Menu

Partnership distributions (of profits)

Home Practice Management Partnership distributions (of profits)

  •  acatagorical 
    Participant
    Status: Physician
    Posts: 2
    Joined: 01/11/2019

    Most partnerships seem to split profits based either on an even distribution or as a percentage of shares owned in the corporation.

    I’m curious if anyone has experience with adjusted splits based on productivity of each partner.

    What happens if a more senior partner starts slowing down in productivity or a new partner does not achieve the same productivity as the others?

    Does anyone out there adjust the profit distribution to take productivity into account?

    #180395 Reply
    Molar Mechanic Molar Mechanic 
    Participant
    Status: Dentist, Small Business Owner
    Posts: 261
    Joined: 10/29/2017

    30% of collections go to owner pool.  Fixed expenses (rent, office staff, insurance, etc) are paid from this and profits are split by percent ownership.  This also encourages owners to keep production in line with production percentage.  As old blood starts to fade and new blood joins, this will matter more.

    70% collections to to production pool.  Variable expenses (clinical supplies, clinical staff etc.) are paid from this and and remainder is split according to production percentage.

    Splits are calculated monthly, draws are based on year to date which means if one doctor took two weeks off, but we had a large non-recurring expense, incomes arebe stabilized due to annual production numbers.

    #180413 Reply
    Liked by jz, ENT Doc
     ThruTheForrest 
    Participant
    Status: Dentist
    Posts: 7
    Joined: 01/09/2019

    35% collection as salary.  then we split profits as distributions.  we keep it simple.  even with vacations and my soon time off for my new child.  same same.

    #180427 Reply
     JWeb 
    Participant
    Status: Physician
    Posts: 91
    Joined: 02/21/2017

    We have a group of 9 surgeons. It’s our individual collections minus (half fixed overhead and half variable overhead) equals take home pay.

    If I work more, I get paid more. If I work less, I get paid less.

    #180428 Reply
     jacoavlu 
    Moderator
    Status: Physician
    Posts: 1425
    Joined: 03/01/2018

    many practices allocate money in some manner not simply equal to percent ownership, ties to production and/or time are I would say common

    we track procedures and RVUs but allocate comp purely based on time (days)

    The Finance Buff's solo 401k contribution spreadsheet: https://goo.gl/6cZKVA

    #180430 Reply
    ENT Doc ENT Doc 
    Participant
    Status: Physician
    Posts: 2155
    Joined: 01/14/2017

    Problems from both pure production as well as equal payouts. I like the split molar mechanic uses. This is just as much a costing allocation issue as collection allocation issue.

    #180435 Reply
    Liked by jz
     radnater 
    Participant
    Status: Physician
    Posts: 7
    Joined: 12/08/2018

    Compensation purely based on productivity can be a slippery slope as partners can start cherry picking cases and avoiding train wrecks… Can also take away from nonRVU generating activities that bring referrer and hospital satisfaction such as doc to doc consultations.

    #180448 Reply
     JWeb 
    Participant
    Status: Physician
    Posts: 91
    Joined: 02/21/2017
    Compensation purely based on productivity can be a slippery slope as partners can start cherry picking cases and avoiding train wrecks…

    Click to expand…

    That may be true, but we don’t.  And cherry picking cases and avoiding train wrecks happens even when income is not based solely on production.

    I am the newest partner and collect the least (although 4 of us are very close). I don’t think a more senior partner who sees more patients and does more surgeries and thus collects more should be subsidizing my income.

    #180457 Reply
    ACN ACN 
    Moderator
    Status: Physician
    Posts: 436
    Joined: 01/08/2016

    It’s typical illegal to distribute ancillary profits based on production. Everyone who is an owner at our asc gets $$/share. Some of the more senior partners actually have more shares then newer guys, but eventually they will retire and be phased out. So technically one of our partners who is retiring in the next year is making the most $$ from our asc yet is in the bottom in production.

    As for ancillary income within the practice (MRI, pt, ect,) that’s again split evenly amount all partners each quarter. Once again, illegal to compensate the sports guys more $$ from the MRI revune than the hand surgeons, even though the sports surgeons order the most MRIs.

    If you're ever having a bad day, just remember in 1976 Ronald Wayne sold his 10% stake in Apple for $2,300.

    #180459 Reply
    Molar Mechanic Molar Mechanic 
    Participant
    Status: Dentist, Small Business Owner
    Posts: 261
    Joined: 10/29/2017

    Correct, if operating as a corporation rather than a partnership (S-corp only, or all corps?), then all profit has to be split by ownership.

    We operate as a partnership, which has several employees and owns nothing.  All proceeds are split out to Dr. A LLC and Dr. B LLC, each wholly owned by Dr. A and Dr. B respectively.  All real estate is held either individually by the doctor or through an LLC.  All durable items in the practice are owned at the LLC level and depreciated there.

    #180465 Reply
     jacoavlu 
    Moderator
    Status: Physician
    Posts: 1425
    Joined: 03/01/2018

    It’s typical illegal to distribute ancillary profits based on production. Everyone who is an owner at our asc gets $$/share. Some of the more senior partners actually have more shares then newer guys, but eventually they will retire and be phased out. So technically one of our partners who is retiring in the next year is making the most $$ from our asc yet is in the bottom in production.

    As for ancillary income within the practice (MRI, pt, ect,) that’s again split evenly amount all partners each quarter. Once again, illegal to compensate the sports guys more $$ from the MRI revune than the hand surgeons, even though the sports surgeons order the most MRIs.

    Click to expand…

    to be clear, in an S corp, distributions have to be proportional to ownership. But salaries and allocation of other items (expenses, profit sharing) don’t have to be

    in a partnership I’m pretty sure it depends on how the operating agreement is written, and the special allocation privileges of a partnership allow allocation of income in some manner not equal to percent ownership. You may be entirely correct about ancillary income, I have no knowledge of that

    The Finance Buff's solo 401k contribution spreadsheet: https://goo.gl/6cZKVA

    #180466 Reply
    Liked by jfoxcpacfp
     acatagorical 
    Participant
    Status: Physician
    Posts: 2
    Joined: 01/11/2019

    It’s typical illegal to distribute ancillary profits based on production. Everyone who is an owner at our asc gets $$/share. Some of the more senior partners actually have more shares then newer guys, but eventually they will retire and be phased out. So technically one of our partners who is retiring in the next year is making the most $$ from our asc yet is in the bottom in production.

    As for ancillary income within the practice (MRI, pt, ect,) that’s again split evenly amount all partners each quarter. Once again, illegal to compensate the sports guys more $$ from the MRI revune than the hand surgeons, even though the sports surgeons order the most MRIs.

    Click to expand…

    to be clear, in an S corp, distributions have to be proportional to ownership. But salaries and allocation of other items (expenses, profit sharing) don’t have to be

    in a partnership I’m pretty sure it depends on how the operating agreement is written, and the special allocation privileges of a partnership allow allocation of income in some manner not equal to percent ownership. You may be entirely correct about ancillary income, I have no knowledge of that

    Click to expand…

    Thanks everyone!  Really appreciate the comments and some great points made.

    And this answer is the most relevant given we are an S corp. The concern is really for future partners who may be far less productive than current ones. I guess the answer to that is either put in a productivity expectation for offers of partnership and/or offer an associate/junior partnership with fewer shares/percent ownership.

    #180481 Reply
     jacoavlu 
    Moderator
    Status: Physician
    Posts: 1425
    Joined: 03/01/2018
    Thanks everyone!  Really appreciate the comments and some great points made. And this answer is the most relevant given we are an S corp. The concern is really for future partners who may be far less productive than current ones. I guess the answer to that is either put in a productivity expectation for offers of partnership and/or offer an associate/junior partnership with fewer shares/percent ownership.

    Click to expand…

    To be clear, an S corp is not a partnership. An S corp is owned by shareholders, who are often also employees of the Corp, and the income (loss) of the Corp (after expenses including physician salaries) is allocated to the shareholders on a K-1 in direct proportion to percent ownership.

    I’m no lawyer or CPA or business expert but I believe that an S corp cannot have more than one share class. Certainly ownership percent doesn’t have to be equal among all shareholders but that’s all the flexibility you have as far as I know.

    The Finance Buff's solo 401k contribution spreadsheet: https://goo.gl/6cZKVA

    #180485 Reply
    Liked by acatagorical
     JWeb 
    Participant
    Status: Physician
    Posts: 91
    Joined: 02/21/2017
    It’s typical illegal to distribute ancillary profits based on production.

    Click to expand…

    Correct. I am not referring to ancillary income.

    #180505 Reply
     jhwkr542 
    Participant
    Status: Physician
    Posts: 850
    Joined: 02/15/2016
    Thanks everyone!  Really appreciate the comments and some great points made. And this answer is the most relevant given we are an S corp. The concern is really for future partners who may be far less productive than current ones. I guess the answer to that is either put in a productivity expectation for offers of partnership and/or offer an associate/junior partnership with fewer shares/percent ownership. 

    Click to expand…

    To be clear, an S corp is not a partnership. An S corp is owned by shareholders, who are often also employees of the Corp, and the income (loss) of the Corp (after expenses including physician salaries) is allocated to the shareholders on a K-1 in direct proportion to percent ownership.

    I’m no lawyer or CPA or business expert but I believe that an S corp cannot have more than one share class. Certainly ownership percent doesn’t have to be equal among all shareholders but that’s all the flexibility you have as far as I know.

    Click to expand…

    To elaborate further, S-corps can have different types of members, but company profits (or liquidation proceeds) cannot be divided up separately (ie have different classes of stock like you said). This is mainly done to have different voting and non-voting members.

    #180569 Reply
    Liked by jacoavlu

Reply To: Partnership distributions (of profits)

In case of a glitch or error, please save your text elsewhere, clear browser cache, close browser, open browser and refresh the page.

you're currently offline

Notifications Mark all as read  |  Clear