Is there a “buy-in” to the group to become a shareholder?
Once you determine if you will have 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 you to become a shareholder.
Usually, a buy-in allows you to be compensated as other shareholders in the group. Determine if your buy-in will result in equal ownership of the group among the shareholders.
Will you be required to buy-in and become a shareholder?
Once you have researched the areas suggested by the Toolkit, you may decide that you do not want to be a shareholder of the group for whatever reason. You may come to the conclusion that you have better earnings potential as a non shareholder employee of the group. Determine if the group will require you to become a shareholder. If the group will require you to become a shareholder, you need to understand the financial requirements of “buying-in” and the compensation methodology utilized by shareholders.
How is buy-in value determined?
If it is predetermined, ask what the buy-in amount will be. If it is not predetermined, ask how it will be calculated once you have an opportunity to become a shareholder. Typical considerations in determining the buy-in are net accounts receivable, 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 you will want to rely on memories of past discussions once the time arrives.
What buy-in financing options will be available to you?
Once you know what the buy-in will be, or how it will be calculated, ask if the group will finance the buy-in. Will the group allow you to pay it over a period of time? Would you have to pay interest? Speak with a certified public accountant regarding the options presented to you by the group.
How do shareholders allocate expenses?
It is likely that compensation for shareholders is based on profitability and significantly impacted by the level of group expenses (overhead). Determine how practice expenses are allocated to shareholders. Determine if all expenses are shared equally or based on some criteria (collections, days in the office, hours worked, etc.). See the Practice Financial Assessment component of the ToolKit.
Will you be assuming debt of the Group?
If you are planning to become a shareholder of the group, determine what debts you may be assuming. Determine what the terms of these obligations are. Speak with an attorney regarding any liabilities that you plan to assume as a shareholder.
How will your compensation change if you become a shareholder?
Do a comparison of your compensation as a nonshareholder versus your projected compensation as a shareholder (see discussion in the Practice Financial Assessment component of the Toolkit). 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 you expect 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.