Thomas L. Snyder, DMD, MBA Managing Partner The Snyder Group, LLC Printer Friendly Version

Should a Senior Partner Receive a Management Fee?

In forming partnerships, a common question raised by the senior partner is whether or not she/he is entitled to receive additional compensation for spending non-chairside time performing managerial tasks. The answer to that question is, “It depends.” The deciding factor is if the new partner assumes additional managerial tasks versus allowing the senior partner to spend hours per week managing the practice.

In many cases where associates have been working in the practice for several years before becoming partners, they often fall in the trap of just being a clinician and not showing any interest in management issues. If that behavior doesn’t change once they become partners, a strong case is made to compensate the senior partner for spending additional time performing managerial tasks. Of course, this responsibility goes both ways in that the senior partner should make attempts to involve the young doctor in managing the practice during the associate phase. If not, bad habits can be formed and your new partner becomes an associate with ownership privileges!

One way to address this issue is to pay the senior partner a management fee. This management fee is considered an operating expense of the practice. The payment of a management fee is a fair acknowledgment for the time and effort that the senior partner is making. Often these tasks amount to hours per week (sometimes weekends)—administrative time that could have been spent clinically or simply as personal time. In any case, it is an imbalance that, if not recognized, can create potential rifts in your partnership relationship, so we feel that it is not at all inappropriate to charge a modest fee for performing these managerial tasks. Such tasks may include:

• oversight of personnel
• compliance issues with OSHA and HIPPA
• maintaining proper dental supply inventories
• tax matters—oversight of bookkeeper and payment of bills

In some instances the senior doctor may be in charge of writing all checks, but in this case we recommend that a bookkeeper be hired as an alternative. In our experience, a fair compensation range for a management fee is $2,000 to $2,500 per month.

An alternate format, in lieu of a fixed payment, is to compensate the senior partner via a percentage of gross revenue or net profit. This can be a win for the junior partner in that the senior partner only receives compensation in the event that the practice shows growth or maintains good profit margins.

For example, in practices generating less than $1,000,000, consider 5% of Total Available Partner Compensation for that year. Available Partner Compensation is defined as Practice Revenue (Collections) minus Practice Operating Expenses. In practices generating in excess of $1,000,000, consider a 3% Bonus Payment of Available Partner Compensation. If the practice’s Available Partner Compensation decreases in a particular year, no bonus payment is made.

Another approach is to set goals for practice growth and base an incentive payment on Gross Revenue. For example, a payment of 10 to 15% of the revenue in excess of the prior year’s revenue works well. The only caveat here is that the practice’s overhead ratio must not increase or the incentive bonus would not apply.

At the end of the day, the ideal situation is that partners share management responsibility equally so that no management fee or incentives need to be created. However, in cases where one of the partners is only really interested in providing clinical services and has no management interest, it is only fair that the other partner be financially compensated appropriately to account for the time that is often spent after hours and/or on weekends.

Dr. Thomas L. Snyder is Managing Partner of The Snyder Group, LLC, a nationwide practice transition and financial management consulting firm. With more than 75 years of experience in the field, The Snyder Group can provide you a full range of services relating to practice transition matters and retirement planning. They can be reached directly at 1.800.988.5674.

If you would like additional help, email Dr. Snyder at drsnyder@thedentistsnetwork.net.

Interested in having Dr. Snyder speak to your dental society or study club? Click here.

Forward this article to a friend.