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Only on The Financial Contract Every Practice Must Have

Posted: July 13, 2011

The following exclusive commentary was provided to by David Mandell, JD, MBA, an attorney, lecturer and author of five books for physicians, and Jason O’Dell, CWM, a financial consultant, lecturer and author of two books for physicians. They are both principals of the financial consulting firm O’Dell Jarvis Mandell LLC.

Medical practice owners should spend some of their time working ON the practice, not just IN it. Even working on the practice, however, if physicians ignore one fundamental legal contract, all of their work may be in jeopardy because a single bad event could wipe out everything they have worked so hard to build.

When a physician dies, family members will only get that doctor’s share of the outstanding accounts receivable, if that. Family members will get nothing from a physician’s hard work in building the practice, because they typically can’t even own the medical practice shares and thus have no way to negotiate any buyout at all. If you’re concerned about this for your family, this contract is crucial.

Even if you’re not concerned about your family … what about the practice itself? Consider what would happen to the practice if a key partner becomes disabled. Suddenly, the practice is a lot less profitable because it has the same expenses but less income because one partner can’t treat patients.

Unless these issues—and other important ones—are addressed in advance, financial havoc can ensue any time a partner dies, becomes disabled or even retires. The way to address these issues is through a properly-funded buy-sell agreement.

Buy-sell basics