Partnership advice

RE: Partnership advice

grumpyoldman — Thu, 23 Mar 2017 10:15:28 GMT

[quote user="Anthony Todd"] always understood that a "salaried partner" was a "partner", actually and legally, in name only to give gravitas to an senior employee?[/quote]

Depends upon the deal . If they get a none equity share, they can be paid with a dividend which saves them and the business a lot of tax and NI. The business basically pays most of their tax for them .Also from the point of signing up they generate a share in the business goodwill or future growth. Basically its possible to become a junior partner without borrowing anything ,and there is a longer term reward for hard work and contributing to the business.

RE: Partnership advice

Paul Terzer — Thu, 23 Mar 2017 08:23:30 GMT

Thank you all so much for the replies, I am very grateful. They have opened my eyes too a lot of issues I may have missed.

RE: Partnership advice

Anthony Todd — Mon, 20 Mar 2017 22:19:24 GMT

[quote user="Jill Butterworth"]

I don't hear many people discuss being a 'salaried partner'. That might be a lower risk option. You get a profit share but don't own or buy a part of the business.

[/quote]

I always understood that a "salaried partner" was a "partner", actually and legally, in name only to give gravitas to an senior employee?

RE: Partnership advice

Richard Stephenson — Mon, 20 Mar 2017 22:12:56 GMT

Paul,

As others have commented going into partnership is a very personal thing, you need to be sure that you can get on with and work well with ALL your prospective partners - you don't need to be friends or even like each other but there does need to be mutual respect.

I would avoid any partnership where decision making is not equal - i.e. one vote per partner and as equal as possible ownership structure. The situation where one partner has 51% or a controlling share is not to my mind a partnership at all. You do however need one of the partners to be in a leadership role and also have a clear strategy of where you want the practice to go that all the partners sign up to.

You clearly have a good relationship with the practice - you used to work there full time and they have trusted you sufficiently to employ you in a locum role after leaving them. But you must remember that as a partner you are the business owner, responsible for everything, and you only get paid if the business turns a profit.

Consider the age profile of the remaining partners - is there a succession plan or may you be faced with several older partners to buy out at once.

Look carefully at profitability - if the practice has a poor profit margin it may be cheaper to purchase - but can you change the culture of the practice afterwards? If the profit margin is good then expect to pay more in goodwill.

In my view you should always seek to own the practice properties (I appreciate that is a controversial point) but historically property has always risen in value on occasion more than the general value of businesses, plus if you are not paying rent there may be better profitability (again slightly controversial).

Remember a partnership loan interest is allowable against income tax (or partnership tax in this case) and therefore maximise your borrowings in business and minimise any domestic mortgage.

I am not convinced that there are any real long term benefits in being a Ltd - traditional partnership is a much more flexible vehicle, saves considerably on NI (employers) contributions and is advantageous if the your vehicle is purchased (preferably leased) via the partnership. There are certainly (even now) short term gains in becoming an Ltd but over 10 years they even out.

Being a partner in a business comes with great responsibility but it also enables you to benefit from your own hard work and to contribute to the long term development of your enterprise

One final point. The growth of corporate veterinary practice provides a safety net for veterinary partnerships and increases their value - because there is now someone else who WILL be very interested in buying your business. Thus even if things don't work out there may still be an escape route!

RE: Partnership advice

Jill Butterworth — Mon, 20 Mar 2017 21:01:34 GMT

I don't hear many people discuss being a 'salaried partner'. That might be a lower risk option. You get a profit share but don't own or buy a part of the business.

RE: Partnership advice

Ashley Rubens — Mon, 20 Mar 2017 19:20:29 GMT

Good thread! Wish I'd asked this question when I was buying in.

My only additional points would be that it may be possible to negotiate a trial period where you are employed but acting as a partner just to see how the current partnership works and how your voice will be heard. I was lucky enough to spend a few years effectively like this. And to ensure that you have a PArtnership agreement drawn up which covers the exit options, for instance if a partner wishes to sell do the current partners have firstly refusal or indeed any say in who to? And if a partner wishes to work part time how does that affect their drawings?

RE: Partnership advice

Anthony Todd — Mon, 20 Mar 2017 19:11:08 GMT

[quote user="Jill Butterworth"]Another option: rather than taking a big bank loan, some partnerships are sold by the partners effectively being the bank, and taking more money out and working fewer hours as they phase themselves out.[/quote]

Yes, often practices sell to someone who them gives them a shedload of money which, as everyone should know is, particularly in this financial climate, not much use.

However, a private mortgage, between buyer and seller, is much cheaper, without legals, bank fees and constraints and gives the seller probably a better return than he/she could ever get from any investment; much easier to tailor terms to suit both parties. No disadvantages and advantages to both parties, IMHO.

RE: Partnership advice

rhmrcvs — Mon, 20 Mar 2017 18:46:47 GMT

We set up over 12 yrs ago , discussed 're partnership ( less paperwork etc compared to Ltd do), friendly bank manager advised to be aware in a partnership each partner is equally liable , v different to Ltd co. E.g. if 4 partners, loan of 100k , if 2 partners empty the tills , run up huge debts then bugger off to South America the remaining partner (s) ate fully liable for any debts.

RE: Partnership advice

Jill Butterworth — Mon, 20 Mar 2017 18:08:25 GMT

Ha ha, I think you are right!

One more thing for consideration: If you mortgage your arms and legs and then the business underperforms, you could be stuffed. Clearly, you take part responsibility for this (with all the aforementioned huffing and puffing), but, in some partnerships (perhaps the very highly valued ones) the payments are staged and dependent on profits.

Also: remember turnover is vanity, profit is sanity ;)

Another option: rather than taking a big bank loan, some partnerships are sold by the partners effectively being the bank, and taking more money out and working fewer hours as they phase themselves out.

RE: Partnership advice

Anthony Todd — Mon, 20 Mar 2017 17:50:49 GMT

[quote user="Jill Butterworth"]Trying to add something not already said:[/quote]

Crikey, just more pearls beyond price, or at least, hopefully, will save some sucker a 5 or 6 figure sum in legal advice. [no exaggeration]

This thread is giving better advice than most of the lawyers and accountants I was advised to, or did, consult and it's free!!!!!

The old adage was "what you need is a one-handed lawyer, 'cos what you don't need [but usually get] is a lawyer who says; "but on the other hand"....... and it is so,so, true!!

RE: Partnership advice

Jill Butterworth — Mon, 20 Mar 2017 17:37:55 GMT

Trying to add something not already said:

I have known practices have very acrimonious partnership dissolutions. I can't think of many where the partners don't moan about each other to some degree. Even my GP confides that his partner doesn't work as hard as he does (that's a common gripe)

Make sure if you are married that you have a prenup which would prevent your spouse affecting the partnership if you were to divorce

If you are a strong, type A character, at some point, you may begin to wish you had started your own nice little exotics practice...

Think carefully about the of partnership agreements in the event of one of you being ill. I know of one where a partner had no prospect of returning fully to work, but his agreement allowed him to sit tight, provide a locum, and effectively strangle the business for a protracted period.

Look at the figures, if they have been 'planning a sale', no investment for a couple of years hikes up the profit, and hence the valuation you are provided with.

The price is negotiable

Do they listen to your point of view now? If not, they may never do so...Go out with them together/ try sitting in on a trial partnership meeting.

Are you being taken on to develop the exotic side of the business? If so, you will feel you 'own' this part, and if, God forbid it doesn't work out, you will have had to sign a binding out clause (of debatable enforceability, but that's another story and depends on your morals) and so you could not just get cross, and set up up the road and take 'your' clients

Have a think about the investment you would need to set up your own practice on a small premises(no where near as much as you think, unless you are vain and want masses of fancy equipment immediately!), with risks and costs (plus a year or two to be profitable of low/no earnings), vs the cost of buying in to an established business, but an income is there immediately.

The cash difference in the above equation represents the cost of your attitude to risk/determination/fear.

RE: Partnership advice

Anthony Todd — Mon, 20 Mar 2017 17:36:56 GMT

[quote user="Malcolm Ness"]Her observation is that, in law, a business partnership is very much like a marriage with one big difference - marriage partnerships benefit from a plethora of divorce laws that exist to facilitate, and minimise the cost of dissolution while business partnerships don't. Hence my friends source of income!![/quote]

See my reply [10] passim

RE: Partnership advice

Malcolm Ness — Mon, 20 Mar 2017 14:24:33 GMT

[quote user="Anthony Todd"]8. Lawyers and accountants often don't give you relevant advice......[/quote]

I have a very good friend, a barrister, who earns substantial sums of money dealing with the aftermath of failed business partnerships. Her observation is that, in law, a business partnership is very much like a marriage with one big difference - marriage partnerships benefit from a plethora of divorce laws that exist to facilitate, and minimise the cost of dissolution while business partnerships don't. Hence my friends source of income!!

RE: Partnership advice

Braden Collins — Mon, 20 Mar 2017 14:22:37 GMT

What do you want to get out of partnership? Do you want more money, more responsibility, an investment? If you are just doing it for more money, you're going to hate it. You need to be prepared for the whole package, and a lot more you never dreamed would come your way.

Why are you going from locum to partnership? To me it sounds like a massive leap from minimal to huge responsibilities.

If it's something you really want, make sure you talk through all the "what if's", including the really uncomfortable ones such as professional relationship breakdown, permanent disability, death, etc. You need it all down in writing before you sign on.

RE: Partnership advice

J G Wray — Mon, 20 Mar 2017 12:49:55 GMT

One other thought. Once you become a partner, you should have the attitude that you're in something for the very, very long term.

RE: Partnership advice

Bob Russell — Mon, 20 Mar 2017 11:04:19 GMT

Perhaps have a word with Phil Chaplin. He helped us start the practice. Pretty free of bulls+it!

https://www.chaplinassociates.com/

We have tried a number of accountants over the years and found inflated fees for limited benefit seems the norm!

I believe entering a good partnership with a well prepared agreement has to be a good option where it is offered. If you are being asked because they value you then it is well worth considering.

Perhaps better to have a limited company with 'partners' being directors but getting independent advice is a must IMO.

RE: Partnership advice

grumpyoldman — Sun, 19 Mar 2017 17:46:56 GMT

[quote user="Anthony Todd"]

I don't understand this unless lease to the proposed partnership is intended/in place/to be paid for/etc.

[/quote]

Valuations based on profit can be hiked if the profit does not include any later "leasing" of the premises back to the partnership from the owner.

[quote user="Anthony Todd"]Just be aware that, unless written in the partnership agreement, each partner has an equal share in the business regarding management etc. and that ALL partners must agree on ANY decision unless agreed otherwise.[/quote]

Usually people get around that with different types of share option.

The ALL bit is a recipe for disaster in business terms. Getting 4+ vets to agree on anything is impossible .The ALL will just lead to inertia and lack of investment, followed by CVS . There will probably always be one principle decision maker, with a majority share ,otherwise it will not work.

RE: Partnership advice

Anthony Todd — Sun, 19 Mar 2017 17:32:03 GMT

[quote user="grumpyoldman"]2. Owned buildings with masses of equity [/quote]

I don't understand this unless lease to the proposed partnership is intended/in place/to be paid for/etc.

and

4. cars in minute detail re costs and replacements and wives and girlfriends and children!!

6. "Things" that "always have been" charged to the business [partners' wives cars, running costs, wages etc]. need exact clarification.

7. "Holiday" entitlement of partners.

8. Lawyers and accountants often don't give you relevant advice......

9. Read, learn and inwardly digest "Partnership Law" Geoffrey Morse [cheap pback] but worth a lot!

10 As Mr Finlay, my wise old accountant said "think, think and think again, it's like marriage but one hundred times harder to get out of" to which I add and "a **cking sight more expensive....."

Just be aware that, unless written in the partnership agreement, each partner has an equal share in the business regarding management etc. and that ALL partners must agree on ANY decision unless agreed otherwise, independent of "share" or rank or seniority and, conversely, you are responsible for ALL the partnership and/or partners debts.....

eg a partner or partners cannot even hire a cleaner unless you all agree etc. etc. etc.

The sum total of the advice on this thread could be worth a lot of money, sooner but, unfortunately, probably later!!!!!!!!!!!!!!

finally be very, very wary of any valuation prepared by anyone with a vested interest 'cos it's probably grossly inflated. that includes agents and specialised accountants or owners!

[someone please correct any of this advice if it is incorrect]

PS I'm sure the dinopartners on here will peruse a redacted agreement for you before you sign it......

PSS I nearly signed a surgery lease which stated that no animals were to be kept on the premises........ from a lawyer who knew the full story!

RE: Partnership advice

J G Wray — Sun, 19 Mar 2017 16:46:05 GMT

[quote user="grumpyoldman"]

Things to avoid:-

1. top heavy with elderly partners who take a full salary without contributing much in turnover

2. Owned buildings with masses of equity

3. long standing over paid ancillary staff

4. Re investment levels in equipment and CPD. (Not doing this can make things look a lot rosier than they really are)

5. Partners holiday excesses , cars , people getting there moats cleaned via the business.

[/quote]

Absolutely. I would also be wary of spouses in the business.

RE: Partnership advice

Marie Kubiak — Sun, 19 Mar 2017 16:12:50 GMT

I have found dealing with small animal partners quite hard work as they assume the exotics side will work exactly the same as cats and dogs and the differing equipment/schedules/turnover etc is disregarded. It is hard to be a lone voice singing a different tune so helps massively if there are other partners with exotics experience who understand this and take it seriously if you want to focus on and develop the exotics work.

Marie

RE: Partnership advice

grumpyoldman — Sun, 19 Mar 2017 15:58:31 GMT

Things to avoid:-

1. top heavy with elderly partners who take a full salary without contributing much in turnover

2. Owned buildings with masses of equity

3. long standing over paid ancillary staff

4. Re investment levels in equipment and CPD. (Not doing this can make things look a lot rosier than they really are)

5. Partners holiday excesses , cars , people getting there moats cleaned via the business.

RE: Partnership advice

Paul Terzer — Sat, 18 Mar 2017 16:34:00 GMT

Thank you for the advice! Makes me feel a bit better.

RE: Partnership advice

Michael Woodhouse — Sat, 18 Mar 2017 14:43:22 GMT

Have a hard think about how many partners there will be and how much input you will have in the business. Does everyone have an equal say or will the new guy be shouted down by a majority of existing partners.

What would you change in the practice, I'd speak about that before hand.

Is it a partnership, limited company etc. It makes a difference, ltd is losing tax advantages, but is a flexible system allowing easier addition and removal of directors.

Be aware that everything stops with you. When something breaks, something runs out, complaints, staff hiring, toilet leaking, tax, etc. As a boss I want to be friendly and approachable, but sometimes you have to pull rank and say no. I underestimated the amount of management that goes into running a practice. Even with a dedicated practice manager there are a lot of decisions only you can really make.

It's by far the best thing I (we, my wife is a vet and a director in the practice) ever did, but it can be hard at times. We have 4 vets and 2 have left so we are waiting on an experienced girl starting in May, giving 2nd on call to the 2016 grad who started at the beginning of the month and trying to push her through her OV training at the busiest time of year for us. Currently disappearing up my own backside.

If you are keen go for it.

HSBC were great lending the money if the books look healthy.

RE: Partnership advice

Rob Loxley — Sat, 18 Mar 2017 14:32:00 GMT

[quote user="Paul Terzer"]Are there any resources out there that offer advice, as well as financing options?[/quote]

Google will find you lots of information & things to consider but it'd be well worth paying for some tailored advice. There are veterinary accountancy companies or 'business development' or sales companies that offer such e.g. http://www.anval.co.uk/buying-into-practice ; http://www.hazlewoods.co.uk/sectors/vet-accountants/buying-a-practice.aspx