The Optometry Partnership Sale Formula for Success
Should you consider bringing in a partner before selling? In earlier blogs we discussed selling your practice outright. In many cases the best exit strategy is to bring in a partner, maintaining a share of ownership.
Advantages of Partnership Sale
Here are some advantages: The senior partner shares the duties of running a practice, both administrative and clinical. This can reduce stress. A partnership offers a built-in buyer for the senior partner. The partnership agreement (or stockholder agreement in the case of an S Corp) will have a provision for how each partner can sell his interest to the other upon retirement.
Vested Interest In Practice
As an owner, the junior partner has a vested interest in making the practice grow. The junior partner is typically younger, and brings enthusiasm and new skills to the practice. A buy-sell agreement will provide instructions on transfer of ownership should one of the partners die or become disabled.
As the practice grows, each partner’s equity grows as the practice’s value increases. The practice is worth more when it comes time for the senior partner to sell his portion to the junior partner. Pick your partner wisely! You will likely spend a lot of time together. You don’t have to be best friends, or have the same personalities, but both partners need to agree on the overall strategy of the business. Working together prior to forming the partnership will help determine compatibility between the owners, as well as the staff.
Cash Flow Is Critical to Success
Successful partnerships depend on good cash flow. Careful analysis of the net profitability of the practice must be performed to see if the arrangement will provide adequate compensation for each partner. There is only so much profit available, and now it has to be split between two owners. The surest way to guarantee a failed partnership is inadequate profitability.
So how do you split the pot? I recommend a formula that splits the profits based on both productivity and equity. The productivity component rewards each partner’s ability to generate sales; the equity component gives each owner incentive to increase business indirectly, through practice management and administrative duties.
For example, a compensation formula of 80/20 (my usual recommendation) would mean that 80% of the profits would be split according to each owner’s productivity, and 20% would be based on each partner’s respective share of ownership.
Time for an Attorney
Choose an attorney that specializes in corporate finance. A contract is not that important when things run smoothly – it’s when things go south that they become critical.
If you would like some personal advice on the issue of partnerships, retirement or selling your practice, just schedule a time for us to chat.