Okay folks. Here is my situation and I could really use any help/general insights and/or guidance.
My current setup: I have my own LLC and my own orthodontic practice. I also have a satellite practice but it is a shared space arrangement with another office. Since I didn't build the office and they provide me with the majority of my new starts, they take about 20% of my collections (which has been working out fine) and I am paid as a 1099. I deposit the monthly checks from this satellite into my main quickbook account with my LLC and it has been pretty smooth.
My dilemma: I am interested in opening another office in another area (away from my other offices) that I know will do well. Problem is - I am already stretched pretty thin and there is another orthodontist about my age (he is actually a semi-competitor to my main office) that is interested in opening up an office in the SAME area. Long story short - we ended up meeting to talk about this and got along so well that we decided to open up this expansion together as partners. If we get along with this new start up, we will merge our other practices together into a group practice 2-3 years down the line. We will have a separation agreement / buy out clause for this partnership/start up as well just in case we can't get along.
Now the Twist: The building we would love to open is owned by a popular local general dentistry corporate chain. They have offered us to either lease the building out right with no ties OR they can take a 10% ownership (with a 3 year separation agreement after in case we don't like the arrangement, me and my future partner can buy them out with a pre-determined ratio/value - this part is being negotiated now but may be the deal breaker of their stake). In turn, they will provide us with 100% referral of ALL their general dentistry offices along with book keeping, HR, marketing, collections, billings etc. Between me and the other guy, we can handle all that it BUT it would be very taxing and having 100% of their referrals would be HUGE for a new start up practice plus it would be nice to be more hands off (as I am already spending a lot of time doing my own HR/401k admin/quickbooks etc in my own practice). We shall see what happens with this depending on if the clause for the 3 year buy out of their 10% is favorable to us.
My questions:
1. Other orthodontist has his own LLC and I have mine. If we were going to partner 45/45/10 (with corporate chain) - should we structure the move as - my LLC 45%, his LLC 45%, Local Corp 10% OR me and him start a NEW LLC and do it 90/10?
2. The reason why I am asking is because:
a. What set up would allow me and him to get another 401k? We won't own 80% of the new business if we structure it 45/45/10 ... right?
b. If we did 45/45/10 - wouldn't it be an accounting nightmare? "oh hey, I bought some pens for the office - you owe me 45%/10%"??
c. Is there a distinct tax/simplicity advantage in 45/45/10 or 90/10 set up? Especially if me and future partner split ways on this start up and I buy him out?
3. Are there any other issues I should be thinking about? I have many that I am contemplating but don't think they are critical at the moment. For example, conflict of interest as partners in new start up. Both of our offices will be losing about 5-10% of our patient base to this new office but it's a leap of faith for both of us since we plan to merge our offices if this start up works out. He already said he doesn't mind me buying him out in case it doesn't work out since I live closer to this new start up.
Lastly, I know some will disagree with doing any partnership as I have heard tons of horror stories myself. However, I have been in solo practice for the last 9 years and I am tired of the solo practitioner set up (maybe I will regret it later when I have a partner). I strongly feel that 1+1 in our case may equal 3 when we combine our strengths and complement our weaknesses but who really knows.
Okay - whew, sorry for such a long rambling post. Hope this makes sense and thanks in advance for all the insights/advice!
My current setup: I have my own LLC and my own orthodontic practice. I also have a satellite practice but it is a shared space arrangement with another office. Since I didn't build the office and they provide me with the majority of my new starts, they take about 20% of my collections (which has been working out fine) and I am paid as a 1099. I deposit the monthly checks from this satellite into my main quickbook account with my LLC and it has been pretty smooth.
My dilemma: I am interested in opening another office in another area (away from my other offices) that I know will do well. Problem is - I am already stretched pretty thin and there is another orthodontist about my age (he is actually a semi-competitor to my main office) that is interested in opening up an office in the SAME area. Long story short - we ended up meeting to talk about this and got along so well that we decided to open up this expansion together as partners. If we get along with this new start up, we will merge our other practices together into a group practice 2-3 years down the line. We will have a separation agreement / buy out clause for this partnership/start up as well just in case we can't get along.
Now the Twist: The building we would love to open is owned by a popular local general dentistry corporate chain. They have offered us to either lease the building out right with no ties OR they can take a 10% ownership (with a 3 year separation agreement after in case we don't like the arrangement, me and my future partner can buy them out with a pre-determined ratio/value - this part is being negotiated now but may be the deal breaker of their stake). In turn, they will provide us with 100% referral of ALL their general dentistry offices along with book keeping, HR, marketing, collections, billings etc. Between me and the other guy, we can handle all that it BUT it would be very taxing and having 100% of their referrals would be HUGE for a new start up practice plus it would be nice to be more hands off (as I am already spending a lot of time doing my own HR/401k admin/quickbooks etc in my own practice). We shall see what happens with this depending on if the clause for the 3 year buy out of their 10% is favorable to us.
My questions:
1. Other orthodontist has his own LLC and I have mine. If we were going to partner 45/45/10 (with corporate chain) - should we structure the move as - my LLC 45%, his LLC 45%, Local Corp 10% OR me and him start a NEW LLC and do it 90/10?
2. The reason why I am asking is because:
a. What set up would allow me and him to get another 401k? We won't own 80% of the new business if we structure it 45/45/10 ... right?
b. If we did 45/45/10 - wouldn't it be an accounting nightmare? "oh hey, I bought some pens for the office - you owe me 45%/10%"??
c. Is there a distinct tax/simplicity advantage in 45/45/10 or 90/10 set up? Especially if me and future partner split ways on this start up and I buy him out?
3. Are there any other issues I should be thinking about? I have many that I am contemplating but don't think they are critical at the moment. For example, conflict of interest as partners in new start up. Both of our offices will be losing about 5-10% of our patient base to this new office but it's a leap of faith for both of us since we plan to merge our offices if this start up works out. He already said he doesn't mind me buying him out in case it doesn't work out since I live closer to this new start up.
Lastly, I know some will disagree with doing any partnership as I have heard tons of horror stories myself. However, I have been in solo practice for the last 9 years and I am tired of the solo practitioner set up (maybe I will regret it later when I have a partner). I strongly feel that 1+1 in our case may equal 3 when we combine our strengths and complement our weaknesses but who really knows.
Okay - whew, sorry for such a long rambling post. Hope this makes sense and thanks in advance for all the insights/advice!
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