Sparring partners

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Sorting out a proper legal structure for your partnership or associateship will help you figure out possible changes in the future.
Sorting out a proper legal structure for your partnership or associateship will help you figure out possible changes in the future.

When dentists come together to start a new practice it’s vital that they realise there are several essential ingredients in the recipe for business success. By Chris Sheedy

As the managing director of dental business consultancy Momentum Management—a company that works with dental businesses to create value and develop positive, long-term outcomes—Dr Toni Surace sometimes inadvertantly sees the ugly side of dental partnerships after the breakdown of a relationship. What makes the situation worse is a lack of preparation during the start-up phase.

“It becomes a living nightmare,” Dr Surace, who will often refer such businesses on to legal consultants, says. “We know of successfully run partnerships and associateships but to be honest they are few and far between. Things tend to begin breaking down after about five years. That’s when the honeymoon phase
is well and truly over.”

In order to prepare properly for future business success, for growth and change and development, Dr Surace says it’s vital to have the relationships defined for the short, medium and long term from the outset and then have the right legal documents put into place.

“You could be a partnership, in which you’re equal partners or separate businesses working under the same roof which is called an ‘associateship’.” – Dr Toni Surace, Momentum Management

“You could be a partnership, in which you’re equal partners of the same business, or separate businesses working under the same roof which is called an ‘associateship’,” she says. “No matter what you choose, you need some sort of legal document covering that.”

Rod Cunich, a commercial lawyer and national practice group leader at Slater & Gordon, agrees that proper planning and thoughtful legal preparation is absolutely essential when starting a new business. “Relationships will change,” he says. “For example, discontent and ill will arises if one person starts generating more revenue through quick consultations whilst another, on equal take-home pay, sees fewer patients and generates far less revenue because they have longer consultations due to quality care or perhaps poor work practices. These variances and many other potential issues of contention can be foreshadowed and accommodated in partnership or associated agreements.”

Sorting out a proper legal structure, Cunich says, helps you figure out how the relationship might change or develop in the future. Built in flexibility and fairness that can accommodate change often avoids relationship fractures that a rigid arrangement can’t. When one partner or associate exits—whether it’s because of retirement or a need to move away, or the partners simply dislike working together, or one becomes ill or dies—they need to have an agreed plan in place from the outset to address how they will handle such situations. “If they don’t have a documented plan it’s likely to end in a brawl that will cost a lot of money and cause a lot of stress,” Cunich says.

To have all necessary legal documents put in place it will likely take comprehensive meetings and discussions with a lawyer
To have all necessary legal documents put in place it will likely take comprehensive meetings and discussions with a lawyer

“Legally documenting a plan is a bit like paying for insurance; it’s always a grudge spend. People don’t tend to see the value of it. But after a few years in business that value becomes very clear. It’s vital that the partners document their relationship in terms of a partnership agreement or shareholders’ agreement. There are also several other agreements that must be in place from the first day including employment contracts, definition of the principals’ management roles and responsibilities, health and safety policies and a range of critical HR and inter-relationship documents that will help set the guidelines for how the business will develop.”

Many people spend more time planning a holiday than planning the future growth and direction of their business, Cunich says. As a result they end up getting lost. To have all necessary legal documents put in place it will likely take around three full days of meetings and discussions with a lawyer and other professional advisers such as an accountant, financier, insurance expert and business development specialist. But these can be spread out into smaller meetings over several months.

Insurance matters

Keith Till, national broker manager at Zurich Financial Services, suggests it’s best to see an insurance broker to have your needs fully understood. “There are two ways to get insurance,” he says. “Go direct to an insurance company or go to a broker. But insurance is complex and the experts, in this case the brokers, can work out what you need and who offers the best policy at the best price.”

“Dentists obviously need a good business insurance package to protect the contents of their surgeries from fire, storm etc and from burglary and theft. It is also vital that they have professional indemnity insurance in case the dentist is professionally negligent or gives bad advice.”

“Dentists need to have the usual property insurance but under some policies such as the Zurich Gold Policy, they can also have full accidental damage cover. So if they drop and break expensive equipment then it’s insured. Finally, they should also look to take out business interruption cover which provides income during the time a business is closed due to an event such as a fire.”

The partners in the business should take out life insurance on each other, our experts say. This means that if one dies, the other is able to afford to buy their late partner’s share of the business. Income protection insurance is also an important consideration.

Data is king

Without reliable, efficient and future-proof IT systems, a new business stands little chance of survival. Nevin McClintock, managing director and consultant within dental-specialist IT consultancy iTme (www.it-me.com.au), says the partners must discuss and agree on an IT strategy.

“Data is king within any company. Without it you’re dead in the water,” he says. “You need to think of three things. Firstly consider the security of the data. In other words, don’t have the server sitting somewhere that it will be hit by a door. The next consideration is the anti-virus system. Make sure it exists and is regularly updated. A lot of this is common sense but you’d be amazed at the number of people that don’t do it right. Finally and most importantly is backups. Set up nightly backups and ensure these are kept off-site but handy in case of an emergency. An encrypted online cloud backup can add another line of defence.”

Purchasing good quality equipment with a decent support contract will always pay off in the long run, McClintock says. And if you set up a regular maintenance process with an IT company then the life and reliability of your equipment will be improved.

For a final word of advice, Dr Surace says it is important for partners to sit down and discuss each other’s dental and business philosophies. If one wants to drill and fill and the other wants to do comprehensive cosmetic dentistry, there is going to be a problem.

“You often find that after a time, one partner wants to grow the business but the other wants to stay where they are because they’re comfortable,” Dr Surace says. “At this stage you can only hope the partners are prepared for such a situation when they first launched the business.”

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