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Articles

The Professional Advisory

  1. Is it Time to Move?
  2. Staging A Dental Practice
  3. The High Cost of Dying
  4. Deal-Busters
  5. Patients - Attract and Retain
  6. Should I Stay or Should I Go?
  7. Is There a Buyer for Every Practice?
  8. Good, Better, Best - The Market has Spoken
  9. Smooth-Sale-ing
  10. Buying Time
  11. Patients, Patience, Patients
  12. A Real Patient
  13. Why Do a Practice Valuation? I'm not Selling
  14. Irrational Exuberance or The New Normal?
  15. Do dental equipment and dental technology affect a practice value?
  16. Finding and Being a Mentor
  17. Bigger is Better
  18. Daves Top Ten List for Buyers (Vendors should read this too!)
  19. How Well Do You Know Your Practice?
  20. Dave
  21. What will happen to dental practice Values in the next 10 years?
  22. Your Premises Lease is an Important Asset
  23. What are Associates Thinking?
  24. There is Life Outside the GTA
  25. When Is the Right Time to Sell My Dental Practice?
  26. Mergers are a Viable Option
  27. Is Your Associate an Asset or a Liability?
  28. Has your Practice Facility Kept Up With Your Billings?
  29. The 100 per cent of Gross Myth
  30. The Past, The Present and The Future
  31. Caveat Emptor
  32. Overpaid Long Term Staff
  33. Selling your Practice in Stages
  34. A Potential Pitfall of Selling Shares
  35. Value in Your Practice Through Balance
  36. Only Trusted Staff Can Defraud You
  37. To Own or Not to Own Practice Real Estate? That is the Question.
  38. Coping With A Large Patient Base
  39. Successful Dental Practice Transitions
  40. Taking Care of Business
  41. The Investing Dentist Phenomenon
  42. Two areas to focus upon that could negatively impact the value of your practice
  43. Organize your Debt in Order to Sell your Practice
  44. Having a Better Team
  45. How Do I Prepare My Practice For Sale
  46. How Do I Prepare My Practice For Sale? Part 3
  47. How Do I Prepare My Practice For Sale? Part 2
  48. How Do I Prepare My Practice For Sale? Part 1
  49. Advice to My Son or Daughter Graduating from Dental School
  50. Transition - What to Expect
  51. Discussion on Digital X-Rays
  52. Partnerships and Shotguns
  53. Strategic Planning - How to Get Started
  54. Calling All Vendors - Practices have Gone Up in Value
  55. Purchasers: Expect to Pay More for a Practice because of Lower Professional Corporation Tax Rates
  56. Matrimonial Practice Valuations
  57. Purchaser's Guide to Affording a Practice
  58. Location Improvements Throughout Your Career
  59. Small Practice Valuations
  60. Partnerships – The Best and The Worst
  61. Changing Location When the Opportunity Comes Along
  62. Visual Presentation of Your Practice
  63. Presentation of Charts
  64. Your Premises Lease Can Be Your Worst Enemy
  65. How to Select an Appraiser for Your Practice
  66. How Are Your Billing Ratios?
  67. It Pays to Invest in Your Tangible Assets
  68. The Importance of Separate Financial Statements
  69. Five Time Frame Levels to Sell a Practice
  70. 12 Suggestions to Safeguard Computer Data
  71. How to Buy a Visible Practice
  72. Why is there a shortage of good practices today?
  73. The Importance of Equipment in the Purchase of a Practice
  74. The Balanced Practice
  75. Will My Practice Be Saleable in The Future?
  76. Buyer Be Aware
  77. Excess Profit - The Second Key
  78. Patients and Profits are the Keys
  79. Plan Ahead

Volume 28: Partnerships and Shotguns

Download the PDF version now!

As I have stated before, I am not a big fan of partnerships but maybe that’s because I’m prejudiced by my experience with poor partnership agreements. Only recently I’ve had to deal with a couple of partnerships in trouble – mostly because of the poor to impossible partnership agreements. If the partnership is in trouble there should be a provision to have it dissolved in a fair and amicable way.

I feel this can be arranged by a well written “shotgun clause” that would be valid in a number of potential changes in partnership. A “shotgun” is an escape hatch mechanism. In a shotgun arrangement, when one shareholder makes an offer, the shareholder receiving the offer can either accept or not. If the offer is not accepted, then the shareholder who turns down the offer, in turn, must buy the other partner's interest for the same terms as the original offer. It is harsh, but it provides protection for both parties and a mechanism to exit as well as to determine price and terms.

In any separation there should be provisions for unequal size partnerships where one partner’s practice is small and the other’s considerably larger. The concept of a single offer fixed value to accept or turn the shotgun around would not be fair to both parties. There should be recognition that the value of one practice needs a modifying factor to reflect the difference in values of the partners. To think that one partner sets a price and the other partner must accept or offer the same price for his partner’s practice is not fair. Potentially, an offer as a percentage of last years gross would be fairer; i.e., 90% of the other partners last years gross (on $500,000 gross the other partner would offer 90% or $450,000). But if the other party wished to pick up and reverse the shotgun he would have to pay 90% of his partners gross (say 90% of $700,000 = $630,000). The $630,000 reverse offer would be a fairer relationship if the partnership is going to be dissolved.

You would be surprised how many partnership agreements do not even have a shotgun clause. In fact you would be surprised how many partnerships do not even have an agreement with provisions for separation. And I’ve even dealt with a few partnerships where a Partnership Agreement doesn’t even exist. Good shotgun clauses make fairer relationships in a separation situation.

Professional Practice Sales drafts many agreements, such as Agreement of Purchase and Sale or Associate Agreements and we always recommend that all new partnership or cost- share agreements be drafted by an experienced lawyer specializing in dentists’ legal issues. It should be unique to the two or more partners who are forming the partnership or cost-share. The agreement should lay out a resolution for as many potential changes as possible with a fair outcome. There should be a provision for such things as altering the profit sharing arrangement when circumstances between the partners change – such as one doctor wishing to cut back a day or two a week. Partners should review their agreement about every five years to ensure that it is still as valid as when they formed the partnership.

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