business partner shares common goals and objectives for the future of the practice.
When looking for a business partner it is advisable to write down a list of criteria that are important to consider. These criteria may include:
- Medical and business experience;
- Potential equity investment;
- Future aspirations;
- Preferred location, for example, regional versus metropolitan area; and
- Required ownership share/return.
It may become apparent that a very friendly colleague may not necessarily be the best business partner. In such cases, and if the circumstances allow it, this colleague could be offered the opportunity to join the practice as an independent contractor. In this way their skills can be used without involving them in business decisions or equity raising.
To further assist with finding a suitable business partner, personal and practice aspirations should be determined. For example:
- What are their personal objectives and why do they want to own a practice?
- How many hours can they avail to invest in the practice?
- What profit do they expect from the practice in the first three years?
- What sacrifices are they willing to make?
- What type of issues are they not able to compromise?
- How long do they envisage owning their share of the practice?
When considering a prospective business partner, all relevant issues should be covered before agreeing to amalgamate. It is important that all partners agree on all key points, and all areas not to be compromised are clearly stated in the early stages of the negotiation process.
It is unwise for practitioners to assume that good friends make good partners. This is not necessarily the case. Commencing a co-ownership agreement involves making many vital business decisions together as in other commercial structures, and it is wise to keep clear barriers between business and friendship. Alternatively, some practitioners believe that there is an ideal “profile” that makes up the correct partner. This approach is also flawed. A good partner could have either only a few years of experience, or twenty years experience.
We have seen a few examples where general practitioners have elected to partner with non-medical practitioners, such as physiotherapists or practice managers. This is often very messy and administratively disadvantageous to involve a non-medical professional as a co-owner of the practice. From our experience, offering a practice manager anything more than 10% is not a good idea. However, as in any scenario, we recommend always to assess the situation on a case by case basis with an expert.
The Importance of Networking
Networking plays a significant role in finding the right partner. By building relationships with other colleagues, doctors are actively expanding the opportunities available and increasing the number of prospective business partners. Networking also means that although the doctor may not know the prospective business partner, the person who made the introduction will know them.
Ask trusted people whether they can recommend a suitable business partner. General practitioners may meet new people and build meaningful relationships in a variety of ways. Examples include:
- Attending medical conferences;
- Attending seminars about financial management for health professionals;
- Keeping in touch with past employers;
- Attending social or sporting events with your colleagues; and
- Speaking to financial or legal professionals with similar clients.
The power of valuable contacts should never be underestimated.
When a practitioner is unsure about joining a practice as an owner or partner, it is often advisable to join the practice as a contractor doctor with a view to partnership in the future. This allows the opportunity to assess the viability of the practice, its positives and barriers for change, its compliance with standards and how it is performing financially. This type of arrangement should be documented in the contract at the outset of the relationship.
Need help with setting up a medical practice?
Curve Accountants & Advisers offer tailored advice and medical accounting services, which will equip doctors with the tools to make an informed decision about future co-ownership of practices.