First in a three-part series: Eyes wide open ensures successful partnership

DVM Newsmagazine readers who have seen my articles in the past know that as an attorney and business counselor, I am very conservative in recommending veterinary partnerships.

It is a reality nonetheless that partnerships in our profession do servesome purposes and under the correct circumstances, can benefit both patientcare and the financial and personal well-being of the partners.

There are two keys to successful partnership. First, the veterinariansentering into the partnership need to enter it with their eyes wide opento every potential consequence. Second, the doctors involved must createa detailed plan at the outset to deal with the inevitable changes in circumstances,which life brings with it.

Out from under

Not long ago, a 50/50 partner in a professional corporation called meto discuss how he could get out from under his co-owner.

They had formed a corporation to carry on their very successful practice,but their attorney never drafted any documents other than the certificateof incorporation and the stock certificates.

Ten years ago, the partners, then 30 and 45 years old, were both fullof fire and energy and worked side-by-side to build their gross revenueto $3 million. The older partner had always been the president; the officedidn't really seem important back then.

Now, the older guy is getting tired. He comes in late and leaves early.His work is less reliable and he recently went to the bookkeeper and toldher to give him a raise "because I'm the president and I'm not gettingenough pay." Naturally, the bookkeeper refused and told him both partnerswould have to authorize her to do that. When she told the younger doctorwhat had happened, he was livid.

Both agree on one thing

At this point, the only thing the two agree on is that the younger partnershould buy the older one out. They fight about their pay, they fight aboutinventory purchases, and they even disagree about whether new employeesshould be hired.

But at the heart of the disagreement is what the older partner shouldget for his share of the business when the younger one buys him out. Theyounger partner figures four times cash flow (75 percent of gross) is aboutright. Until the problem is resolved, the older partner plans on comingto work 2.5 days a week for the same pay he has always received; the youngerpartner is powerless to prevent the reduction in hours.

This is an example of two similarly sized fish battling it out as partners.

Big fish, little fish

Let me share another example of one big fish trying to swallow a smallerone.

I recently heard from a charming practitioner who had developed a verysuccessful practice out of the basement of his home in Rhode Island. Notfar away was the office of another veterinarian who had been classmateswith the solo veterinarian; he had developed a much larger practice, whichemployed several associates.

Dr. Bigfish approached Dr. Littlefish and said since they were both terrificpractitioners and since the Bigfish clinic was nearby, the two practicesshould merge into a delightful combination in which all the Littlefish clientswould come to see their favorite veterinarian at the Bigfish location. Dr.Bigfish explained that since the smaller practice was one-fourth the sizeof the larger, the proper thing to do would be for the new partner to have25 percent of the stock and for the large practice owner to hold 75 percent.Their oral agreement was that the two would get equal pay and share profitsaccording to their stock ownership.

Everything went fine for the first two years until Dr. Littlefish's clientswere all nicely accustomed to walking into the Bigfish clinic. Eventually,while some continued to insist on seeing Dr. Littlefish, most eventuallywere willing to see whatever associate appeared in the exam room to takecare of them. And then it happened.

Dr. Bigfish issued himself a $50,000 bonus followed by a $50,000 loan.Six months later, Bigfish signed a lease with the clinic's property ownerBigfish Realty LLC, which increased the rent by 50 percent. After that,Dr. Littlefish was still a 25 percent partner, but his partnership profitchecks were pretty puny.

Hatfields and McCoys

The answer to these potential problems is not necessarily to write offpartnership as a viable practice option.

Certainly, there are situations where multiple people can accomplishmore together than they can separately. But as these stories explain, divergentinterests or predatory players can lead the unprepared into serious problemsand expensive litigation. If you don't believe it, just ask the Hewlettand Packard families.

In the next two installments of this partnership series, I will explainthe importance of selecting the correct form of business organization andthe need for identifying and addressing the pitfalls that can land a partnerin a bad relationship, a financial pit, or worse.