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Finance diary, April: Future-proof your practice against partnership changes

April is often the time for partnership changes. In the past year or two I have seen a marked increase in the number of GPs deciding to quit, being suspended or finding themselves alone in an imploding practice. The situation is always difficult – but an up-to-date partnership agreement can stop it turning into a disaster.

Three recent cases I have seen showed how painful the process can be if the agreement doesn’t cover all the issues. In all three, a planned retirement saw young partners joining the practice and, in fairly short order, deciding that it was not for them.

The agreements did not stop the new partners leaving. Nor did they hold on to some of the remaining partners, for whom the increase in workload was too onerous.

In two cases the practices imploded, contracts were terminated and expensive situations arose with staff redundancy. One practice was stung with continuing lease costs and the other faced large loan redemption penalties.

Succession planning

A partnership agreement should clarify what happens if a partner wants to leave. What is the notice period? How many partners can give notice in a six-month period? What happens if they refuse to work their notice? When are they to be paid any money due to them? Is any interest to be paid, at what rate and for what period?

The agreement should make clear the penalties for people who don’t comply with notice requirements. Also, since it can take the NHS up to three years to sort out a partner’s seniority entitlement, the document should outline how late payments or clawbacks will be dealt with.

Many agreements don’t cover 24-hour retirement. Is a partner able to take 24-hour retirement and be sure the other partners will have them back?

The position for new partners also needs to be considered. It is vital to be clear about whether new partners are expected to buy in to premises. Historically, not all partners have had to be property owners, but ownership is increasingly viewed as a good idea.

I have seen new partners decide not to buy in, leaving one partner with the whole burden of loan repayments, which are often not fully covered by notional rent income.

Bob Senior is chair of the Association of Independent Specialist Medical Accountants and head of medical services at Baker Tilly