7 Questions to Ask When Forming a Partnership
By Jim Vander Mey, CPA, ABI, Practice Transition Advisor
You and your friend from school want to purchase a practice together. Here are just a few questions to ask.
A sole owner is often an easier path to ownership, but partnerships can certainly be successful. But like any healthy relationship, it requires work. To help prepare consider getting together with your business partner, turn off the cell phones, meet in a closed room, and ask the following questions to each other.
How much debt do you have?
Does your business partner have a bankruptcy in their past? Do they secretly owe their parents money for school? Do they drive a BMW 7 series, and you drive a Yugo? (google it!) Pre-existing debt could limit your financial flexibility for emergencies and growth. Will their spending and saving style affect how they run the practice?
How updated does the practice need to be?
We have seen state-of-the-art practices that have been remodeled every 5 years and converted 50-year-old homes. Both can be profitable. We have seen many practices that do not follow textbook expense percentages, but still have excellent reputations, and are extremely profitable.
Number of staff?
You want a Licensed Tech with you at all times, and your partner doesn’t. You want to hire a cleaning service, but your partner wants to come in on Sunday afternoons and clean the practice to save money.
Equipment purchases?
You want a fully digital x-ray and a new surgical laser, and your partner is fine with a CR x-ray and a used ultrasound. Now what?
Vacation? Sick?
You want to take 6 weeks off every year to coincide with your spouse’s vacation and your partner only wants a couple of weeks off. Does your compensation arrangement cover this? Even if you compensate for the difference, will you feel comfortable with this?
Skeletons in the closet?
Yes, you got along famously in school… Studied together, got along socially, have a similar philosophy regarding practicing, etc. Do you both need to agree to a full background check, as in searching for bankruptcy and criminal activity?
How will you solve disagreements?
You probably won’t see eye to eye on everything. Assume you will be diametrically opposed to your partner on an issue – how will this be resolved? What if disaster strikes? Or what if you need to move out of state to take care of a family member? Or what if your spouse has an out-of-state opportunity, or a permanent debilitating health issue arises. What if it ultimately leads to the point that you no longer want to be co-owners and you get to the point where you have the ultimate disagreement and just cannot get along? What is the break-up formula?
Answer Key to above questions
The answer to the above of course is – there are no set answers. It will vary from partnership to partnership, person to person what will work. Long before you make an offer on a practice, set some time aside to discuss the above questions – at the very least discuss the last paragraph. And of course, we recommend meeting with a veterinary attorney to form your partnership agreement.