If there is an opportunity to become a shareholder in the group, inquire about whether or not there will be a “buy-in.” A buy-in is a financial purchase by a new partner to become a shareholder.
Usually, a buy-in allows equal compensation among others in the group. It is important to determine if the buy-in will result in equal ownership of the group among the shareholders.
Necessity to Join
Once the opportunity has been fully researched, it may be the best decision to not be a shareholder of the group based on many factors such as better earnings potential as a non-shareholder employee of the group. Be sure to determine if the group will require all partners to become a shareholder. If the group will require being a shareholder, understand the financial requirements of “buying-in” and the compensation methodology utilized by shareholders.
Determining buy-in value
If buy-in value is predetermined, confirm and agree to the buy-in amount. If it is not predetermined, ask how it will be calculated. Typical considerations in determining the buy-in are net account receivables, net assets and goodwill. Consult with a certified public accountant regarding the calculation of buy-in. Get the amount or the calculation in writing and signed by the president of the group. This is not an area where relying on memories of past discussions once the time arrives is recommended.
Once the terms of the buy-in and how it will be calculated have been determined, ask if the group will finance the buy-in. Will they allow they buy-in to be paid over a period of time? Will interest need to be paid? Speak with a certified public accountant regarding the options presented by the group.
Allocating shareholder expenses
It is likely compensation for shareholders is based on profitability and significantly impacted by the level of group expenses, or overhead. Determine how practice expenses are allocated to shareholders. Determine if all expenses are shared equally or based on some criteria such as collections, days in the office, hours worked, etc. (See the Practice Financial Assessment component of the Tool Kit for more information.)
If plans include becoming a shareholder of the group, determine what debts, if any, will be assumed and determine the terms of the obligations. Speak with an attorney regarding any liabilities to be assumed.
Calculate compensation as a non-shareholder versus projected compensation as a shareholder (see discussion in the Practice Financial Assessment component of the Tool Kit for more information). Compare the difference over a five to ten year period. Ask an accountant to perform and explain a discounted cash flow analysis considering the difference in compensation over the period of time expected to be with the group, and the amount of the buy-in required.
About the Author:
Wesley D. Millican, MBA, CEO and Physician Talent Officer of CareerPhysician Advisors, LP, and CareerPhysician, LLC, provides comprehensive talent solutions for academic children’s hospitals, colleges of medicine and academic medical centers across the nation. He possesses a longstanding passion for career development of all young physicians and serves as a go to career resource for training program directors and their residents and fellows. In continuing his commitment to the “future of medicine”, Mr. Millican speaks nationally at residency and fellowship programs. His Launch Your Career® Series is a proven resource for today’s residents and fellows and has served as a go to resource for program directors over the last 15 years.