Are you considering selling a portion of your practice to an Associate?
One needs to realize, an Associate Buy-In is a partial sale of your practice. Many of the issues that are required for a full-practice sale are needed to ensure a successful and enduring Associate Buy In partnership. Essential key elements such as an appraisal, negotiation of selling price, asset purchase agreements, a real estate contract (if real estate is applicable), a non-compete for all parties and of course the financing of the practice for the buyer.
However, unlike a complete sale, an Associate Buy-In will entail some of the following issues:
- Tax analysis and (re) structuring for both the buyer and the seller to assure the minimum tax consequences while assuring maximum tax benefits.
- Negotiating and drafting of all legal documents.
- Structuring withdrawal formulas for the remaining partners.
- When desired, buyer assistance to acquire the needed financing.
- Compensation packages for each partner should be fair and incorporate several elements based on the responsibilities of each partner and the amount of time each doctor works each week & duties included.
- Fair compensation structure and steady practice growth insure success for all partners
- Exit strategies for the senior partner and the expected time frame and amount of remuneration received.
- Practice liabilities that the Associate will have to inherit with a purchase.
For example, unfortunately if the practice is incorporated; a stock sale does not allow the buyer the opportunity for depreciation and results in buying the practice with post taxed dollars, rather than pre-taxed dollars. This is one example of numerous intricacies our expertise will play a vital role in. Total Practice is not only the premier brokerage firms to conduct associate buy in transactions however also due to the complexity is one of the only brokerages to perform such transactions.
Thus, when selling a portion of the practice in an Associate Buy-In, often times it requires the restructuring of the operating entities. This process allows both seller and buyer the ability to arrive at a position after the sale with the fewest tax consequences.
The final value of a practice based on an associate buy-in will differ from an outright sale in that the associate buy-in will normally assume practice liabilities with the seller.
Associate buy-ins normally proceeds as follows:
- One of the most important factors for both principals to determine the practice value is: 1.) The buyer has not overpaid. 2.) The seller has received fair compensation.
- Help negotiate a fair and equitable structure for buyer and seller.
- Structure agreements include compensation and exit strategies for all doctors.
- Discuss all financing options and help with financial assistance for buyer when needed.
- Structure and prepare agreements for review by the buyer and seller attorneys and accountants.
- Interface with attorneys and accountants to complete financial documents.
- Assist and direct closing.
The good news is that an Associate Buy-In is generally a win-win situation for the seller and buyer but navigating the process can be tricky and time consuming.
The Total Practice Solutions Group has worked with attorneys and accountants and will bring to the table a detailed plan on how to proceed for both seller and buyer. We try to solve all the issues that are required for a successful and enduring partnership.
Realizing how difficult the transition from Associate to Partner or Partner to Associate may prove to be in many situations. After all, as previous practice owners, we have been on both sides of the table during our practice careers.
Remember, communication is the key and the most important aspect of the arrangement. After all, both parties will be working side by side for many years and a positive introduction of a new partner can mean the success or failure of the new partnership and thus, the practice itself. Any animosity over a less than fair deal can negate benefits of a flourishing partnership.