Fairness in partnership

[earboy]

Hey guys. Quick question. I am about to buy in to a small practice. The other partner is in his late 50's with about 5 years left in him. He may choose to slow down surgically sooner than that, however. If so, he would continue clinic work and feed me patients for surgery.

My question is how would you handle overhead sharing in this scenario. If we are no longer doing the same amount of work, is it fair to simply split the overhead 50/50? Should it be based on revenue? Number of patients seen? Anyone with experience in this situation?

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[DrBodacious]

50/50 may or may not be fair.

My partner and I split up "fixed" overhead expenses (rent, utilities, insurance, office manager) and "variable" expenses (payroll for shared hourly employees, office supplies, clinical supplies, postage, etc). Fixed expenses are split evenly, variable expenses are split according to collections. The chart of accounts has to be kept accordingly by your office manager and your accountant, but this is a common way to split things, and it seems fair for us, with out nit picking too much.

You don't have that much overhead associated with time dedicated to surgery (employees time to schedule cases, field calls, etc). So, by him doing only clinic work, he may or may not have any decrease in office hours/supplies etc.

 

[resxn]

There's several ways to do this. DrB mentioned one low-maintenance way of having unequal overhead without being overly burdensome. I favor that for small practices like this two person one you describe. A higher income generating doc is nearly always going to take more overhead so having an unequal split is the most fair way to accommodate different practice styles. The other is to watch for every expense and apply it to each doc separately. That is a nightmare even for small practices so it's not a good option. Another fair way to to consider the following.

Suppose you generate income 50% higher than he does. You cannot assume that your overhead is 50% more than his. In fact, it may be much closer to even than you initially think because he is generating surgical cases for you which move you out of the office where your overhead is on the OR and not on your clinic. Nevertheless, you wouldn't generate that income without his feed, so you essentially could just mutually decide on a "fair" split. You cover X% more of the overhead in good faith for him sending you surgical cases. Suppose you did earn $500k to his $250k. I would say that you pay 65-35 overhead. That keeps things simple for you and staff. There are formulas to figure out what is "fair" but really what's fair is what you guys agree is fair, regardless of what the formula says.