Silkin Management Group consultants help their clients with a variety of practice management issues including hiring and training staff, job descriptions and office policies, marketing for new patients and numerous other aspects of running a health care practice.
Often, when clients have been with Silkin Management Group for a period of time, they grow to a point where they take on an associate and, at some point look at bringing them on as a partner. Below is an example arrangement that Silkin Management Group consultants give their dental clients who are looking at such an arrangement.
Here are the salient points.
• Have the practice appraised after the first year with the associate
Use the formula below to appraise it:
Revenues (year before associate + year of the associate) x 60%
2
• The associate locks in the ability to buy ½ of the practice at the valuation rate determined using the above formula even though he’ll actually buy the practice in three years.
• The associate’s income goes up from 35% after lab to 40% after lab. The associate keeps 30%; the other 10% goes into escrow.
• The associate uses the money accrued in the escrow account to be the down payment for the buy-in and gets a loan from a bank to handle the amount owing.
Assumptions:
• The practice will continue to grow to produce enough money into escrow.
• The owner can reduce his time in the practice.
Advantages:
1. To associate:
In the fourth year, when the associate actually buys the practice, he buys into something that has already appreciated tremendously. In one actual example the practice was originally valued at $540,000 which meant his buy was $270,000. But in the fourth year when he bought in, the practice was now worth $811,000 meaning his share was ½ or $405,000. (This is a net of $135,000 or a 50% ROI in three years.)
2. To original owner:
a. He/she gets extra net income each of the four years before the associate becomes a partner.
b. He/she gets the full value of the practice as it was appraised when the associate started on the partnership track. In other words, he/she gets the $270,000 (which is ½ of what the practice was valued at before the associate got on the partnership track).
c. He/she still owns 50% of the new value of the practice, which in this case is $405,000.
The above is only one type of buy-in arrangement that Silkin Management Group consultants have in their arsenal for clients interested in bringing on an associate as a potential future partner. For more information about other ways Silkin Management Group can help you with associates or any other practice management issue, call us at 800-695-0257 or visit our website at www.silkinmanagementgroup.com
SCOTT BARNARD
Silkin Management Group Consultant
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