Almost a third of EEA qualified dental professionals working in the UK are considering leaving, with Brexit uncertainty blamed as the main reason, research by from the General Dental Council (GDC) indicates.
Therefore, it’s an obvious time for dental practices to look at bolstering their teams. Bringing in a new partner could be an attractive option to retain - and incentivise – professionals and deliver many other benefits.
A new partner can support overheads and manage the business during a time away; they can motivate and help grow the business; and generate new ideas, as well as bringing capital investment.
If bringing in a partner does appeal, be sure to carry out careful due diligence before making any offers. It’s important to understand if your practice can support a new partner, and you must be confident that the prospective partner is genuinely keen on taking on the role.
An associate who has worked for the practice for many years, who you know you can trust and get along with may seem the ideal candidate, but the position may not suit them – they may be risk adverse, or not feel in a position to take on the responsibility.
All parties need to be clear from the outset about the level of investment required. This can be a complex task, as there is no industry standard process for valuations, and because no two practices are the same.
There are different structures as to how a buy-in is financed. Generally, a down payment will be made, followed by interim payments over time. Tax issues will need to be scrutinised at the same time with your accountant.
An Expense Sharing Agreement (ESA) is a type of partnership where business expenses like staff wages, equipment, rent, everyday supplies and marketing are shared evenly between all those involved in the agreement.
Unlike general, traditional partnerships, however, dentists with an ESA do not share the profits that they earn at the practice, instead keeping all expenses and assets separate – a good way to boost business and increase monthly take-home.
An ESA also ensures that important details – such as how patients are to be allocated, what happens in the event of incapacity, absence or death – are outlined, so that all partners involved have a clear idea of what to expect and where they stand.
As with any agreement, there are potential risks that can occur, including possible disagreements and relationship breakdown. For that reason, it is always advisable to work with experts in drawing up a solid contract.
Because the agreement effectively means that separate businesses operate from the same practice, all dentists are personally liable for their own commercial risks and taxation payments.
Dentists sometimes opt for a Profit Sharing Agreement, and if this is in place, profits can be divided in any way, as long as it is legally agreed upon. Partners can factor in any reasoning for their profit sharing – the usual considerations being responsibility and capital contribution.
Responsibility is where profits are divided according to each partner’s role and day-to-day responsibility within the practice.
Capital contribution is where profits are split based on the amount of capital that was put into the business at the start of the partnership. For partners that are keen to utilise the concept ‘you get out what you put it’, a Profit Sharing Agreement could be the best option.
With any formal agreement, ensure that all clauses and restrictions are added to the contract, thinking about matters like what would happen in the event of sickness or death.
You need some careful financial due diligence and planning to make sure it works for both your practice and the potential partner.
Your accountant will be a very important member of your extended business team, providing much more than just your profit and loss account and balance sheet. In order to give sound advice, they must fully understand your business model and have a proper handle on your situation.
Take the time to meet and explain your personal goals and business objectives so that you’re all moving in the same direction. Once your accountant has a full understanding of what you’re trying to achieve you’ll have a much better chance of achieving your aim, and to help maximise tax efficiency across the board.