I have been an associate for 5 years in a practice, well-compensated (40 % collections minus 50% lab). I left another partnership to pursue this associateship full time last year, working to a future partnership buy-in. Last year production about $1 million, although it did drop off the last 4 months due to the recession. Also last year, the owner completed a rather large build out in a new office space, probably in the $700k range (via loans).
My question is: do I buy into the loan amount when I do buy in, and if so, does that reduce my buy-in amount?
Depending on the structure of the buy-in, yes, any debt reduces the asset value in terms of YOUR buy-in figure. That’s because after you buy-in a portion of your profits will be going towards reducing the debt.
Think of it like this, there's a house you want to purchase that's been appraised for $100,000. If there's a mortgage on that house for $80,000 AND it's assumable, you would pay the owner $20,000 for the house, NOT $100,000 because you're also taking on the debt. If you bought a 50% interest in the house your payment would be $10,000 and each of you would be responsible for half the debt.
Make sense?
If not, is it a good idea to even consider buying in to a practice with a large liability?
Depends, might be a blessing! Might mean minimal upfront money from you! What about the large asset?
He is also talking about not including the equipment in the buy-in figures, that by the time I buy in, it will have depreciated to a point where I would be paying more than I should for it, that he's doing me a favor to keep it out of the equation. That's confusing to me.
Me too.
Now for some reason, maybe because of the recession and/or the build out loan, he has yet to show me anything resembling an agreement, or any idea of how much he wants for a buy-in amount , keeps putting me off (it's been about a year since we first talked about partnership). I can guesstimate, but I don't want to work here and find out later that his figure is too high/not workable. My other option would be purchase a place of my own now, instead of waiting (my plan B). Looking for input?
Press the issue, PRESS THE ISSUE! Ask for a written proposal by the end of next week, or a timeframe you're comfortable with that's shorter rather than longer. Say that unless you begin to see the ball rolling you have to consider other opportunities.
Thanks!
This post first appeared on DentalTown.
Send your questions to Tim Lott, CPA, CVA at tlott@dentalcpas.com
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