An equity business partner brings pros and cons

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Content submitted by Florida Veterinary Advisors, a dvm360® Strategic Alliance Partner

Business ownership can feel like you’re on an island. Let’s look at an extreme example like the President of the United States. Every day there are decisions that need to be made, and certain decisions could determine the overall fate for those people inside the country and the national ties with other countries. The President has counsel but ultimately will make the hard decisions even if they turn out good or bad. The same thing happens when someone starts a business. Most veterinarians who start a veterinary practice love the idea about practicing medicine their own way. Many dream about having the flexibility and freedom to come and go as they please. The downside is that there are too few practice owners that get to live like this today. Most are sucked in the daily grind and take on too many responsibilities due to them wanting to be helpful and maybe a little bit of a perfectionist (just like myself). The other reason brought up is how the potential owner, or current owner, is not business savvy so there is a lack of leadership and guidance inside. Imagine, you’re the person that will have to live with the positive and negative consequences from the decisions inside the practice. This can create a tremendous amount of stress.

So, what is the best solution? You can find counsel to support your practice while you continue to practice medicine OR you can start working with a business partner. There is a term that is thrown around when you bring on a business partner called being “business married.” Depending on the amount of ownership each person receives, this can create a multi headed dragon that can impact the overall direction and decisions that are made about the practice. Sometimes ownership is tossed around as an employee retention tool. This can be a huge mistake for the owner because the ownership might be impossible to get back in the end. This could be a small amount but now that person is obligated to see the financials, and they could provide input in the practice. When you are the majority owner the decisions are solely on your shoulders and getting input can be helpful along the way. But if the sole purpose was to give someone ownership to retain them inside the business this could backfire later. There are other options like phantom stock and deferred compensation arrangements that can provide that person with upside of profits and extra money without giving up ownership.

What are the pros and cons to bringing on an equity partner within a veterinary practice? Let’s explore what that looks like.

The PROS to Joint Business Ownership

Ability to split the workload

Each person has their “native genius”, and duties can be divided accordingly. When there is another person involved, especially when they have skin in the game, the desire to do better will usually be higher because they have something to potentially lose. Depending on what is desired from both or multiple partners the duties can be broken up so each person can spend time doing what they truly enjoy instead of feeling stuck having to do everything.

Specialize in specific areas compared to being the jack of all trades

Maybe you’re good at business, or medicine, or interacting with people. There could be a specific type of medicine that you want to practice like holistic or surgical. When there is one person that must be everything to everyone the time and energy to focus on being a specialist in one area can feel impossible. There are times that other employees like a practice manager could help remove specific duties that did not require a lengthy education but when there is a business partner involved the idea is that they are equally committed. That will usually provide each person the time and space to focus on what they want compared to what they have to do.

Someone to build something with

Business ownership can be lonely because you are the sole person taking the risk and responsible for the outcome. A business partner can provide a balance to just practicing medicine and another person that can help with the clarity and direction of the veterinary practice. Sometimes knowing what decisions to make, and what is good or bad can be difficult when you are doing everything alone.

1 + 1 = 5

There are times that a partner can dramatically increase productivity. Think about your team for a moment and those specific people who appear to be doing multiple jobs at a time. When there is someone on the team that is aligned from a vision and complimentary skillsets the veterinary practice can excel at a different level both medically and profitably.

The CONS to Joint Business Ownership

Business married and ownership splits could lead to conflict

When taking on a business partner, the person you choose to provide equity should not be taken lightly. Owners often will attempt to provide ownership to employees as an incentive but once the equity is given to someone the ability to get the equity might be a challenge. Whenever one person has 51% ownership or more than they are considered a majority partner. Ultimately, they are the ones who call the shots but the person who owns the remaining equity could cause problems for the majority. Make sure that you have a well written and funded Buy-Sell Agreement along with being at least 90% confident that the person you are going to partner with is the right person.

Different visions for the veterinary practice

Most people will do a handshake deal or talk about things without writing them down. As time passes, we all change and the vision that we have for our lives and business will change. At first when the practice was started maybe you both were on the same page but the WHY was lost in the whirlwind of life. As a solo owner, you likely do not spend enough time working on the business and when a partner(s) gets involved this can be the downfall to many relationships. Make sure to set up regular check-ins and quarterly business discussions to get in alignment every so often and to make decisions as a team.

Numerous ways that things could go south

The person you started business with might not be the person you thought they were. Maybe they were perceived to be good at the finances or medicine, maybe they seemed in alignment with what you wanted as the bigger picture for the practice. We each have struggles that we work through at depending on how everything is documented from disagreement, divorces, sickness, death, retirement, felonies, etc. could hurt the culture, direction, and overall success of the veterinary practice.

You might have the desire to partner with someone to take away certain responsibilities, or maybe you enjoy working on your own and build a team around you that can take on the unappealing duties. Whichever way that you decide to go make sure to understand your WHY for the veterinary practice, and the vision for where you want the practice to go over time. This will be your beacon for whenever you are lost, and you can easily correct course or make adjustments where you see necessary.

Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS). Securities products and advisory services offered through PAS, member FINRA, SIPC. Financial Representative of The Guardian Life Insurance Company of America® (Guardian), New York, NY. PAS is a wholly owned subsidiary of Guardian. Florida Veterinary Advisors and The Next Step Planning Group are not an affiliate or subsidiary of PAS or Guardian. Florida Veterinary Advisors is not registered in any state or with the U.S. Securities and Exchange Commission as a Registered Investment Advisor. The individuals associated with Florida Veterinary Advisors do not maintain specialized licenses or qualifications for the financial services provided to veterinary professionals. CA Insurance License #0K80141, AR Insurance License #15823672. This material is intended for general public use. By providing this content, Park Avenue Securities LLC and your financial representative are not undertaking to provide investment advice or make a recommendation for a specific individual or situation, or to otherwise act in a fiduciary capacity. Guardian, its subsidiaries, agents, and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation. GARI # 8013426.1 (Exp 05/27)