It has been said many times that employees are our most valuable assets. Without a well-trained, highly motivated staff, it will be difficult for any Practice to achieve its strategic vision and performance goals. Since every Practice will need to hire additional staff at some point, the decision to hire a new employee should not be taken lightly or without careful Talent Acquisition planning. The key to any Talent Acquisition effort is to devise and implement a strategy that will yield the greatest opportunity to attract talent and retain them.
Defining the Job
Every recruitment effort should incorporate strategies to address sourcing, screening, interviewing and selection. Before deciding where, when and how to advertise for a job opening, it is critical to confirm the need for the job still exists. Every Practice needs to accomplish certain basic functions, including reception, patient examination, inventory management, client billing, etc. When a Practice is just starting out, many of these responsibilities are combined into one or more positions. Team members often are responsible for doing anything and everything needed to help run the Practice and job descriptions should reflect this broad array of duties. As a Practice grows and evolves, management needs to analyze and improve the Practice’s organizational structure. Job descriptions will help reveal whether all Practice responsibilities are adequately covered and where responsibilities should be reallocated to achieve a better balance.
As a result, a job description should be reviewed annually to ensure it includes and clarifies information regarding the general and strategic nature of the work to be performed, specific responsibilities and duties and the employee characteristics or competencies needed by the person who will be required to fulfill the job requirements. Knowing these needed attributes will help ensure a Practice has the best possible chance of finding the right individual. In addition, an accurate job description will ensure interested candidates are provided a clear and concise picture of what the job entails and enables the potential employee to assess the relative importance of everything he/she is accountable for, providing a sense of where the job fits in to the Practice as a whole and how the position supports the Practice’s overall goals. If a job description does not exist for the position you are looking to fill, this is the ideal time to create it.
Determining Where to Look
Once your job description is completed, you are ready to craft a job posting that dazzles an ideal candidate by highlighting your Practice’s strengths and the position’s attractiveness. Describe your Practice’s culture, reputation, growth, benefits package, advancement opportunities and even location. Think of your job descriptions and job postings as advertising copy that you have created as an opportunity to highlight what is great about your Practice and to pull in your next high achiever.
Once you have clearly identified what position you are looking to fill, the next step is determining the best places to look. There are various resources that can help you “cast a wider net” about your job opening. The decision of where and how to recruit should be based on an assessment of how difficult you think it will be to find a sufficient number of qualified candidates and how much time, effort and money you are willing to commit to the recruiting process. While some sources are free or relatively inexpensive, others are very costly and may require signing an agreement with outside consultants to pay a percentage of the first year annual salary of the individual you ultimately hire. Be creative in your sourcing because you never know where your next ideal candidate will be present.
Conducting the Interview
The interview provides the hiring manager a perfect opportunity to identify the applicant(s) best qualified and best suited for the Practice. If conducted properly, it offers a valuable opportunity to assess how an applicant will perform the essential functions of the job and whether s/he will fit into the culture of the Practice. However, if handled incorrectly or unprofessionally, you risk alienating a candidate to whom you may want to issue a job offer. To ensure the interview process runs smoothly and without misstep, it is advisable to assign responsibility to one person to act as “gatekeeper” of the recruitment process.
In preparing for the interview, an applicant checklist should be developed to ensure all necessary information and documents have been obtained and distributed to persons involved in the interview and selection process (e.g. job description, application, resume, etc…). Prior to the interview, train the employees involved in the process regarding what questions are and are not permissible (all questions should be job related), interviewing techniques (ask broad, open-ended questions that require an applicant to process what is being asked and develop an appropriate response), behavioral interviewing (questions eliciting responses regarding goals, motivation, and responses to specific situations are valuable in determining if your Practice’s culture and organization structure offer opportunities that match those of the applicant) and ensure all team members know what skills, knowledge and competencies they will be looking for in the applicants. Asking the wrong questions, or asking the right questions in the wrong manner, can result in serious legal problems for a Practice. Only ask questions that will provide information about the person’s ability to do the job, with or without a reasonable accommodation.
Effective interviewers listen more than they talk. Remember, your goal in the interview is to learn as much as you can about the applicant. Be sure to control the pace and flow of the conversation. Once the interview is completed, be sure to thank the applicant for coming to the interview, explain that you are still in the interviewing phase, and inform the applicant that you hope to be making a decision within the next few days/weeks.
Making the Offer
Now that you have completed the interview process and determined whom you want to select, it is time to decide how to extend the job offer. Here, too, there are guidelines you should follow to ensure the entire recruitment process does not fail because you did not act swiftly or decisively enough in the eyes of your chosen candidate. To avoid losing the “right person”, make the offer as soon as possible after the final job interview.
Admittedly, you don’t want to rush the interview process and risk hiring the wrong person. However, the individual you ultimately select may also be actively interviewing with other practices and might receive another offer while you deliberate. By making the offer as soon as possible, you increase your chances of hiring the person you want. Considering you may only have one opportunity to offer the job to that individual, be sure to reemphasize all the benefits of working for your Practice. This is the ideal time to review salary and benefits, paid time off, paid (or unpaid) CE, personal pet care benefits, and any other terms and conditions of employment.
If your Practice includes pre-employment drug screening and background screening as a routine part of the employment process, this testing will need to be done AFTER a contingent job offer of employment has been made. Depending on the level of the job being offered, you may wish to have a formal employment agreement developed by an employment attorney who is knowledgeable about the veterinary industry.
The final step in the interview process entails notifying rejected applicants that they were not selected. This notification is normally accomplished by email or written letter. While there is no requirement for this notification, taking this action sends the message that your Practice respects all applicants and is committed to treating everyone with dignity and respect. Furthermore, you may wish to reconsider a previously rejected applicant at some future date.
On-Boarding the New Hire
On-Boarding is the process by which a Practice acclimatizes its new employees. It is one of the keys for improving productivity, building loyalty and engagement, fostering a stronger team, and helping employees become successful early in their careers with the new Practice. Employee on-boarding includes the processes that allow new employees to learn about the structure, vision, mission, and values of the Practice as well as to complete new-employee paperwork relative to benefits and legal documents such as non-competes, at-will statements and employee handbooks. For some Practices, the employee on-boarding process consists of one or two days of activities; for others, this process may involve a series of activities spanning one or many months.
Veterinary Practices have learned that employee on-boarding is not merely a process for getting new employees to sign off on their new-hire paperwork, but a process that is essential to transitioning a new employee into your Practice. Studies have proven that employee engagement is partially determined by the new employee’s treatment and orientation during the first 30–90 days of employment. A solid employee on-boarding strategy will help build on that loyalty and help with retention and engagement issues throughout an employee’s tenure. The new employee will be anointed into the Practice’s team culture by understanding the Practice’s mission, vision, values and knowing how his/her job responsibilities and performance support the Practice’s overall goals. It is important to engage with recent new hires and ask open-ended questions to determine their level of satisfaction with the Practice to ensure success, improve productivity and ultimately, enhance retention.
In conclusion, Talent Acquisition is a process that requires planning and detailed execution, but when done correctly, the outcome will yield the greatest opportunity to attract and retain the high achiever, ‘A’ player talent for any job position within your Practice.
How should pregnancy in the veterinary workplace be handled? First and foremost, the practice’s employee manual should include a written policy requiring all employees to inform the practice owner and/or office/safety manager as soon as they become aware that they are pregnant. While many employees are understandably reluctant to “go public” with their news before the end of the first trimester, the earlier this information is divulged to the employer, the earlier steps can be taken, if necessary, to safeguard the health of the fetus.
Employers should meet the news of their employee’s pregnancy with sincere warm wishes and congratulations. The employee should also be reassured that the practice will work with her and do what it reasonably can to help her reduce the workplace hazards to the fetus.
The next step is to schedule a meeting between the pregnant employee and the office/safety manager. During this meeting, the employee should be reminded of the potential risks to the developing fetus that exist in the workplace. Such risks may include:
- radiation exposure
- exposure to hazardous chemicals/drugs (e.g., pesticides, hormones, chemotherapeutic agents, etc.)
- exposure to anesthetic gases, especially during “hard-to-scavenge” procedures such as masking, and waste anesthetic gases
- exposure to infectious or zoonotic diseases, especially when handling fractious animals (e.g., rabies, tetanus, Lyme disease, salmonellosis, leptospirosis, chlamydiosis, etc.)
- over-exertion associated with lifting/restraining patients
As the employer, you should advise pregnant employees to seek medical advice from their obstetricians regarding the potential workplace risks.
Remember to keep a written record of all meetings with employees.
While employers have a duty to make reasonable accommodations for pregnant employees, when such accommodations are recommended in writing by the employee’s doctor, employers must remember that the decision about avoiding workplace hazards during pregnancy is up to the employee. It is unlawful for employers to prohibit an employee from working in her usual capacity simply because she is pregnant.
The employer can take comfort in the fact that many of the risks that exist in veterinary practices can be minimized by following proper safety precautions (which should already exist in the form of written practice policies). Indeed, the news of an employee’s pregnancy is a good opportunity for employers to review the practice’s safety policies and ensure that all employees are following them.
In addition, the employer can have the employee sign a document acknowledging that:
- workplace risks have been reviewed with the employee
- the employee has had an opportunity to discuss potential workplace risks with her doctor
- the employee has decided to keep working
- Once the employee is fully informed of the potential risks and has had an opportunity to seek the advice of her doctor, the employee may:
- elect to continue to work in the same position with no accommodations (except, perhaps, for the use of a fetal radiation monitor)
- continue to work in the same position with accommodations as recommended in writing by her doctor (e.g., no radiation exposure, no lifting over 20 pounds, etc.)
- seek to work in a different position (e.g., in an administrative position) based on the written recommendation of her doctor
- elect to take a leave of absence based on the written recommendation of her doctor
Employers should be prepared, however, for the possibility that things will change as the employee’s pregnancy progresses. For example, the employee who elects to continue on with her work unchanged will undoubtedly find later in her pregnancy that it is difficult, if not impossible, to continue to lift/restrain patients. As a result, the employer should encourage the employee to come forward with all concerns or requests at any time. The employer should also reassure the employee that the practice will remain open to the possibility of making reasonable accommodations to the employee’s duties, as recommended in writing by the employee’s doctor, throughout the pregnancy.
The employee also owes a duty to her employer. If the employee seeks to continue on in her usual position – with or without reasonable and agreed upon accommodations – it is essential that the employee is able to and, in fact does, perform substantially all of the duties necessary to carry out her work. That is, the employer’s duty to reasonably accommodate pregnant employees does not mean that such employee is entitled to a “free pass” for the duration of her pregnancy. A pregnant employee must still provide services to her employer commensurate with her pay. Stated another way, an employer is not required to accommodate a pregnant employee to the point of undue hardship.
Temporary Job Transfers
If the employee requests a transfer to a more administrative position, her request should be accommodated if:
- there is a position available
- the employee is qualified for such position
- the value of the accommodated position to the employer is similar to the value of the pregnant employee’s original position
Note that an employer is under no obligation to create a new position for its pregnant employees.
When considering a pregnant employee’s request for a change of position, the employer should also be mindful of the practice’s employee manual in relation to disability to ensure that it is acting in a consistent manner and treating all of its disabled employees in similar fashion.
Leave of Absence
The employee may elect to take a leave of absence, perhaps because the employer is unable to reasonably accommodate her request for a temporary change in position. If so, the leave is, subject to any provisions to the contrary in the employee’s employment agreement and/or the practice’s written employee manual, unpaid. (The employee may be eligible for disability benefits from a government agency pursuant to applicable legislation.) If the employer meets certain criteria of federal and/or state laws and the employee is eligible under such laws, the employer may have a duty to hold the employee’s position open for a specified period of time.
Considerations with Other Employees
As an employer, you might be wondering about the potential fallout from your other employees. How, for example, will they react if you accommodate your pregnant employee by temporarily eliminating some of her duties – especially if they are being asked to pick up the slack? The key to dealing with this (and really any other employee) issue is communication. For example:
- reassure your employees that the situation is temporary and that you would make the same attempts to accommodate their reasonable requests in the event of their pregnancies or temporary disabilities
- follow up with your employees regularly regarding their work load and be open to their suggestions about how to more equitably distribute the work. You may even consider hiring a part-time, temporary employee to pick up the slack
- periodically acknowledge your employees’ efforts and teamwork. A simple thank you can go a long way. It wouldn’t hurt to also splurge for the occasional box of muffins or chocolates for the office as a gesture of goodwill
For additional information on potential risks for pregnant employees that may exist in the workplace, you may refer to:
- AVMA policy: Veterinary Facility Occupational Risks for Pregnant Workers (http://www.avma.org/issues/policy/pregnant_workers.asp)
- AVMA PLIT publication: What Precautions Should We Take For Pregnant Workers (http://avmaplit.com/uploadedFiles/AVMAPLIT/Publications/Safety_and_Loss_Control/Precautions%20For%20Pregnant%20Workers.pdf)
- Occupational Safety and Health Administration (OSHA) website (http://www.osha.gov/)
- Compendium of Veterinary Standard Precautions for Zoonotic Disease Prevention in Veterinary Personnel; National Association of State Public Health Veterinarians, Veterinary Infection Control Committee (http://www.nasphv.org/Documents/VeterinaryPrecautions.pdf)
- National Council on Radiation Protection and Measurements (http://www.ncrponline.org/)
- various veterinary journals, including JAVMA
- business/practice management areas of online services such as VIN or VSPN
For additional information regarding relevant laws, regulations, policies and guidelines, you may refer to:
- Pregnancy Discrimination Act (PDA) administered by the Equal Employment Opportunity Commission (EEOC) (http://www.eeoc.gov/)
- Family and Medical Leave Act (see Department of Labor website below)
- Americans with Disabilities Act (http://www.ada.gov/)
- Department of Labor website (www.dol.gov)
- Applicable state disability and employment legislation, including maternity/family leave legislation
- The practice’s employee manual as it relates to disability benefits/leave
Of course, if you have any doubt at all about how to proceed, you should contact legal counsel before taking any action!
The overall objective of any Performance Management Program (“PMP”) is to ensure a Practice and all of its subsystems (processes, departments, teams, employees, etc.) are working together in an optimum fashion to support achievement of the overall strategic and operating performance goals. In simpler terms, a Performance Management Program strives to ensure the right people with the right competencies are in the right jobs at the right time. An effective PMP will also look to achieve the following objectives:
- Shape the culture and reinforce the core values of the Practice
- Facilitate communications between supervisors and subordinates
- Motivate and reward superior performance
- Effectively manage unsatisfactory performance
- Identify opportunities for personal growth and development
- Link pay to performance
- Stimulate individual and collective productivity
Why PMP’s Fail
While Performance Management Programs have been utilized for many years, they are not universally considered an effective management tool. In some cases, performance management is more about checking a box than about aligning employee performance and development. Instead of viewing the performance review as a valuable communication and recognition tool, many Practices think of it as a necessary evil; a paperwork exercise that managers love to hate. Exacerbating this feeling of disdain is the fact that supervisors often spend a majority of their time focusing on the small minority of employees that do not meet expectations and not enough time giving appropriate praise, recognition and appreciation for those who do. Even your best workers can be better, but if you don’t give them the guidance they deserve, then they will never reach their full potential. Some of the more common shortcomings of a PMP include:
- Individual goals are not tied to the strategic direction of the Practice
- Senior management is not fully committed or invested in the process.
- Performance objectives are only looked at every six or 12 months and not on a continuing basis.
- Performance appraisals are not included as part of a larger employee development initiative.
- Little or nothing is done with the actual appraisal results.
- Management fails to develop and administer a coaching and improvement plan for any employee who is not meeting expectations.
- There is a lack of clarity in the link between pay and performance.
Developing a Performance Management Program
When creating, institutionalizing and communicating a PMP effectively, it is a valuable resource for a supervisor to help employees identify and develop needed skills, knowledge and abilities. However, if used inappropriately, a PMP can demoralize employees, frustrate managers and expose a Practice to potential legal risks. Therefore, several questions must be addressed when developing a PMP. Who will be involved in the performance review process – will the review be horizontal, vertical or a 360°? How much time can each contributing party commit to the PMP? Will the review focus on objective results and/or subjective perceptions? How often should the reviews be performed? Who will oversee the PMP to ensure it is being used properly? Who will provide training to the reviewers? What will be done with the results of the reviews? And, most importantly, how will the success of the PMP be measured?
Conducting the Performance Evaluation Review
Prior to meeting with an employee to conduct the performance evaluation review, it is advisable to have the employee complete a self-evaluation form. Give the employee approximately 1 week to complete the performance evaluation form and return it to his/her supervisor 1 week in advance of the performance evaluation review date. Only after the supervisor has completed the performance evaluation form for the employee, should the supervisor review the employee’s self-evaluation form and rating. Following this process will help ensure the supervisor performs an independent performance evaluation that is not biased by the employee’s perceptions of how he/she performed. Other important points to consider when preparing for and conducting a performance evaluation review include:
- Be sure to deliver the performance evaluation review at the designated time-giving the review after the date can leave an employee feeling slighted, anxious and devalued. It also sends the unintended message that the performance evaluation review cannot be that important to you or the Practice.
- Be mindful of overrating an employee- rating an employee higher than is warranted may be an easier message to deliver, but it can create other problems. For one thing, it may give failing employees a false sense of security and make it difficult to administer needed discipline.
- When discussing a performance issue with an employee, be sure your verbal and written comments support your rating and always use specific examples that clearly demonstrate the level of performance.
- Be sure you are rating the entire performance evaluation review period – supervisors often fall into the trap of rating only the most recent activities and actions. If an employee is being evaluated annually, the performance evaluation review should consider everything, good or bad, that has occurred during the past twelve months vis-à-vis the employee’s performance.
- Ask for feedback-there may be mitigating factors and circumstances that affected the employee’s performance during the review period. It is critically important to provide an employee the opportunity to discuss and present an explanation of any factors and influences that may have contributed to his/her performance. Encouraging this two-way dialogue ensures “everything” is considered when developing the performance rating.
Developing Performance Goals
Another key piece of a PMP involves developing performance goals and expectations. Goals are written statements that clearly describe certain actions or tasks with a measurable end result. Goals should be well-defined, detailed declarations of specific actions to be taken during the upcoming review period for which measurable outcomes are expected. Each goal should be specific enough to let the employee know what is expected to be accomplished, why it is to be done, and the target date for accomplishing it. The following acronym is often used to assist supervisors in developing goals for their employees:
S Specific-answers what, why and when actions or activities should be accomplished.
M Measurable–clarifies how to determine if the goal has been achieved.
A Agreed Upon- both the employee/supervisor should agree on what is expected to successfully complete the goal.
A Aligned-supports the Practice’s mission and overall objectives.
R Realistic-ensures goals are doable but with a stretch challenge.
T Time Specific-establishes deadline for completion.
To Sum It All Up
In order to determine the effectiveness of a Performance Management Program, it must first and foremost support achievement of the Practice’s mission and goals. It should help employees understand what is expected of them and against what measurement criteria their performance will be assessed. If the program is utilized properly, a welcomed byproduct of the PMP is improved communications between supervisors and subordinates. As the PMP evolves, a Practice should begin to notice a stronger link between pay and performance. Rather than giving arbitrary increases to all employees, the PMP will provide justification for differences in salary increases and rewards. Finally, documented differences in performance should help identify employees able to assume additional responsibilities as well as those individuals requiring additional development and/or discipline.
Drafting job descriptions requires time, effort and creativity. The focus needs to be on what the job requirements are to support your Practice’s current needs and long-term objectives. Without a job description, it is not possible for an individual to properly commit to or be held accountable for the position’s role and responsibilities. The tendency when having to create a job description is to under-estimate the strategic nature of the role, ignore the necessary competencies to perform the responsibilities and be too detailed with operating instructions (which should be in either a standard operating procedures or training manual).
Job descriptions are essential for recruitment, enable you to distinguish positions, delineate tasks and determine pay levels. Without them, your best efforts to staff, develop and evaluate performance are without direction. And your ability to defend against complaints regarding pay, performance, promotion and discrimination are disadvantaged.
Be bold, empower your employees to write their own job descriptions but not without first providing them in-depth training on:
- What is a Job Description
o Includes information regarding the general nature of the work to be performed, specific responsibilities and duties, and the employee characteristics required to perform the job.
• A duty is what the person in the job will actually do while qualifications are the skills, attributes, or credentials a person needs to perform each duty successfully (success criteria competencies – critical for recruiting). Clarify the actual duties and responsibilities before you start thinking about what special attributes or competencies will be needed by the person who will be fulfilling those responsibilities.
o Focuses on outcomes and accountabilities and are used to manage performance. Have reasonable expectations, the job must be doable.
- Value of Job Descriptions
o Clarifies who is responsible for what within your Practice by defining relationships between individuals. By accomplishing this, job descriptions can be used to settle grievances, minimize conflicts, and improve communications.
o Enables the employee to assess the relative importance of everything he/she is accountable for, provides a sense of where the job fits in to the Practice as a whole and how the position supports the Practice’s overall goals.
o Provides information about the knowledge, training, education, and skills needed to perform each job. They prevent misunderstandings for employees by clarifying what they need to know, accomplish and prioritize regarding their jobs.
o Helps management analyze and improve the Practice’s organizational structure. Reveals whether all Practice responsibilities are adequately covered and where responsibilities should be reallocated to achieve a better balance.
o Limits legal exposure to issues such as equal opportunity and discrimination laws.
- Job Analysis
o A data-gathering process including examination/interpretation of the data to determine what the employee actually does on the job, the required qualifications needed to perform those duties and the context in which the work is performed
o It is an evaluation of the job function, not the person doing the job.
o Includes a thorough understanding of the essential functions of the job, a list of all duties and responsibilities, a percentage of time spent for each group of tasks, the job’s relative importance in comparison with other jobs, the knowledge, skills and abilities needed to perform the job, and the conditions under which the work is completed.
- Job Design
o Communicates what to consider when focusing on job design and creates teamwork in a smart way, so employees want to be on that team and be thoughtful in assembling it. Considers how individuals react to their jobs by looking at social characteristics of work (such as, interdependence, frequent feedback, autonomy, a socially supportive work environment, communicating with people outside of the Practice, etc) to reap the benefits of greater job/work/organizational satisfaction, increased performance, less exhaustion/stress and reduced turnover intentions.
- Compiles the data concisely using clear language and a standardized format
o Documents essential functions of the position
o At a strategic level, documents
• Does what work (including review of the work of others).
• When (or how often).
• Why (the purpose or impact of the work).
• How (it is accomplished).
o Indicates that the job description is not designed to cover or contain a comprehensive listing of activities, duties or responsibilities that are required of the employee.
- Signature Line
o Signatures validate the job description.
o Employees understand the requirements, essential functions and duties of the position.
Annually, in tandem with your performance evaluation cycle, you should be reviewing your job descriptions for accuracy and updating them especially if the Practice is dynamic, going through some business transformation and roles/procedures are changing rapidly. It is more than just a static document and reference point. Job descriptions should be used for job postings, interviews, reasonable accommodation requests, compensation reviews for determining salary levels/pay grades/titles, performance appraisals and clarifying missions, as well as for career planning, training exercises and legal requirements for compliance purposes.
Once your job description is completed, you are ready to craft a job posting that dazzles an ideal candidate by highlighting your Practice’s strengths and the position’s attractiveness. Describe your Practice’s culture, reputation, growth, benefits package, advancement opportunities and even location. Write your job posting as a performance profile, informing candidates of expectations and what kind of attitude your want in a new hire as well.
Think of your job descriptions and job postings as advertising copy that you have created as an opportunity to highlight what is great about your Practice, to raise your Practice’s profile in the industry and to pull in your next high achiever.
Co-ownership issues arise when a veterinarian becomes partners with other owners, or when two or more associates join to buy a veterinary practice. Becoming a co-owner of a veterinary practice is like getting married. It’s important to agree on the principal terms governing the relationship before getting hitched.
Consider the following key co-ownership issues:
1. Business Organization.
What basic form should the practice take? A “C” corporation, an S corporation, limited liability company (LLC), partnership (general or limited), or sole proprietorship? When buying less than all of a practice, the buyer usually must accept the existing structure. Even when buying 100% of already existing entity, adverse tax consequences often preclude transforming that entity. Those purchasing assets or starting from scratch have greater latitude. Selecting the right entity is a complex decision that should be thoroughly explored with the owners’ accountant and attorney. Generally, tax considerations are determinative, but liability is also an important aspect. For example, while general partnerships often permit added flexibility, each partner is responsible for his share of the losses run up by the other partners (i.e., joint and several liability). Thus, if a partner incurs malpractice losses exceeding the practice’s insurance coverage, the other partners will be responsible for the shortfall.
2. Compensation and Profits.
a. How will owners be paid for their efforts as veterinarians? Will their compensation be based on their individual gross revenues, on practice gross revenues, or will they be paid a flat salary? Or should it be a combination of the foregoing? Note that owners are almost always also employees of the practice to take advantage of various tax advantaged employee benefit plans.
b. How will the practice’s profits be shared? Should each owner’s “take” be based on his ownership interest in the practice, his relative contribution to the practice’s gross revenues, his ability to bring in knew clients (i.e., “rainmaking”), or other factors? Some business entities, such as partnerships, allow more flexibility than others in distributing profits. Beware of the double taxation consequences of distributing dividends from a “C” Corporation. “S” corporations are less flexible because the profits are distributed in proportion to ownership interest.
3. Governance and Management.
a. Governance of the selected practice entity are addressed in its constituent documents or more frequently in an a shareholders’ agreement (partnership agreements for partnerships, operating agreements for LLCs). When two equal co-owners join, typically all decisions will require unanimity, subject to perhaps dividing the day to day management duties among themselves. Three or more owners, particularly if they don’t have equal shares in the practice usually require more complicated schemes. For example, majority vote needed for all decisions, other than certain enumerated strategic matters such as the acceptance of a new partner, or approving capital expenditures over a certain threshold, which require a super majority vote (e.g., 66.66%) or even unanimity.
b. Will the owners do the day-to-day managing themselves or hire a practice manager? Co-owners should consider their respective roles in this area and how their efforts should be compensated since they may be foregoing income generated from practicing veterinary medicine if their compensation is based on revenues. Compensation for management duties usually ranges between 2 and 4 percent of the annual gross revenues of the practice.
4. Transfers, Withdrawals and Buy-Outs.
a. Because it is unthinkable to let strangers into the practice without the approval of all the owners, the shareholders’ or operating agreement usually prohibits an owner from selling his interest to a third party…without at least first offering it to his partners.
b. What happens when an owner dies, is disabled, goes bankrupt, gets his license revoked or just wants to retire? Or what happens to an owner who divorces and the divorce settlement awards an interest in the practice to the spouse? In all of these cases, the owners typically have either the option or obligation to buy-out the affected owner at a price based on the practice’s appraised value. (In many agreements, the practice entity instead of the owners may purchase the affected owner’s interest.) In the case of death and/or disability, some owners subscribe to life and/or “buy-out” disability insurance policies, the proceeds of which are used to fund the purchase.
c. Owners selling a portion of their interest in the practice in anticipation of retirement sometimes wish to penalize their the junior partners for withdrawing from the business before they have sold their remaining interest in the practice (i.e., “you should not get out before I do”). These penalties usually reduce the price the junior partner can get for selling his interest.
A clause prohibiting the owners from directly or indirectly competing with the practice, keeps the owners focused, preserves the goodwill of the practice and reduces conflicts of interests.
Veterinarians seldom have time to do anything else than practice their profession. Nevertheless, it is far preferable to resolve co-ownership issues at an early stage rather than to wait until a dispute arises. Denial and misunderstanding are the handmaidens of messy divorces.
ii While we consider a two partner practice; the basic issues are the same no matter how many partners there are. Their resolution just gets more complicated.
14 ISSUES YOUR VETERINARY PRACTICE PARTNERSHIP DOCUMENTS SHOULD (HAVE) ADDRESS(ED)ii
1. What happens when you die?
Will your heirs receive a fair price, or any price for your investment in the practice? Will they remain locked into that investment forever? Will your heirs collect profits from the practice? What if the other partner (who is getting paid under his practice employment contract) has voting control and decides not to distribute profits?
If your heirs are to be bought out, who sets the purchase price? How and by whom is it paid? If part of the purchase price is paid with a promissory note, is same secured? How? What if the practice is not profitable enough to pay the note?
2. What happens when your partner dies?
Your deceased partner’s heirs are now your new partners. Barring a fluke, your new partners will not be veterinarians. Does your State permit non-veterinarian practice owners? Will they want to be bought out or stay and collect profits from the practice? (Without contributing to profit generation of course.) If the deceased partner was a large shareholder, or the majority interest holder, the heirs will also inherit your deceased partner’s voting rights. Do you want to share practice management with, or be managed by, such persons? What if the heirs squabble among themselves, leading to management paralysis and/or litigation? Do you fancy having the practice run by a court-appointed receiver? If the heirs are to be bought out, who determines the purchase price? How and by whom is it paid? If there’s a note, is it secured? How?
3. What if you are permanently disabled?
Will you receive a fair price, or any price for your investment in the practice? Will you remain locked into your investment forever? Will you collect profits from the practice? What if the remaining partner decides not to distribute profits? If you are to be bought out, who sets the purchase price? By whom and how is it paid? If there’s a note, is it secured? How?
4. What if your partner is permanently disabled?
Will your disabled partner want to be bought out or stay and collect practice profits (without generating any of same)? A disabled partner’s interests will be different then yours, so if he was the managing and/or majority partner, how will he run the practice? Will he be able to run the practice? What if the disabled partner is mentally disabled?
If your disabled partner is to be bought out, who determines the purchase price? How and by whom is it paid? If there’s a note, is it secured? How?
5. What if your partner goes nuts?
You don’t want a mentally unstable person practicing veterinary medicine. But if such partner is the majority partner you can’t fire him, because he, not
you, controls the practice entity. The same problem arises for equal partners. Sure your mentally disabled partner could voluntarily remove himself, but can you rely on that? What if the majority partner has a guardian? How will the guardian run the practice? What if the majority partner or guardian fires you?
6. What if your partner should be fired as veterinarian-employee?
Suppose your partner becomes lazy or his child becomes ill and decides to work significantly less hours or stop working altogether. Suppose your partner becomes a substance abuser and consequently unfit to practice veterinary medicine. Or he steals from the practice. Or he harasses employees and/or abuses clients and/or patients. The foregoing would be grounds for terminating a veterinarian employee. But if your partner is the majority or an equal partner you can’t fire him (as explained in the preceding paragraph).
7. What if you no longer get along?
Should the practice be dissolved? If not, who should leave? At what price should the departing partner be bought out? How and by whom is it paid? If there’s a note, is it secured? How?
8. In a 50/50 practice how are disagreements handled?
What happens when each party has equal voting/management rights and a serious disagreement arises? How will the resulting deadlock be resolved?
9. What if your partner wants to drop out, buy a boat and sail around the world?
Should your partner be permitted to withdraw? If not, how do you keep your partner from just resigning as an employee (in light of the constitutional prohibition of involuntary servitude)? If so, should withdrawal be subject to your partner reaching a certain age (e.g., 55 or 60)? What if your ex-partner discovers he’s chronically sea-sick and comes back to set up a veterinary practice next store (using the client list he kept when he left)? If a partner is permitted to withdraw, who determines the purchase price? By whom and how is it paid? If there’s a note, is it secured? How?
10. What if your partner divorces?
If the divorced spouse has, or is awarded, a portion of your partner’s practice equity interest, the divorced spouse becomes a partner. Ménages à trois make great literature and film themes but ALWAYS end badly.
11. What if your partner goes bankrupt?
Do you fancy your partner’s creditor as your new partner? It won’t be fun to have a bank running, or having a say in running, the practice. Worse, the bank likely will want to sell your partner’s share to a competitor.
12. Who’s got the land?
The small animal practice’s most valuable asset is its location, because most clients won’t travel far for pet treatment. As zoning restrictions get ever tighter, good practice locations become ever rarer (and more expensive). If, as is frequently the case, one partner owns the practice premises, what happens when he dies, is disabled, withdraws, resigns, divorces and/or goes bankrupt?
13. What if another veterinarian wants to buy your partner’s interest in the practice?
Should your partner be allowed to sell without your approval? Should you have a right of first offer? A right of first refusal?
14. If your partner is not your retirement plan, then who is?
If you don’t have a firm agreement with your partner to sell your practice interest to him (or someone else) upon your retirement, then how are you going to retire using your investment in the practice as your nest egg? What if both partners want to retire at the same time?