Partnerships can be powerful drivers of growth, combining the energy, expertise and capital of multiple doctor owners to create a bigger practice than the sum of its owners individual abilities and contributions.
For all the benefits, partnerships come with their own sets of challenges. One of the biggest sources of conflict between partners is the fairness of pay.
Is it really all about the Benjamins?
It might seem petty that money should come between business partners, but remember that owners own their practices for three reasons: the income potential, control over how they practice, and the equity they build in the business that they can eventually sell.
Of the three, partners have absolutely given ground on two: control IS going to be shared and they only own PART of the business. And while partners won’t earn as much as they could as sole owners, they can still have a similar premium of high-income with time flexibility as the practice grows.
Pay Formulas as Conflict Resolution
Part of laying out your compensation formula is talking through the roles each partner will play, each partners contribution to the practice. Of OD owners, this breaks down into three parts:
Most partnership agreements require partners to make a minimum contribution to the practice, but in theory a practice could have an OD who is merely a shareholder and does no patient care or management.
I’ve seen a number of very ‘thoughtful’ compensation formulas, which are usually so complicated that they create more headaches than solutions. In terms of measuring any OD’s contribution to the business, there’s only one number that matters: Collected Gross Revenues.
Collected Gross Revenues encompasses all the inputs of the practice: customer service, marketing, optical sales, medical billing, patient flow, A/R management, all of them. And as owners, the second most important number is Cash Flow.
My Preferred Partner Pay Structure
Here’s my baseline formula for partner compensation:
In a low-net practice, the percent may need to be adjusted down so the practice doesn’t contractually pay more than the cash it generates.
In large practices ($3M+ in gross collected revenue) this might have to be adjusted down.
This way of divvying up partner pay has a number of advantages.
First, by focusing on revenues it focuses partners on what matters. Time spent on the practice is nice and patient volume is important, but unless activities translate into revenues, they don’t really matter. Before anyone gets too upset: culture does affect revenues.
Second, by paying on percentages it naturally flexes and adjusts as partners work more or less, smarter or less efficiently. Want to drop a day of patient care? That’s fine, and if you can generate the same revenue in less time, you can even preserve your income in the process.
Thirdly, it recognizes that ownership matters. If a partner gets in a car accident and can’t work, her equity stake ensures that so long as the practice has positive cash flow, she will be paid something for her investment.
Fourth, it should discipline owners to take their income based on cash flow.
And this leads to a final point: owners should take regular salaries that are half to two-thirds or their expected income. Always leave margin for error. But then, take as much cash from the practice as possible.
Partner pay matters because it lays out expectations for each partners roles and responsibilities both at the outset of the partnership and as roles and workloads change over time. It matters because a partner who doesn’t feel he or she is being paid fairly for their contributions to the business is going to be unhappy, leading to conflict. And finally, it matters because it forces owners to make decisions with an eye on the impact to the practice’s cash flow.
Want help with your partnership? I’m always here to help. Email me at firstname.lastname@example.org or set up a call at www.meetme.so/NathanHayes
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Unpaid Meal... Read more
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As an Optical Management Consultant, I often hear:
“I know what the numbers are, I need to know how to make them better.”
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Doctor, I see floaters in my vision. I think I have a retinal detachment!
I don’t need an exam because I did a screening online.
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I know I can’t have glaucoma because I smoke pot every... Read more
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Good marketing for an independently owned optometric practice isn’t one size fits all, especially now when there are multiple generations with unique mindsets, characteristics, values and eye care needs in the United States.
Let’s say that as an independent Optometrist, you’ve decided to add new eyewear products into the mix at your practice, and now you’d like to market these products to existing and prospective patients.
I’d like to share an incredible customer service experience I had recently.
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The Inevitable Plateau - “a state of little or no change following a period of activity or progress”
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The Science of Selling
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Your optometry practice is incredibly valuable to you. “Well, Nathan” – you may say – “of course it is!” But have you ever thought of why it’s valuable?
You spend most days pouring your blood sweat and tears into it: hours and hours of patient care, planning,... Read more
The internet isn’t usually a popular topic in conversations I have with owners and staff members of optometric practices. Dealing with reviews and competition from web-based retailers along with the challenge of creating and maintaining a website and good social media marketing may have many... Read more
Optometrists in private practice sometimes fail to offer a clear reason why someone should choose them for their vision care over competitors - on their websites or in other marketing collateral – sometimes when you try to market to everyone, you fail to capture anyone.
What... Read more
When working with small business owners to create marketing plans and strategies, I run across the following scenario far too often: “Hey, I’m not sure how to log in to my Google listing. My office manager used to handle that for me, and she’s not on the team anymore... Read more
“You might as well ask me to describe the essence of music, or the color of starlight.”
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For starters, I’m not a licensed psychologist, I just play one as a practice management consultant. It’s been my observation that whenever human beings come together in an environment where they are required to work together and interact, inevitably some tension and conflict will arise.... Read more
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Sometimes it’s not the inventory you choose to carry or the reps you choose to indulge. It’s not the pricing or the shipping or the cadence of your reorders. As we head into the tail end of the holiday season, I can’t help but think of the process of opening presents.
Everyone has... Read more
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“How many frames do I need?” “How many frames should I carry?” “How much stock should I have in inventory?” It doesn’t matter how you phrase it, at least 1/3 of my consultations start the same way. I’m going to make this all very, very easy for you. Consider it my holiday gift! To determine... Read more
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A consumer-centric culture with a focus on customer service is becoming increasingly important for brick & mortar businesses. While I do believe most practice owners strive to deliver on great service, it requires a team effort. I often hear owners tell me they want to be known in their... Read more
Most businesses have polices that employees are required to follow. In general, office policies are a good idea. Policies provide structure for how to conduct business and create consistency around processes and operations. But in a service-based industry, well intended but rigidly executed... Read more
With all the talk of private equity roll-ups and regional alliances, many practice owners are concerned that if they aren’t a large, multi-office, multi-doctor practice, they don’t have a future in independent optometry.
Is that... Read more
One of the interesting mysteries that I get to unravel in many practices is the mystery of tight cash flow. Sometimes it’s obvious – a small practice with low profitability, for instance. But other times it’s not.
First off, what is tight cash flow? Here’s my simple definition:... Read more
Doctor: Would you like to order your contacts today, Mrs. Smith?
Mrs. Smith: That’s OK. I’ll just take the prescription and get them online.
What happened here? You just did a thorough, high-tech eye... Read more
For practices looking to grow, there are basically two paths: see more patients or generate more revenue per patient. Ideally, a practice will do both. One thing I consistently hear from ODs is that it’s hard to generate high revenue from contact lens patients. Even when selling annual... Read more
Can you find 20 or 30 minutes a week to hold a staff meeting? You might be surprised at the impact that it has on your optometry practice.
Your staff is your most valuable business asset. Your investment in optometry marketing, technology, office design, etc. will fail to deliver an... Read more
The very phrase can cause irritation, anxiety and bewilderment in the minds of owners who understand that they should somehow be participating in the conversations across the various social media platforms – but which ones are the best for optometry practice... Read more
While there is more than one way to achieve success, there are a few common traits that successful independent optometry practice owners have in common.
They refuse to accept the status quo. While others remain stagnant, ignore trends, and complain about the... Read more