Solo Practitioner (No Incorporation)
This type of practice structure is when a doctor is not incorporated. In this case, the doctor does not have the personal asset protection advantage that a corporate shield has to offer. Being non-incorporated, if someone files a malpractice suit against the doctor, they will not only be after all his business assets (equipment, accounts receivables, checking/savings accounts, insurance coverage), they will also be able to easily attach claim to his personal assets (home, furniture, vehicles, savings accounts, checking accounts, stocks, bonds, etc.).
Obviously, practicing solo (unincorporated) is very risky. The average doctor will have three malpractice cases filed against him during his career. Are you going to leave all your assets exposed? I hope not. There is no sure thing when it comes to lawsuits, but a corporate shield is usually effective in protecting your personal assets from business related claims. Therefore, incorporating your business is strongly recommended.
What is your motive for seeking a partner?
The two main reasons people seek a partnership are:
1. Sharing the stress. Starting a new practice on your own is extremely stressful. However, if you choose a partnership, you are setting yourself up for even more stress when the partnership inevitably fails.
2. One doctor wants the use of another doctor’s money. Remember, the person who puts in most money will want—and demand—most of the control.
Do you really want a partner? Consider the following statistics:
• 70% of partnerships break up within two years.
• 90% of partnerships end in divorce.
• Partners never share the same passion, work ethics, work habits, management views, etc.
• A divorce in business can be just as traumatic and expensive as one in marriage.
The break-up of your partnership will undeniably confirm that entering into a partnership was the most expensive mistake you ever made.
If You Are Determined to Start a Practice with a
Partner, Follow this Rule
Sign a partner separation settlement agreement before you start your practice. You need to be able to end the partnership in a non-threatening manner. Decide, in advance, who gets the account receivables, X-ray equipment, adjusting tables, therapy, who leaves the facility, etc.
Don’t fool yourself into thinking that you don’t need this kind of agreement because you’re going into practice with your best friend. There is a tremendous amount of truth and warning in the phrase “best friends make the worst enemies.” If you execute a partner separation settlement agreement in advance, your best friend will probably remain a friend. It’s like having a roll bar on your Jeep. You hope you’ll never need it but, if you do, you’ll be happy it’s there.
Five Reasons Why Partnerships Blow Up
1. One partner wants to build the practice faster, work harder, and practice more hours than the other partner. The other partner works less, but still wants to share the income fifty-fifty. It won’t work.
2. One partner hires a spouse or relative to work in the practice. How can the other partner say, “No.” This always causes problems.
3. One partner takes cash from the cash drawer; the other partner does not appreciate being “stolen” from.
4. One partner becomes disabled. The other partner covers his practice for six weeks to ninety days. Any longer and the partnership will end in a divorce.
5. One partner wants to gouge insurance companies; the other partner is ethical. The ethical DC will end the partnership.
Advantages of a Partnership
The advantages of a partnership are sharing responsibilities, sharing expenses, and covering for each other.
Disadvantages of a Partnership
A major disadvantage of a partnership is that almost all partners are considered equally liable for the other partner’s mistakes. Depending on the type of partnership, if your partner is sued for malpractice, you will also be sued. If one partner gets a bad reputation with insurance companies, the same brush will paint the other partner. If one partner is over-friendly with patients of the opposite sex, the other partner’s reputation will also be tarnished. There will also be arguments over money when one doctor is generating more income or contributing more toward the growth of the practice than the other.
Should you incorporate?
Talk to your accountant—he’s the expert on your particular tax situation. As previously discussed, an advantage of having a corporation is that it usually limits your liability. If a creditor sues your corporation, they can go after the assets of your corporation, but probably will not be able to go after your personal assets. There are also a few possible tax advantages, i.e., you may be able to deduct your health insurance premiums, create a pension plan, buy your automobiles through your corporation, etc. However, it’s usually more expensive to run a corporation than it is to practice solo, and there’s definitely less flexibility of operation.
Three Types of Corporations
1. A Professional Corporation (PC) or Professional Association (PA). These corporations can only be owned by professionals. Most states that have PC or PA corporations require professionals to use these types of corporations.
2. An incorporation (Inc.) – If it’s legal to practice under an “Inc.” in your state, you may be able to hire MD’s as employees. Non-DC’s may be able to own a portion or all of the corporation.
3. A “Limited Liability” Corporation (LLC). This is a fairly new type of corporation in which your liability is usually limited to the amount of money you have invested in the corporation. Many attorneys prefer LLC’s because of their liability protection. However, most accountants don’t recommend LLC’s because of increased accounting expenses.
Again, check with your accountant to determine if you should incorporate and, if so, what type of corporation would best suit your needs.
When you’re through being an associate and are ready to start your own practice, hire a consultant who specializes in starting practices to guide you. Don’t think that you now have the experience necessary to start and build a new practice…you don’t! Yes, you’ve gained the experience of caring for patients and learned some good office procedures, but that’s not enough knowledge to start a successful new practice. You still have to learn how to find a great office location, acquire effective bank negotiating strategies and cost-cutting remodeling negotiations, as well as how to market a new practice, etc. It’s the lack of this specialized knowledge that dooms new practices, not the lack of knowledge regarding patient care.
Next in this series on “How To Start A Practice,” I’ll discuss whether or not you should start a practice by entering into an independent contract arrangement.
Dr. Peter G. Fernandez is the world’s authority on starting a practice. He has 30 years’ experience in starting new practices, has written four books and numerous articles on the subject, and has consulted in the opening of over 3,000 new practices. Please contact Dr. Fernandez at 10733 57th Avenue North, Seminole, Florida 33772; 1-800-882-4476; [email protected] or visit www.drfernandez.com.