Finances

The Benefits and Perils of the 50-50 Partnership

By Diane Palombi, OD

Nov. 18, 2015

Having a partner is common in the optometric profession. A doctor wanting to retire brings in a younger doctor to take over his or her practice. Two newly graduated doctors open an independentpractice together sinceneither has the capital to do it on their own. A parent brings their new OD son or daughter into their practice as an associate.

On the up side, a partneris someone to take the risks with you. You have someone to bounce ideas off of. If there is an age and experience difference, you can take advantage of the wisdom of the elder partner. The elder partner has the advantage of the youth, energy and ambition of the younger partner. However, the best laid plans can go south.

Before retiring, Ihad a solo practice, but I have experience with partnerships in other business dealings. I’ve learned that partnerships offer great opportunities, but they also can be fraught with challenges.

Two50/50 Partnership Models
Smart partnership.Two partners, one witha lot of experience in the field, and the other bringingyouth and energy, starteda business. The partnership wasa 49 percent, 49 percent and 2 percent arrangement. Who got the 2 percent you may ask?They gave it to a trusted employee in case there was ever a gridlock between the two partners. This eventually came into play. The senior partner started to have health issues. He came into work late repeatedly, did not work when he was in the office, and lethis personal hygiene slide. The younger partner and trusted employee eventually had no choice but to terminate him. Because they had the majority of the stock, this was possible.

Lessons learned. Give one or two percent to a third party who can serve as tie-breaker.

Not-so-smart partnership.In case two, the partners had set up a true 50/50 partnership. Initially everything went well. However this business, too, ended up having issues. Unfortunately, the disagreements led to gridlock. In addition, the partner who controlled the check book and the finances began to dictate policy. The other partner had no recourse.

Lessons learned. Avoid the straight 50-50 partnership. One might question why you would give away ownership to a third party? In case one, the stock was a gift, but you could have the employee actually buy into this arrangement. In addition, if you do gift the ownership, you could have this money be part of the recipient’s severance or retirement package in the future.

If you do enter into a 50-50 partnership, take precautions, as the practice in case one did, to offset potential deadlock in the decision-making process. The goals for every practice are growth and increased profitability. Don’t let a mismanaged partnership be a hindrance to that progress.

Are you currently in a 50-50 partnership in your practice? Would you consider entering into this kind of arrangement? Why or why not? What are the pitfalls and the advantages?

Diane Palombi, OD, now retired,owned Palombi Vision Center in Wentzville, Mo. To contact her: dlpod1@hotmail.com

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