Selling out

[fasteddie911]

I'd take the sure thing and sell out.  The salary difference is relatively minor at that tax bracket and you just don't know what can happen in the next 5 years.  You may end up not minding the new role and be $1M richer for it, otherwise you could just suck it up and move on after 5 years.  If you don't sell out, there's a variety of risks you may encounter, and if it were me, the risks aren't worth $1M and a change in autonomy that may or may not happen.

[jfoxcpacfp]

lurch, is it really you?

[lurch]

They probably do understand compound interest but just don't care as much in the twilight of their careers. Obviously this matters more to you at an early stage. Autonomy and practicing the way you want and principles are for idealists and those who are financially independent, not for those with debt who are also playing retitement catchup.

[Zaphod]

okayplayer wrote:

 As my wife told me, some people are not financially motivated and don’t make decisions in order to profit personally. Why those same people want to be business owners is beyond me.

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Lol. True story.

[okayplayer]

My group decided not to sell out in spite of the massive interest from the national groups. I guess as a group we value autonomy and are very "principled" in terms of how we want to practice. The job is pretty good in every way currently - good money, fair lifestyle, and we govern our group internally as we see fit. From a financial standpoint I think selling for $1.2-1.5MM+ in a tax advantaged buyout would have made a lot of sense. I would have been willing to deal with being a cog in the machine (I frankly already feel that I am) and an employee of a large management company for the long term security that sale would have provided. I always had in mind that in a worst case scenario I could survive my five year obligation (I made it through residency after all) and then go wherever after.

I'm still happy here. I still have a good job. I just wish my partners understood compound interest, long term capital gains vs. normal income tax/state income tax, etc in the same way I do. As my wife told me, some people are not financially motivated and don't make decisions in order to profit personally. Why those same people want to be business owners is beyond me.

[EDDOCMOM]

I did EM with a 3 year residency and I currently make between 400-500K in an employed position with benefits.  Sometimes it just matters where you live. This year I'm picking up extra nights/weekends and am thinking I'll hit the 500 mark which is crazy to me, and thus my interest in finances and what to do with it all.

[Overlap12]

Oops I meant OP for Original Poster.  Thanks for the reply!  She will just be a partner for over a year, so hopefully the calculation is not too complicated.  Nice to know we wouldn't get taxed on getting our original buy in back (~$250k).

[jfoxcpacfp]

Overlap12 wrote:

On a side note, does anyone know if the PM will pay capital gains on the full $1.2M buyout or will part of that be offset by an adjusted cost basis in the partnership or corporate ownership?

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Sorry, I'm having a brain cloud - I thought PM was either Prime Minister or the part of the day after AM. What are you referring to? And I have no idea what you mean by corporate ownership.

The selling partner wil pay LTCG on the excess of sales price over the basis of the partner's share. The partner's basis = the purchase price + inside basis (in general, this is previously taxed income) + outside basis (it's complicated). As long as your CPA has been faithfully tracking and accurately calculating the adjustments to your basis each year, you will be fine. This might be the time (well, after April 18) to sit down with him/her and start calculating projected gain and doing some tax planning so you will be well prepared for the joyous event. Congratulations!

[Overlap12]

My wife's private practice has been positioning themselves the last few years to be sold, so I am very intrigued to hear about your outcome.  For her group, the physician incomes range from $300-$550k with most partners working a "normal" schedule making about $400k a year.  The current negotiations are making it sound like the partners will receive a big windfall, guaranteed salaries higher than what they make now, and board representation in their new organization. For us, this might mean accelerating our financial goals, one of which was paying non-mortgage debt off in 6 years (~$600k).  This all feels too good to be true right now so I'll be holding my breath the whole year until the deal goes through.

On a side note, does anyone know if the PM will pay capital gains tax on the full $1.2M buyout or will part of that be offset by an adjusted cost basis in the partnership or corporate ownership?

[kingsnake]

Play hardball and sell for 1.5M per partner with a guaranteed contract for 5 years. I left partnership PP for an employed gig...benefits to both. The think I like about being employed is the simplicity relative to running a practice, surgical center, etc. I actually work less and get paid more being employed...albeit with less autonomy and more bullsh$t.

[Zaphod]

Whats the alternative here? You already mentioned your wife likes the area. Is there a non compete?

I mean, I wouldnt essentially throw this money away and start from hope if thats the alternative. Maybe you can work on the contract and payback terms to be more in your favor than they currently are.

[jhwkr542]

I value autonomy over money. Also, work more, make more in your current situation. Nothing would prevent your future bosses from increasing your workload if you're salaried. My wife is salaried and they are constantly understaffed and overworked. Yeah, it'd depend on who buys you out, but without selling, you know who your bosses are.

[hightower]

Forgive me for prying, but what specialty are you in?  You started practice at 29 years old which means you only did a 3 year residency?  What 3 year residency can land you in a position making 500k+/yr?  Or did you somehow get through medical school at a younger age than most?  I think I chose the wrong specialty!

[okayplayer]

Thank you for the thoughtful replies. I was thinking about this issue basically in the way jjandjab has described, ie. the utility of front-loading a brokerage account early in my career and the "break even" point vs. staying put at my current job. I plan to work until about 55 or so.

Of course, you all bring up excellent points in terms of what you give up in this type of deal. I enjoy being a shareholder in a physician-owned corporation and all of the autonomy that entails, as described by WCI. But there are no guarantees in life in terms of whether my income will continue to grow - or even stay the same, whether we lose our contract in some hostile fashion, etc. But as DMFA said, there are worse problems to have than my 2 current options.

[jfoxcpacfp]

What is your partnership basis?