I was going to send some emails to some of the brains on this forum regarding this topic, but than thought I might do so publicly as the discussion would be interesting. Even if you have no idea about anything and just want to learn, read hear and ask questions, there are some seriously knowledgeable and intelligent people on this forum. It is an outstanding place.
I am currently writing a journal article titled "Innovative Business Structures for Legal Practices and Mutli-Disciplinary Practices". I would love some input from some of the people on this forum as to structures they use/ consider/ have dreamed up etc etc.
Although this is aimed at the legal profession, the underlying principles are the same, it just has to deal with the extra regulatory burdens imposed by on the legal profession.
So don't be put off this topic if you are not involved in the legal profession. I think employment and business, especially in service firms is changing. The old model of a partnership or straight entity employing people on a wage does not meet the needs or inherently motivate those individuals providing the services.
For clarification a multi-disciplinary practice describes a practice that has a part of it that provides legal services and other parts that provide others eg accounting, financial planning, town planning etc. I personally have completely separate structures which is why some of my clients when they send a legal question to the planning email address then have to be given a disclosure notice stating the planning practice does not provide legal services etc. etc.
One of the structures I find interesting is the REMAX type model, where the head business provides almost a purely business services model that charges fees to another entity, which is controlled by the actual agent. The agent who sells the property gets full commission through their own entity. For some entities this has been changed to a joint agent arrangement where both the actual office agency and the individual agency provide the service to the client. This has been done in line with some needs of the Personal Services Income.
Medical Practices with GP's are also an interesting model, as the individual GP can be the one providing the service, not the clinic. There has been issues in some of the models with the ACCC investigating "price fixing" arrangements because all of the GP's agreed to charge the same price for services. It has to be structured correctly.
Many traditional services firms ran as owned directly by the owners or as a partnership. Then the predecessors to Ernst, established (or at least had tested in court in the Phillips case) the use of a Service Trust. Where a trust owns or leases the equipment, rents the building, employs the non-professional staff and charges the professional entity on a fee for service basis. The service trust may be a unit trust with units owned by the partners, their families or related parties or further owned by discretionary trusts controlled by someone related to the professional staff. This model has been taken up with some gusto by many people in the law, accounting and medical professions. This has had some issues where people have not been charging commercial rates being looked at by the ATO.
Just about all service businesses can now run as a straight Pty Ltd company, but again this gets back to my point of not suiting the professional staff, as well as not being flexible for tax and other structuring purposes.
I just don't think the traditional model makes sense for the professionals involved and also an alternative structure can be equally beneficial to the owners of the main entity.
I will give you an example from a law firm that has a large number of partners.
Reasonably experienced and competent lawyer, is paid around the $150k mark.
Required to bring in (not just bill but collect) $700k in fees for the year, that is their own fees not the paralegal, secretarial fees associated with it, just their own professional fees. This equates to collecting around 1500 hours of billable work a year. Above this figure and they get bonuses for extra money brought in. This particular lawyer works bloody hard, often till late at night and always kills his budget. His partner in the firm still gives him a hard time if he doesn't come into the office till 10am some days. This is regardless of the fact he is a night person and is often in the office past 10 at night, is great at what he does and will come in early if he needs to to meet a client etc. What time he comes into the office has no bearing on his ability to perform his work. But the partner is still of the belief that he is on a salary and should be in the office by 9am at the latest. If she keeps riding him about this, he is going to go to another firm or even leave altogether. This quite high earning professional who controls his own files and basically chooses how he does everything within certain parameters is not allowed to choose when or even where he works. The partner earns multiples of his salary.
The figures and budgets may change between firms but this is by no means an unusual thing. This model makes no sense to me, except maybe if you are one of the partners, and even then you have had to do this for years to get there.
So any innovative structures anyone can think of please?
regards
D
I am currently writing a journal article titled "Innovative Business Structures for Legal Practices and Mutli-Disciplinary Practices". I would love some input from some of the people on this forum as to structures they use/ consider/ have dreamed up etc etc.
Although this is aimed at the legal profession, the underlying principles are the same, it just has to deal with the extra regulatory burdens imposed by on the legal profession.
So don't be put off this topic if you are not involved in the legal profession. I think employment and business, especially in service firms is changing. The old model of a partnership or straight entity employing people on a wage does not meet the needs or inherently motivate those individuals providing the services.
For clarification a multi-disciplinary practice describes a practice that has a part of it that provides legal services and other parts that provide others eg accounting, financial planning, town planning etc. I personally have completely separate structures which is why some of my clients when they send a legal question to the planning email address then have to be given a disclosure notice stating the planning practice does not provide legal services etc. etc.
One of the structures I find interesting is the REMAX type model, where the head business provides almost a purely business services model that charges fees to another entity, which is controlled by the actual agent. The agent who sells the property gets full commission through their own entity. For some entities this has been changed to a joint agent arrangement where both the actual office agency and the individual agency provide the service to the client. This has been done in line with some needs of the Personal Services Income.
Medical Practices with GP's are also an interesting model, as the individual GP can be the one providing the service, not the clinic. There has been issues in some of the models with the ACCC investigating "price fixing" arrangements because all of the GP's agreed to charge the same price for services. It has to be structured correctly.
Many traditional services firms ran as owned directly by the owners or as a partnership. Then the predecessors to Ernst, established (or at least had tested in court in the Phillips case) the use of a Service Trust. Where a trust owns or leases the equipment, rents the building, employs the non-professional staff and charges the professional entity on a fee for service basis. The service trust may be a unit trust with units owned by the partners, their families or related parties or further owned by discretionary trusts controlled by someone related to the professional staff. This model has been taken up with some gusto by many people in the law, accounting and medical professions. This has had some issues where people have not been charging commercial rates being looked at by the ATO.
Just about all service businesses can now run as a straight Pty Ltd company, but again this gets back to my point of not suiting the professional staff, as well as not being flexible for tax and other structuring purposes.
I just don't think the traditional model makes sense for the professionals involved and also an alternative structure can be equally beneficial to the owners of the main entity.
I will give you an example from a law firm that has a large number of partners.
Reasonably experienced and competent lawyer, is paid around the $150k mark.
Required to bring in (not just bill but collect) $700k in fees for the year, that is their own fees not the paralegal, secretarial fees associated with it, just their own professional fees. This equates to collecting around 1500 hours of billable work a year. Above this figure and they get bonuses for extra money brought in. This particular lawyer works bloody hard, often till late at night and always kills his budget. His partner in the firm still gives him a hard time if he doesn't come into the office till 10am some days. This is regardless of the fact he is a night person and is often in the office past 10 at night, is great at what he does and will come in early if he needs to to meet a client etc. What time he comes into the office has no bearing on his ability to perform his work. But the partner is still of the belief that he is on a salary and should be in the office by 9am at the latest. If she keeps riding him about this, he is going to go to another firm or even leave altogether. This quite high earning professional who controls his own files and basically chooses how he does everything within certain parameters is not allowed to choose when or even where he works. The partner earns multiples of his salary.
The figures and budgets may change between firms but this is by no means an unusual thing. This model makes no sense to me, except maybe if you are one of the partners, and even then you have had to do this for years to get there.
So any innovative structures anyone can think of please?
regards
D
