Partner dilemma - help a Dentist out!

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YoungDentist
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Partner dilemma - help a Dentist out!

Post by YoungDentist »

My scenario, in a very simple format.

There is a pot of 2.6M to split between three dental partners at the end of the year. 5 offices.

Partner 1: 1.2M in collections. Works 2.25 days a week at 1 office.
Partner 2: 1.2M in collections. Works 2.75 days a week at 1 office.
Partner 3: 1.7M in collections. Works 3.75 days a week between 3 offices (about 20-30 minutes between offices)


How do you split this money if you are constructing a brand new operating agreement for this group? Thanks for any advice.

Frustrated Partner,
Young Dentist (not so young anymore)
Normchad
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Re: Partner dilemma - help a Dentist out!

Post by Normchad »

I’d divide in proportion to the collections. Whoever brings in more, gets more.

It’s all about the Benjamin’s, right?
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AnnetteLouisan
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Re: Partner dilemma - help a Dentist out!

Post by AnnetteLouisan »

It really depends. If the partners who are working a little less have more established reputations and bring in more business, then who actually bills what is less relevant. Who has the highest level of expertise? Also, who put in what money? Was Partner 3 one of the partners who built the practice? Does he/she have tenure? Who covers what costs for which offices?

I’m guessing OP is Partner 3 and earn less than Partners 1 and 2 despite working more. If so, this is called paying your dues, proving yourself, in the hopes of taking over the practice one day. It actually is fair but I get that it doesn’t seem that way right now.

If that is not the scenario, then it should be either 1/3 each or pro rata by some objective standard. I note that you mention collections rather than billing. Why not by hours billed? Do some of the practitioners accept insurance and others do not?

More important, what division is being proposed and is it unfair to OP? Why is Partner 3 doing so much more of the work at more offices? Student loans?
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YoungDentist
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Re: Partner dilemma - help a Dentist out!

Post by YoungDentist »

AnnetteLouisan wrote: Wed Jun 22, 2022 9:35 pm It really depends. If the partners who are working a little less have more established reputations and bring in more business, then who actually bills what is less relevant. Who has the highest level of expertise? Also, who put in what money? Was Partner 3 one of the partners who built the practice? Does he have tenure? Who covers what costs for which offices?

I’m guessing you are Partner 3 and earn less than Partners 1 and 2 despite working more. This is called paying your dues, proving yourself, in the hopes of taking over the practice one day. It actually is fair but I get that it doesn’t seem that way right now.
You’re guess would be right, but your reasoning would be off. I’ve been in the practice 15 years and paid the founding partner more than a lions share for his part 6 years ago to become equal partners. Expertise is quite even. We are all accredited dentists in our fields (implantology, cosmetics). Most veteran partner only takes cash, while two youngest take insurance to build the practice base. I do not make less. I am purely seeking a fair assessment from this forum.

Anyhow - just assume all three partners are the same. They all have the same expertise, they all paid into the office to become equal partners (same evaluation was used), and they all are from the same community and thus have the same goodwill. The differences are in days worked and collections. How do you see a fair agreement for compensation in this group? Thanks again for input.
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AnnetteLouisan
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Re: Partner dilemma - help a Dentist out!

Post by AnnetteLouisan »

Interesting that the oldest partner only takes cash and the other two accept insurance. Does the older one refer business to the other two if they won’t pay cash? If so, he might feel entitled to a portion of that revenue.

All I’m saying is that while it appears collections alone should determine compensation, with maybe something extra for working in three locations, there could be other factors at play. I assume some procedures are more complex than others.

I don’t know what the neutral standard is in dentistry - # of procedures, hours worked or collections? Without knowing more detail it’s hard to advise what Partner 3 should require.

But I do know the best bargaining chip is having another offer.

Best of luck, OP!
Last edited by AnnetteLouisan on Wed Jun 22, 2022 10:07 pm, edited 1 time in total.
marielake
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Re: Partner dilemma - help a Dentist out!

Post by marielake »

Based on the proportion of hours/sessions in the office + stipend for travel time.
Ztx
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Re: Partner dilemma - help a Dentist out!

Post by Ztx »

if all three are equal partners then, I think, the following would be fair:

1) Each gets paid percentage of their collections (30%, 35% - whatever) as base pay
2) Whatever is left after all practice expenses gets split in equal proportions (1/3, 1/3, 1/3)
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Re: Partner dilemma - help a Dentist out!

Post by chrisdds98 »

Founder gets the first 500k of profit and the remainder is evenly split.
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ram
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Re: Partner dilemma - help a Dentist out!

Post by ram »

Normchad wrote: Wed Jun 22, 2022 9:25 pm I’d divide in proportion to the collections. Whoever brings in more, gets more.

It’s all about the Benjamin’s, right?
Not fair.
Presumably it takes more expenses in terms of space cost and support staff cost to bring in 1.7 M collection than 1.2 M collections.
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Re: Partner dilemma - help a Dentist out!

Post by Misenplace »

This thread is now in the Personal Finance (not investing) forum.

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ram
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Re: Partner dilemma - help a Dentist out!

Post by ram »

YoungDentist wrote: Wed Jun 22, 2022 9:48 pm
We are all accredited dentists in our fields (implantology, cosmetics).
1) Most veteran partner only takes cash, while two youngest take insurance to build the practice base.
2) have the same goodwill.
To me 1) and 2) seem at odds.
Does the veteran dentist agree with both statements.
I would conclude that only he has the goodwill to have all cash practice.

Note also that he does not spend on the staff required to deal with insurance companies and so deserves a higher percentage of his collections than the other two.
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pharming2017
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Re: Partner dilemma - help a Dentist out!

Post by pharming2017 »

YoungDentist wrote: Wed Jun 22, 2022 9:14 pm My scenario, in a very simple format.

There is a pot of 2.6M to split between three dental partners at the end of the year. 5 offices.

Partner 1: 1.2M in collections. Works 2.25 days a week at 1 office.
Partner 2: 1.2M in collections. Works 2.75 days a week at 1 office.
Partner 3: 1.7M in collections. Works 3.75 days a week between 3 offices (about 20-30 minutes between offices)


How do you split this money if you are constructing a brand new operating agreement for this group? Thanks for any advice.

Frustrated Partner,
Young Dentist (not so young anymore)
Most fair way would be for each partner to earn a salary for time in office, then splitting the profits equally three ways at end of year.
123
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Re: Partner dilemma - help a Dentist out!

Post by 123 »

From a business perspective you base the split on dentist performance and performance is best measured by collections. The total collections are $4.1 million apportioned as follows: Dentist #1 - 29%, Dentist #2 - 29%, and Dentist #3 - 42%. Apportion the $2.6M pot in the same manner as it was earned. Because dentist are professionals we don't care about hours worked or personal toils, we only care about result$.
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ScubaHogg
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Re: Partner dilemma - help a Dentist out!

Post by ScubaHogg »

What I’m taking from this is I should have listened to Hermey and become a dentist
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JPM
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Re: Partner dilemma - help a Dentist out!

Post by JPM »

In private group medical practice, we had expenses split into two categories; "direct to the practitioner" and "shared equally". Rent in shared office space, shared equipment, and shared personnel like reception and clerical expenses were shared equally to encourage use. Expenses like your assistant, education, special equipment used only by one doctor etc were direct to the practitioner. After your share of these expenses were paid, what was left over was the practitioners. We all felt that this was fair to all concerned.

In the setup described here, since the third dentist is the only one using the third office, it seems fair that its expenses would be direct to her as the other two partners are not using it at all. There is more to fair expense sharing than straight billings or collections.
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JoeRetire
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Re: Partner dilemma - help a Dentist out!

Post by JoeRetire »

YoungDentist wrote: Wed Jun 22, 2022 9:14 pm My scenario, in a very simple format.

There is a pot of 2.6M to split between three dental partners at the end of the year. 5 offices.

Partner 1: 1.2M in collections. Works 2.25 days a week at 1 office.
Partner 2: 1.2M in collections. Works 2.75 days a week at 1 office.
Partner 3: 1.7M in collections. Works 3.75 days a week between 3 offices (about 20-30 minutes between offices)


How do you split this money if you are constructing a brand new operating agreement for this group? Thanks for any advice.
Each partner earns a salary, based solely on the hours worked. Then, the profits are split equally.

Obviously, there is some history here that may be relevant.
What is the current arrangement?
Do these young dentists have other jobs to fill the remainder of their week?
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fundus
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Re: Partner dilemma - help a Dentist out!

Post by fundus »

Determine the going per diem rate for an employed dentist in your area. Basically,
what you would pay an associate to see your schedule. Set this as the "base" salary
for each day a partner works.

Allocate the remaining net income based on ownership interest, 33% each.

The senior partner(s) has/have already been compensated for goodwill when the
junior partner(s) bought into the practice.
Olemiss540
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Re: Partner dilemma - help a Dentist out!

Post by Olemiss540 »

How is there a partnership already in place (over 15 years old) without thos already having been written into the partnership agreement? When you bought in 6 years ago, what was the arrangement set at that time?
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8foot7
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Re: Partner dilemma - help a Dentist out!

Post by 8foot7 »

To me the goodwill was cashed in when the other partners bought into the practice in equal shares.

If anything, taking insurance plus cash builds the client base overall; taking cash only does little to attract new clients even though some insurance clients may find going to the cash only practitioner in your office for a specialized procedure to be convenient enough to forego their insurance benefit.

I tend to agree that all partners should have a collection minimum as a part of the practice and then everything above that cap is divided based on actual production minus special expenses attributable only to that partner.
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Re: Partner dilemma - help a Dentist out!

Post by ZWorkLess »

I am in a different industry for which the economics is often compared to dentistry. IME, there are as many formulas as there are experts.

Firstly, generally it seems that best practices consider two pots of money:

1) "practice" income (nearly completely generated by support staff -- perhaps hygiene, whitening, product sales, product refills, etc. Must create a clear list!). This (net) income is typically split according to ownership.
2) practitioner "production" -- paid on a straight percentage of generated income, sometimes it varies by procedures somewhat (higher profit procedures generating a higher %, lower profit, lower %).

Issues to consider:
+ goodwill / referrals (the more referrals/goodwill generated, higher %). If Partner 1 brings in 100 clients, sees 50 and turfs the other 50 to his junior associates, then Partner 1 should get something for that goodwill, especially if they haven't already been compensated for it some other way (sales agreement?). This might mean that those "turfed" visits' production might get allocated say 20% to Partner 1 and 80% to Partner 2. (or 50/50 for 90/10 or whatever) Return visits by same client would fully go to Partner 2 (who performs the work), with that first % "finders fee" being the total Partner 1 compensation for that slice of goodwill. I'll leave it to you to decide if goodwill is already paid out or should continue to be paid. Even though you may have bought the existing goodwill when you bought in, there is likely a continuing value of keeping that name on the door. Does that matter? What would change if OldPartner fully retired? Would you miss them? Would ALL their current referrals keep flowing in? How would that impact compare if YOU stopped working? Tracking referral source is probably important!
+ expertise (higher skilled procedures may demand a higher %)
+ supervision issues -- how are you calculating hygiene income/etc? I.e., procedures that are "supervised" by a DDS but which require very little (if any) time from the DDS as they are performed by support staff? I'd imagine whitening procedures, product sales, hygiene appointments might fall in these categories. This sort of income in my industry would be typically EITHER fully assigned to the legal supervising licensed pro (ie, DDS) OR may be assigned to the supervising DDS but paid out at a lower % (generally about half the full production %) OR it may just go to the "practice" and be a completely separate pot of money. In my field, if that income is fully assigned to the "practice" -- then the profits from it flow by ownership, not production. If you separate out this class of income, does it make a difference?
+ real estate? If any partners own any RE (or equipment), is fair market value being paid as rent to the owners?

So, perhaps you will want to split the "practice" income (support staff generated/product refills/etc.)

I would suggest you search for industry specific guidance, as surely there is plenty out there! There are likely even model contracts out there! (I know these things exist for my smaller industry.) Then work towards negotiating a model that works for YOUR partnership. A good ownership agreement leads to a successful partnership. Get this straightened out!
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Re: Partner dilemma - help a Dentist out!

Post by PoppyA »

YoungDentist wrote: Wed Jun 22, 2022 9:48 pm
Anyhow - just assume all three partners are the same. They all have the same expertise, they all paid into the office to become equal partners (same evaluation was used), and they all are from the same community and thus have the same goodwill. The differences are in days worked and collections. How do you see a fair agreement for compensation in this group? Thanks again for input.

If you want to make all things equal, then I suggest they get paid according to what they make. It will allow them to structure their future work (time/distance/hassle) any way they want.
malabargold
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Re: Partner dilemma - help a Dentist out!

Post by malabargold »

I’d say you have a good thing going.
No need to risk blowing it up over petty squabbles.

A lot of people have a lot more serious things to be worried about.

Count your blessings.
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Re: Partner dilemma - help a Dentist out!

Post by Bogle101 »

Based on the limited info you provided, partner 3 gets 40% of the money and the other two “lazy” partners get 30%.
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Re: Partner dilemma - help a Dentist out!

Post by deikel »

AnnetteLouisan wrote: Wed Jun 22, 2022 9:35 pm If so, this is called paying your dues, proving yourself, in the hopes of taking over the practice one day. It actually is fair but I get that it doesn’t seem that way right now.
I am not trying to be disrespectful, but this is a pet peeve of mine. Whenever I see someone invoke the 'pay your dues' its usually
a) an older person in the boomer range
b) a scam that weasels you out for free work at the vague promise of something in the future - which somehow rarely gets written in a contract

The correct way to do things is to put them in agreements and clearly spell out what is provided and given in return. Paying your dues is a really aged concept that should go the way of the Dodo
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Re: Partner dilemma - help a Dentist out!

Post by HMSVictory »

Who cares how many days they work or where. Simple calculation here my friend:

Revenue created / total revenue X net profits = payment. Which one are you the $1.7M guy?
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Re: Partner dilemma - help a Dentist out!

Post by deikel »

be careful what you incentivize people to do (including yourself)

If you put it down to collections, then that will be the goal for next year....maybe that is a desirable direction, maybe not - hard to say.

It also seems that two further offices are not quite as productive as the office 1 - from an optimization point of view, maybe having only one office with its related costs shared would improve overall profit for everyone ?

AN open discussion in the group may also help ? What is the current profit sharing plan ?
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Re: Partner dilemma - help a Dentist out!

Post by AnnetteLouisan »

deikel wrote: Thu Jun 23, 2022 11:04 am
AnnetteLouisan wrote: Wed Jun 22, 2022 9:35 pm If so, this is called paying your dues, proving yourself, in the hopes of taking over the practice one day. It actually is fair but I get that it doesn’t seem that way right now.
I am not trying to be disrespectful, but this is a pet peeve of mine. Whenever I see someone invoke the 'pay your dues' its usually
a) an older person in the boomer range
b) a scam that weasels you out for free work at the vague promise of something in the future - which somehow rarely gets written in a contract

The correct way to do things is to put them in agreements and clearly spell out what is provided and given in return. Paying your dues is a really aged concept that should go the way of the Dodo
I’m Gen X, so I know the frustration to which you refer and have been on both sides of it. I recognize that the concept of paying your dues is unsatisfying and even can be manipulative in some situations. Most professions that pay very well and have very high barriers to entry have intangible qualities associated with them - nuances that are hard to quantify, like judgment, commitment, bedside manner, depth and breadth of experience, reputation and institutional knowledge that improve over time like notes in a fine wine. We see that in the area I practice in as well, law. In partnerships particularly this lack of definiteness can cause problems, regardless of age.
Last edited by AnnetteLouisan on Thu Jun 23, 2022 11:48 am, edited 1 time in total.
Ameloblaster
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Re: Partner dilemma - help a Dentist out!

Post by Ameloblaster »

I am in a dental partnership where I am the primary producer by a sizeable margin.

We take a % production salary as a base. The remaining net profits are assessed quarterly. Distributing the net is split accordingly:

75% production based
25% equity based

I would say there are times when I feel like I benefit more from that arrangement and other times when he benefits more. Ultimately we came to the conclusion that we stand to gain more together than apart and that a few thousand dollars that swings one way vs. another on an annual basis isn't enough to torpedo the ship over.

We have it in our operating agreement to reassess our method every couple years to allow for compromise as needed. It has changed a couple of times, but this is where we've currently settled.
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Re: Partner dilemma - help a Dentist out!

Post by tiliqdinich »

pharming2017 wrote: Wed Jun 22, 2022 11:48 pm
YoungDentist wrote: Wed Jun 22, 2022 9:14 pm My scenario, in a very simple format.

There is a pot of 2.6M to split between three dental partners at the end of the year. 5 offices.

Partner 1: 1.2M in collections. Works 2.25 days a week at 1 office.
Partner 2: 1.2M in collections. Works 2.75 days a week at 1 office.
Partner 3: 1.7M in collections. Works 3.75 days a week between 3 offices (about 20-30 minutes between offices)


How do you split this money if you are constructing a brand new operating agreement for this group? Thanks for any advice.

Frustrated Partner,
Young Dentist (not so young anymore)
Most fair way would be for each partner to earn a salary for time in office, then splitting the profits equally three ways at end of year.
This.
Mike Scott
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Re: Partner dilemma - help a Dentist out!

Post by Mike Scott »

What does the partnership agreement which in place say? If you are frustrated by the agreement going forward you should be talking to your partners not bogleheads. What does the agreement say about a partnership buyout and you starting your own practice? In the big picture, are you better off working with or without these partners?
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Re: Partner dilemma - help a Dentist out!

Post by PowderDay9 »

It sounds like you might need to start your own practice but as you know there are challenges to doing that.

I don't think the pot should be split only on collections. I think the founding partner should get more than their collection percentage but not an even split 3 ways. There should be some consideration for you working more but you also didn't build the practice from scratch.
deikel
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Re: Partner dilemma - help a Dentist out!

Post by deikel »

pharming2017 wrote: Wed Jun 22, 2022 11:48 pm
YoungDentist wrote: Wed Jun 22, 2022 9:14 pm My scenario, in a very simple format.

There is a pot of 2.6M to split between three dental partners at the end of the year. 5 offices.

Partner 1: 1.2M in collections. Works 2.25 days a week at 1 office.
Partner 2: 1.2M in collections. Works 2.75 days a week at 1 office.
Partner 3: 1.7M in collections. Works 3.75 days a week between 3 offices (about 20-30 minutes between offices)


How do you split this money if you are constructing a brand new operating agreement for this group? Thanks for any advice.

Frustrated Partner,
Young Dentist (not so young anymore)
Most fair way would be for each partner to earn a salary for time in office, then splitting the profits equally three ways at end of year.
That's not fair either. The profit at the end of the year is directly dependent on the revenue created. If one person works double the other two (presumably by longer hours), he would get more money due to the higher number of hours worked, but he probably also contributed 50% to the profits of which he gets only 1/3.

You would have to titrate the hourly salary close to the amount that no profits are made and all 'profit' is actually paid out as salary to make that fair.

Given that OP mentioned the pot is 2.6M profit - they clearly do not salary themselves anywhere close to accurate for that model.

Splitting it by collects seems the most 'fair' to me. The difference from partner 1 and 2 may be in the cases done or time efficiency and partner 3 gets some compensation for the extra time they put in - both 2 and 3 are less efficient then P1 somehow.
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hand
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Re: Partner dilemma - help a Dentist out!

Post by hand »

Assuming equal equity and no interest in evolving the operating model going forward (who works in what office)...

Revenue split based on collections
Expenses split based actual expenses in the offices the Dentists use to generate their revenue.
Truly shared expenses get split three ways.

Dentist three gets more of the revenue, but also responsible for the true cost of the three offices they use.

Motivation of each Dentist is to grow "their" office(s) enough to spread fixed costs across additional days / additional Dentists. Focus oddly seems to be on number of hours worked, when easiest path to increased profitability (margin and dollars) is to better utilize fixed costs.
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hand
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Re: Partner dilemma - help a Dentist out!

Post by hand »

AnnetteLouisan wrote: Wed Jun 22, 2022 9:59 pm But I do know the best bargaining chip is having another offer.
To piggyback on this very important point - if OP has been a member of this partnership for 15 years, it seems likely that one or both of the other partners is likely near retirement. Understanding what is desired to happen by all parties at retirement (does senior partner want junior partner to buy out remaining equity, sell to someone else, just fade away?) may provide good insight into how much leverage the OP has to push for a fair outcome in the short term.

Before discussing alternate approaches to splitting profits, OP should consider the economics of starting their own practice so they understand one of their alternatives.

It is likely also worthwhile for the OP to honestly evaluate not just their skills as a Dentist, but also their value to this specific dental business - are they doing more or less of their fair share in terms of sales and marketing, administration etc.? Technical skills are not infrequently conflated with business value.
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Re: Partner dilemma - help a Dentist out!

Post by BuyN'Hold »

I recently entered into a partnership. We agreed to taking 40% of our collections each week as a paycheck. Each month we pay overhead and then leave an agreed upon amount in the checking account. Anything above the agreed upon amount is distributed. We take the amount and split it into 2 buckets. Profits from Bucket #1 are split by ownership interest (we are 50/50 so we split it). Bucket #2 are split based on % of production (add up the total doc production and find out the percentage each produced of the total). If someone takes a lot of vacation, the other will likely produce more and make more. This is what we determined was most fair for our agreement.
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Re: Partner dilemma - help a Dentist out!

Post by pharming2017 »

deikel wrote: Thu Jun 23, 2022 1:36 pm
pharming2017 wrote: Wed Jun 22, 2022 11:48 pm
YoungDentist wrote: Wed Jun 22, 2022 9:14 pm My scenario, in a very simple format.

There is a pot of 2.6M to split between three dental partners at the end of the year. 5 offices.

Partner 1: 1.2M in collections. Works 2.25 days a week at 1 office.
Partner 2: 1.2M in collections. Works 2.75 days a week at 1 office.
Partner 3: 1.7M in collections. Works 3.75 days a week between 3 offices (about 20-30 minutes between offices)


How do you split this money if you are constructing a brand new operating agreement for this group? Thanks for any advice.

Frustrated Partner,
Young Dentist (not so young anymore)
Most fair way would be for each partner to earn a salary for time in office, then splitting the profits equally three ways at end of year.


Splitting it by collects seems the most 'fair' to me. The difference from partner 1 and 2 may be in the cases done or time efficiency and partner 3 gets some compensation for the extra time they put in - both 2 and 3 are less efficient then P1 somehow.
What if one of them no longer practices, but is still a business partner? Would they receive $0 at the end of the year since they had $0 in production? All three are business owners and are entitled to profits whether or not they bring any money into the business.
deikel
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Re: Partner dilemma - help a Dentist out!

Post by deikel »

pharming2017 wrote: Sun Jun 26, 2022 10:38 am
deikel wrote: Thu Jun 23, 2022 1:36 pm
pharming2017 wrote: Wed Jun 22, 2022 11:48 pm
YoungDentist wrote: Wed Jun 22, 2022 9:14 pm My scenario, in a very simple format.

There is a pot of 2.6M to split between three dental partners at the end of the year. 5 offices.

Partner 1: 1.2M in collections. Works 2.25 days a week at 1 office.
Partner 2: 1.2M in collections. Works 2.75 days a week at 1 office.
Partner 3: 1.7M in collections. Works 3.75 days a week between 3 offices (about 20-30 minutes between offices)


How do you split this money if you are constructing a brand new operating agreement for this group? Thanks for any advice.

Frustrated Partner,
Young Dentist (not so young anymore)
Most fair way would be for each partner to earn a salary for time in office, then splitting the profits equally three ways at end of year.


Splitting it by collects seems the most 'fair' to me. The difference from partner 1 and 2 may be in the cases done or time efficiency and partner 3 gets some compensation for the extra time they put in - both 2 and 3 are less efficient then P1 somehow.
What if one of them no longer practices, but is still a business partner? Would they receive $0 at the end of the year since they had $0 in production? All three are business owners and are entitled to profits whether or not they bring any money into the business.
OP made the statement that all three were equal in all other terms and when they respectively bought into the practice, they did so on equal terms

My understanding of such a group is that the main aim is to share the cost of operation, a customer pool and the admin work involved.

One of them not working anymore (without selling the share) would IMO be an insult to the other two that still work - why would they want to share the fruit of their labor when one slacks off ? Its also a great set up to motivate a speedy transition to a new partner.

This could also be remedied by actually paying an hourly salary to the three partners as close to the profit as possible to guesstimate at the beginning of the year - never be perfect, but incentivizes to 'work' and not to 'own'
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