Is it Time to Add a New Partner to Your Practice?
So your practice is busy and patients are waiting a long time to get appointments. Your gut response to the stress might be “I need to hire an associate or add a partner.” Before you act, stop and think – you don’t want to end up with a problem partner.
Associate physicians’ salaries are usually a practice’s biggest staffing expense, and by adding a partner, you’re committing to what amounts to a marriage. There are many reasons why adding another physician to your practice makes sense—and just as many reasons why it doesn’t.
Evaluate Your Options
Before you decide to incorporate another physician into your practice in any capacity, make sure that’s really the solution you’re looking for. “Most doctors hire associates too soon. What they should probably do is hire more staff,” said practice management consultant Gary Gerber, OD, in an interview with the Review of Optometry. You can solve many productivity problems through better staff delegation, he continues.
First, Try This
Neil Gailmard, OD, MBA, FAAO, agrees. Delegation is “one of the most powerful practice building strategies there is, yet it is vastly underutilized,” he told attendees of Vision Expo East in 2016. Why? Doctors have many excuses for not delegating more, but most of them are just that—excuses. The real problem is that the physician is either stuck in his/her ways, has control issues, or simply doesn’t know how to delegate effectively, he continues.
What Can You Afford?
One of the most common misconceptions is that doctors think they can’t afford to hire more staff. But most doctors also find that when they finally do shell out for that extra tech, their “productivity goes up more than the payroll cost,” Gailmard notes. He routinely finds that practices that employ more staff than similarly-sized practices tend to be the most profitable.
Extra Staff vs. Associate
Determine whether or not you need more staff by carefully observing your operations for about two weeks, advises Gailmard. Note the places you see bottlenecks—the checkout desk, the pre-test room, the exam rooms.
Need a quick and dirty way to figure out if your staffing level is optimal? Use this rule of thumb, courtesy of Dr. Gailmard: You should have one staff full-time equivalent (FTE) per $150,000 of collected gross revenue. To calculate the FTE, add all staff hours per week and divide that total by 40.
Rule of Thumb?
Accepted wisdom often says that practices should bring on another doctor only if they’re grossing a certain dollar amount—usually around $800,000, notes Gerber. But more and more physicians are making quality-of-life decisions. They think about things like:
- The hours they want to work.
- How much time they want to devote to work and family.
- Amount of compensation they want for that work.
- The income they are willing to trade for that work-life balance.
Assuming you have no other way to increase your capacity, consider hiring an associate if your schedule is consistently booked out more than one week in advance. Patients who have to wait longer than a week may opt to go elsewhere and your revenue will take a hit.
Associate vs. Partner
The decision to take on a partner or hire an associate comes down to your long term goals and the reason you need another doctor. Some physicians automatically think they need a partner, but you can accomplish many practice goals simply by hiring an associate. Hire an associate if you want to:
- increase practice profits
- share the workload
- expand your practice’s hours
- increase your practices value
- add new services
No Partner Needed
You won’t need to give an associate any equity, and in fact, he or she may not want any.
“Selling and buying interest in a practice is, in one sense, for all parties a financial investment in their respective futures.” —Robert J. Landau, Esq.
Some physicians are getting wise to the fact that there isn’t a guaranteed “pot of gold” that comes with a partnership. The reality is that partners get paid last, after the business expenses and the employee’s salaries. Partners are the first ones to take a reduction in compensation during tough times. There are plenty of physicians who have no interest in owning and managing a practice, with the accompanying administrative duties, risk, and liability.
Pick Up a Partner
There are really only a few goals you can’t accomplish without adding a partner:
- Allocating risk: When you add a new partner, each partner is responsible for a smaller share of the risk, debt, and other liabilities.
- Extracting equity: Bringing on a new partner means selling part of your practice. You may be able to access some equity without retiring, and you won’t have to get fully paid out. You can still earn revenue, with the potential to build even more equity in the practice by increasing its value. When you do sell your remaining ownership interest, you’ll reap the increased benefits.
- You want an exit plan in place—now: If you’re looking to secure an eventual buyer for your practice in the short term, a partnership may be the way to go. But again, it’s not the only option. Physicians often hire associates and put them on “the partner track” for a few years. That way, they can evaluate whether partnership is a possibility.
If you go the associate route, make it clear that there’s no expectation that you will offer him or her a partnership, cautions healthcare attorney Robert J. Landau. Use the “associateship” period to “evaluate whether you can deal comfortably with another person, yes, about business matters, but in a way that is comfortable on a personal level that requires a high degree of trust,” he says.
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