When a partner buys in, the first question is where the money goes: into the practice, or to you for part of your share. That choice changes the books, the taxes and the agreement. Your attorney and CPA set the terms, and your books should follow them exactly.
Two kinds of buy-in
- The partner pays the practice. The money goes into the practice's bank account and becomes the partner's stake. The practice has more cash.
- The partner pays you. You sell part of your ownership. The money goes to you personally, and the practice's cash doesn't change.
In a made-up example, a partner pays $60,000 for 25% of the practice. If they pay the practice, the bank balance goes up $60,000 and their equity account starts at $60,000. If they pay you, the practice's cash stays the same, and the books record the change in who owns what.
Your tax setup may change
A single-member LLC with a new member is usually taxed as a partnership, which means a different tax return and a K-1 for each owner. An S corp has its own rules about owners and distributions. Ask your CPA what changes before the buy-in closes, not after.
What the agreement should settle
Your attorney drafts the operating or shareholder agreement. From a books point of view, I'd want it to answer:
- Each owner's percentage, and what happens if it changes.
- How each owner gets paid: salary, guaranteed payments or distributions.
- How profit and losses are split.
- Who can sign checks, take on debt or add a big expense.
- What happens if an owner leaves.
Keep each owner's money separate
Each owner should have their own equity accounts in the books: what they put in, what they took out, and their share of profit. If two owners take different amounts out, that has to show by name. This post explains owner draws and contributions.
Paying over time
Some partners pay in installments. Then the books need a record of what's still owed, and the agreement should say what happens if a payment is missed.
Plan for the hard conversations
Partners usually agree at the start and disagree later about pay, hours and spending. Monthly books that both owners trust help a lot. I'd send the same P&L and Balance Sheet to every owner each month, so nobody is working from a different set of numbers.
What I'd do this week
- Decide with your attorney whether the buy-in goes to the practice or to you.
- Ask your CPA how the tax setup changes.
- Get the agreement's pay and profit split in writing.
- Send your bookkeeper the final agreement before the first dollar moves.
Common questions
How do I set the buy-in price?
Usually from the practice's value, which a CPA or valuation professional can help you estimate. Clean, reconciled books make that much easier.
Can a partner buy in with their work instead of cash?
Sometimes, but it has tax consequences. Talk with your CPA and attorney before agreeing to it.
Does the partner see all the books?
Usually, yes. Owners generally have a right to the financial records. Your agreement can spell out what reports they get and when.
Want each owner's money tracked by name?
We reconcile every account every month and send your P&L and Balance Sheet by the 15th, so decisions like this start from real numbers. If that's what you need, apply to work with us.