Jack and Jill went to graduate school together and are good friends. They have stayed in touch, and, through a variety of circumstances, are now living in the same city. They each have a small part-time practice and work for local agencies. One day over lunch, they get to talking about pooling their efforts and starting a practice together. “What a great idea! Let’s do it!” they both exclaim.

Over the next few days, they register in their state for an LLC, print business cards, build a website, and set a start date. Within a few months, their caseloads have expanded. They enjoy working together and look forward to a bright future. Obviously, they have found the recipe for partnership success.

So far, at least…

…Until one day, Jack announces that he ordered new testing equipment for the practice, which cost several thousand dollars.

“What?!” exclaims Jill. “Without consulting me first? I wish you’d discussed it with me before spending our joint funds,” she says bitterly, adding, “especially since I don’t even do any testing.”

“Well,” retorts Jack, “you didn’t clear it with me prior to changing our billing program. I had to figure all that out while you were enjoying your two-month maternity leave – which, by the way, we didn’t discuss beforehand either.”

Over the next several weeks, the hostility and mistrust between Jack and Jill escalates to the point where they are communicating only via terse texts.

What went wrong?

Unfortunately, Jack and Jill rushed into their partnership without much planning. While they agreed on many issues, they failed to plan for times when they might have conflicting views. During these times, they did not successfully come to an agreement, which left them each feeling betrayed by the other.

Things would have probably run more smoothly for Jack and Jill if they had initially spent time, possibly with a consultant, to methodically build the infrastructure of their practice, and the structure of their own relationship as practice partners, in advance of going into business together.

Lessons learned from the doomed Jack and Jill partnership

Starting a partnership is an exciting time. In most cases, you and your potential partner have known each other for years, and are friends as well as colleagues. In these situations, it is normal to want to rush in, “get married,” and start your professional lives together. Just like Jack and Jill, you might say to each other, “What can go wrong? We trust each other. It will be great!” 

But, as you know (both professionally and personally) people are complicated, have differing expectations, and will not always agree on what is fair. For example, what if one partner wants to hire staff and the other doesn’t? What if one partner consistently brings more income into the practice? What if there is an ethical transgression, or one becomes disabled or wants to leave voluntarily? These (and other) situations are best planned for in advance.

While the history, and feelings of trust and compatibility that Jack and Jill felt at the outset are important underpinnings for beginning a professional practice, they are not sufficient for creating a structure for the partnership.

Just as flour and eggs are important ingredients for baking a cake, when put in the oven and baked for 45 minutes, you do not have a cake - just hot flour and eggs. 

So what is the recipe for creating a successful professional partnership?

While the following does not ensure success, it certainly can help create an environment that promotes success.

The Ingredients

  • Vision
  • Legal structure
  • Initial investment
  • Equity sharing
  • Compensation
  • Decision-making
  • Responsibilities
  • Planning for change

The Recipe

The first step is to take a close look at the ingredients and how they all fit together. Essentially, this makes sure that all prospective partners have clarity and agreement on major aspects of the professional partnership relationship, along these four dimensions:

  1. Overall Practice Vision
  2. Infrastructure
  3. Decision-Making and Operations
  4. Planning for change

Next, consider each of these dimensions and the questions that you and your potential partner(s) should address. This is not an exhaustive list, but rather a list to get you started.

  1. Overall Practice Vision: 
  • Why are you creating this partnership?
  • What will the practice stand for?
  • What are your values?
  • What are your short-, medium-, and long-term goals and plans?
  1. Infrastructure
  1. Legal structure
    • Have you consulted with an attorney and accountant about the legal structure required that best suits your needs?
    • Do you know what your possible exposure is to malpractice and other liabilities (e.g., loans and debt) that may be caused by one partner?
    • What are the terms that need to be included in your bylaws or partnership papers?
  2. Initial investment
    • How much money will each partner contribute to the start of the practice?
    • What else is each partner bringing of value (e.g., furnishings, equipment, active cases, referral relationships)?
    • What “sweat equity” will each partner contribute?
    • Will you each have equal equity in the practice or different percentages of ownership?
    • How will each partner be compensated? Will compensation be based on productivity, a share of the profits according to equity, or a hybrid model?
  1. Decision-Making and Operations
  • What decisions will be made by voting with equal weight (one person one vote) and what decisions will be made by voting by the percentage of equity in the practice?
  • What decisions can each of you make independently of the other?
  • What policies and procedures will be in place to run the practice?
  • How will you make decisions when you disagree or do not have consensus?
  • What are your respective responsibilities: clinical; administrative; marketing; staff oversight, etc.?
  • What accountability do you each have to the other(s)?
  1. Planning for change
  •  How will you measure success?
  • When will you meet to discuss making changes to the “recipe” or how you structure and run the practice?
  • Will you have partner retreats?
  • What consultants will you use (legal, accounting, practice management) to help you build and strengthen the practice and deal with challenges that emerge?
  • What understandings and plans will you put in place for a partner exiting the partnership due to death, disability, personal choice, or for cause?
  • Will an exiting partner have a restrictive covenant, and will there be a non-disclosure agreement that all partners agree to in advance?
  • How will equity from the departing partner be valued and bought back by the remaining partner(s)?

 The above questions take time and thought. Unlike a box of cake mix, there is no simple set of instructions that will produce a near-perfect result for everyone.

In planning a partnership, you first need to determine what kind of “cake” you are making, what the recipe is, and how all the ingredients will fit together before turning on the oven. The result: a custom-designed partnership, palatable to all, with a potentially long shelf life.

Thanks to Pauline Wallin, PhD, who contributed to this post