|
 Some ancient seer, who was much wiser than many of us, is quoted as saying,
"Never go into partnership with anybody, not even your own mother." Why not? Because most partnerships are formed when lofty ambitions and respect for each other prevails. Often, there is little else, and they soon fall apart. When it gets down to the chores of operating a professional practice, including a massage therapy practice, things seldom work out exactly as planned. Still, some partnerships continue year after year. These are the ones properly set up where everyone works well with one another.
A partnership is an unincorporated association of two or more persons to carry on as co-owners of a business, with the understanding that profits will be shared. The essential ingredients include:
- A contribution to the partnership made by each partner;
- A division of profits, or liability for losses, by each partner;
- Each partner having a say in the operation of the professional practice.
The advantages to forming a partnership include:
- It is an inexpensive way for two or more persons to associate themselves for the administration of a professional practice or business.
- With today's high cost of doing business, it is seldom possible for a solo practitioner to earn anything more than a bare living. A partner helps offset operating costs. You can share waiting rooms, receptionists, assistants, office staff and so forth.
- Freedom of action. Within a partnership, each massage therapist can develop his or her own practice, and maintain his or her own clientele, yet share in those not of any individual therapist.
- Flexibility. The management of the practice, how things are done and future plans can be readily altered or adjusted to meet changing conditions.
- It nice to have someone else to share the load. You might be better at attracting new clientele, and your partner may be a better accountant. A partner may have developed specialized techniques you do not have but are demanded by your clientele.
- If there is too much for one, or there is opportunity to grow. A partnership is a good way to fend off outside competition. By offering an employee a piece of the action, this person is less likely to become your competitor.
- It is easier to take some time off, plan vacations and spend more time on your favorite recreational activity.
- An additional source of investment capital.
- In the event of dissolution, a new partnership can be quickly formed.
- You avoid double taxation, as it would be with an incorporation that taxes on earnings to the corporation and taxes on dividends to the shareholders. Losses, if any, can be deducted from personal income tax. There is no special tax on dissolution.
- Often, it is just nice to have someone to talk to.
Several disadvantages also must be considered, however. These may include:
- If a larger amount of investment capital is required, or where there are several partner-owners, this form of business organization is not practical. A partnership should be limited to three people. For the larger or capital-intensive groups, the limited liability, private-corporation, is preferable.
- There is unlimited liability for the actions of the partners, including debts. If one partner injures a client, commits some tort or damageable action within the therapy practice, the entire partnership could be enjoined in a legal action.
- Lack of legal entity. As a partnership has no entity, each partner may have the authority to act as an agent for the partnership, and bind it to contracts that the other partner(s) may not wish to enter. A partnership cannot be sued by one of its partners.
- Disruption. Personality and policy clashes occur. There is always concern about dishonesty, incompetence, a partner not wishing to fulfill his or her share of the responsibilities, etc. You cannot fire a partner as easily as an employee.
- There could be difficulty in delegating authority. One may be better at doing something than another is, yet the one less suitable may not recognize his or her shortcomings and frustrate the others.
- Dissension occurs if one partner wants to work very hard and develop the practice when another is only a minimum performer.
- The market for a partnership interest is almost zero. If you want out, and your partners refuse to buy you out, you may have to exit with nothing in hand. If your partners will buy your interest, they may not pay you a fair price.
- Any goodwill developed is usually accruable to the partnership, not to the individual therapist who created it.
- Partnerships are probably the easiest form of business organization to opt into and out of. They can be terminated at-will, by death, insolvency, certain acts or by court action.
- There are no special tax advantages, as all profits are siphoned off to the partners.
 Define Your Objectives
Before entering a partnership, it is essential that you rationalize your objectives in light of what is realistic. Establish with certainty what you will gain, what you will give up, what the other person is bringing into the practice and what they are giving up. Decide that it is a fair trade-off. At the same time, ensure that the way to terminate the partnership is there.
Beforehand, it is beneficial to know the individuals with whom you will partner: their training, experience and areas of expertise. You will want to be sure that you can get along with this person. Having previously worked together for some time is most helpful. When selecting a partner, look for compatibility, offsetting experience and ability, and financial contribution. Their objectives and goals should be the same as yours.
When a new massage therapy practice is being established, resolving some of the issues or agreeing on individual authorities, divisions of profits, and delegating responsibility may not be all that difficult. However, if you have an established practice and are now bringing in a partner who will own part of it, dividing the enterprise is more complicated. The mechanics must be clearly spelled out with nothing left to chance. Too often, good friends become antagonists. With an amalgamation of two or more developed practices, each must be fairly valued, and that value vended in for a percent of the newly formed partnership. All must agree that the contributory value of each other's practice is equitable.
Before considering a partnership, partners should agree on:
- Management philosophy and objectives. How should the practice develop, and are there areas open to specialization;
- Performance expectations and requirements;
- The decision-making process;
- Division of control for the operation of the massage therapy practice;
- Details of the compensation plan (i.e., how everyone gets paid);
- Division and payment of operating expenses;
- That the Code of Ethics of the American Massage Therapy Association is adopted, and will be adhered to by all partners.
Division Of Expenses And Profits
It is important to devise a formula to cover division of expenses and profits. Profits can be placed into the following two separate categories:
- A percentage return on capital investment or contribution, which could be different by each partner if there are differing amounts of investment.
- Another percent of the net income generated for the partnership by the individual therapist.
 After paying the expenses, assuming no residual profits are left in the firm by way of undistributed income, the surplus is paid to the therapists. For this, fixed expenses (rent, insurance [but not malpractice insurance], utilities, janitor service, etc.) should be equally divided among the partners. Each therapist incurs an equal amount of fixed costs, whether he or she brings in $7,000 or $70,000 per year. Variable expenses (receptionist's wages and benefits, supplies, and other operating costs, etc.) should be divided on the basis of income generated. The therapist who brings the most dollars into the practice pays the most variable expenses, but also takes home the most money. By this procedure, one therapist does not subsidize another.
You need a partnership agreement that should, at the minimum, contain:
- The authority of each partner to bind the partnership, and the limitations of that authority;
- Duties of loyalty to the partnership;
- Specific responsibilities of the individual partners for the operation of the practice;
- Rules for making decisions on ordinary business matters;
- A noncompetition clause, so that each partner does not compete with another;
- Rules for loans to and from the partnership;
- Rules for hiring employees, and responsibility for their training;
- Rules for the admission of new partners;
- Rules for training junior partners or interning nonpartner massage therapists;
- Rules for joint ownership of all real and personal property;
- Rules for dissolution of the partnership, and division of assets;
- Rules governing the sale of a partnership interest to an outsider;
- Rules covering prevention of collusion. This is where two or more partners
"gang up" by nefarious means to get another out.
If there is no agreement, there should be no partnership.
The Buy And Sell Clause
It is necessary at the outset that rules for dissolution be included in the partnership agreement. Always insert what is generally referred to as a shotgun buy/sell agreement. By this, if you want your partner out, you make an offer to buy his or her interest, detailing therein the price you are willing to pay, the terms, and any special or other conditions attached. Your partner has a preagreed number of days (seldom more than 30) in which to accept or reject the offer. If rejected, he or she can buy you out for exactly the same price, with the same terms and conditions offered to him or her. As there is a possibility that the partner you want out will prefer to buy your interest rather than sell his or hers, and this is the catch, you could be the seller, not the buyer. Therefore, it is fundamental that your purchase offer be equitable. If no partner will make the initial offer, the only alternative is to sell the practice to an outsider, or divvy up the assets and dissolve it.
The shotgun agreement, unfortunately, does not work too well, should a partner die and that partner's estate wants to cash out, or where there are several partners with only one wanting to terminate the relationship, or one that the others want out. A way to resolve this problem is to insert a clause in the partnership agreement that gives all partners an irrevocable option to buy the interest of any partner that can be exercised in the event of death, or for just cause. However, just cause must be clearly spelled out. Voluntary sellouts are normally negotiated at the time of dissolution. As the value of the practice will change over the years, rather than set a firm price, establish a formula by which the price will be calculated. If the partners who wish to remain want their percent ownership to remain unchanged, the agreement must be structured so that all partners participate in the purchase as per the percent interest of each, as it was prior to exercising the option. The alternative, or you can use both, is to include a first right of refusal. If the remaining partners do not wish to buy the estate or interest of the partner leaving, he or she, or the estate, can offer the interest to an outsider. However, any individual partner, or the joint partnership, has an agreed time frame during which, if matching the price, he or she becomes the buyer.
The Closely Held Corporation
If four or more partners are involved, or there is an intensive capital investment, you are advised to form a closely held incorporated company. Except terminology, little has changed. Rather than a partnership, you will now have a shareholder's agreement. It should spell out all of the same clauses and conditions, including responsibilities, division of profits, and buy and sell provisions. It is always wise to run your agreement past a qualified tax accountant. There is little point in striving for years only to see your accumulated earnings frittered away to the IRS.
No matter which you choose, to save considerable legal fees, it is best if all agree, in advance, to the basic understanding of the partnership or shareholder's agreement. There is no need to sit in front of an expensive lawyer to haggle over the rudimentary points. This can be done in someone's kitchen. When you have all agreed on the basics, have your lawyer draw up the agreement. Make it for the day that you probably will not like each other, which probably will occur, with the finer points negotiated when cooler heads prevailed.
Retirement Considerations
It is wise to plan for retirement well ahead of time. The easiest way to ease out is to structure an
"earn out." By this, you set up a formal partnership with the new partner's interest increasing over the time that you wish to remain. An equitable formula is calculated whereby a certain portion of his or her income is retained by yourself and applied to the purchase of your interest. If it works out, on retirement day, your interest will be fully retired, and your partner will own it all.
Husband And Wife Partnerships
The husband and wife partnership is becoming a more common form of business organization, not only in massage therapy practices, but in businesses of all types. The rewards and the pitfalls are similar to all partnerships, but some are more accentuated. The important criteria is that it cannot be a master-servant relationship, but instead a partnership of equals.
Complications in husband/wife partnerships are created when the married couples carry their personal problems and disagreements to the office, and at the end of each day take the problems of the practice into the living room. At night, they do not talk about nonbusiness matters--kids, schools, politics, or whatever--but only what happened during the day. Many couples fail to make a clear-cut distinction between their personal lives and their working relationship. Neither has a life apart from the other. Frequently, as there is no segregation of the marriage and the business partnership into separate categories with no quality time spent apart, either the massage therapy practice or the marriage fails. Often, it is both.
On the other hand, there are many successful husband and wife partnerships. Why do many succeed while others fail? Sharon Nelton, in her book In Love and in Business (Wiley, 1986), reveals nine key characteristics of successful spouses working together.
- Marriage and children come first;
- Spouses demonstrate enormous respect for each other;
- They have a high degree of close communication;
- They complement each other's talents and attitudes and carve up the turf accordingly;
- They are supportive of each other;
- They compete with the outside world, not with each other;
- They like to laugh;
- They keep their egos in check;
- They are committed to making their marriage work.
However, there is one more. They manage a successful professional practice. It is easier to get along when everything is running smoothly, when the practice is progressing and is profitable. When there are reversals--a shortage of money, excessive pressure and all is turning to mud--there is a natural tendency for each spouse, or partner, to blame the other. Too often, business reversals bring about marriage failures.
The Office-Sharing Agreement
In my more than 30 years of involvement in many businesses, I have been in five different partnerships. None were that successful over the longer period. So would I venture into another partnership? No. However, I would again enter into the last arrangement (husband/wife), which worked well for me, and would work well in a massage therapy practice. Rather than a partnership or stock ownership in a private incorporation, have an office-sharing arrangement.
This form of joint practice, or association, is usable in any profession where the clients are attached to the individual practitioner and not to the firm. (It is not recommended for a law office or auditing practice where several lawyers or accountants may be involved with the same client.) In this arrangement, two or more massage therapists, each with his or her own individual clientele, operate under a common roof and divide expenses. They may jointly practice under a firm or trade name, and so far as the outside world is concerned, they are partners. However, each maintains his or her own exclusive therapy practice, does not share income or profit, nor is responsible for the actions or liabilities of any of the others. And best of all, it is the easiest form of relationship to opt into and out of.
If you wish to work hard, and the other therapist(s) very little, except where it affects the reputation and character, or is a drain on the firm, you could care less. You are only responsible for yourself, to conduct your own massage therapy practice, and pay your share of the overhead. That is all. Still, there should be a written agreement that details what each expects from the other(s). Other than this, all else is the same as would be in a partnership or shareholding.
In conclusion, are partnerships in massage therapy practices a good idea? Yes, no, maybe, sometimes, and all with qualifications. So much depends on the compatibility of the participants, their ability to work together, to share duties, responsibilities, respect the talents and abilities of the other(s), and for the most part, agree to agree. A well-structured, legally binding partnership agreement is the starting point. Still, it is a business arrangement, and as such, it is seldom give-and-take, but rather, give-and-give.
•••
Lloyd R. Manning is a writer and business
consultant based in Lloydminster, Saskatchewan. He can be contacted at: Lloydmann@home.com.
|
