When asked about what it’s like having a business partner, I would often say it’s like being married. You talk about how to raise the kids (lead your dental team), what home project is next (repairing and investing in new equipment), and, of course, you talk a lot about money.
If that’s a plausible analogy, last year I got divorced. It was an amicable divorce, at least. My former business partner kept the house and kids and we’re still friends.
Now, I had a bit of a unique situation: I accepted an executive position at a large group practice that would eliminate my ability to provide routine care to patients. She bought me out of my 50% equity stake. We didn’t end the partnership because of irreconcilable differences, and there was virtually no way patients could follow me for their dental needs. In a sense, I “retired” from our practice. These circumstances are uncommon, but I believe the four lessons I learned from ending my partnership ring true for all scenarios, amicable or otherwise.
Lesson 1: Pick the right partner
If you're contemplating a partnership, there are two boxes you should check before you go into business with someone. First, do you and your future partner have complementary leadership styles? (i.e., Do you have a similar temperament? Can you communicate with each other effectively?) Second, do you have a shared vision for the practice?
My partner and I sorted these questions out in the very beginning. We would meet for coffee and talk about the kind of practice we wanted. We traded stories about associateships (the good, the bad, and the ugly) and the kind of dentistry we wanted to do. We talked about where we might open the office and how much space we might need. Not only were we learning if our visions were compatible, we were also getting a sense of how we might work together. If we had a disagreement about what to call our imaginary practice, could we get through it without an argument?
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Lesson 2: Create a partnership agreement and keep it updated
The best time to plan for a partnership dissolution is when you’re still friends. My partner and I had an agreement drawn up when we founded the LLP back in 2009. Fortunately, we’ve always remained on great terms with each other, but it would be unwise to bet your business on that.
If you’re in a partnership and you don’t have an agreement, draft one immediately. It’s easy to postpone this indefinitely as other matters take priority, but do your future selves a favor and get this squared away now.
If you already have an agreement, dust it off now and then and see if it needs to be updated. Is your agreement accurate in regard to how you pay yourselves, account for expenses, or share administrative duties? Think about your long-term exit strategy; does your current agreement allow you to ride off into the sunset the way you’d like? You and your practice have evolved over the years, so make sure your agreement reflects those changes.
Failure to have an agreement, or to have one that you and your partner feel is appropriate, will lead to a more lengthy, expensive, and stressful exit.
Lesson 3: Get separate practice valuations
Unless otherwise detailed in your agreement, you and your partner will need to come up with a number for what the practice is worth. There are several valuation methodologies that can be used (e.g., capitalized cash flow, net asset value, etc.) and each one can be calculated differently based on how the data is interpreted.
Each partner should have their own valuation done with an advisor. I worked with Allen Schiff, CPA, CFE, and I would recommend him or any of his colleagues at the Academy of Dental CPAs (ADCPA).
Lesson 4: Get separate legal representation if necessary
My partner and I agreed to use a joint mediator to draw up the final agreement. He was the same attorney who helped us create our initial partnership agreement over a decade prior, which was advantageous. We agreed that if the negotiations ever felt strained, we would immediately seek separate legal counsel to complete the deal.
Let me be clear: my partner and I were in a unique and amicable situation. We were generous with each other as the terms were being discussed, which was a reflection of how we were able to conduct business together for 12 years. But if at any point there was even one significant disagreement, we would have made the investment in separate attorneys.
There’s an old saying: you don’t get what you deserve in life, you get what you negotiate. There are many important terms that must be agreed upon when ending a partnership. Dividing assets, planning payments, drawing restrictive covenants . . . you need to be well-informed and well-represented when making these decisions. In my experience, it will be far more likely that a dentist will require separate legal representation to negotiate the best terms.
Closing thoughts
I still talk to my former partner. I love getting updates about our team members and favorite patients, or just catching up. I spent 12 years “married” to a talented, thoughtful dentist, and we genuinely had a great time leading the practice together. I’m glad that we were able to end that phase of our lives on a positive note. You can too, as long as you don’t leave it up to chance.
Editor's note: This article appeared in the June 2022 print edition of Dental Economics magazine. Dentists in North America are eligible for a complimentary print subscription. Sign up here.
