Map the parties, scope; and authority
Start by identifying every entity that signs, receives services; or pays. The practice may be a professional corporation or limited liability company, while a separate billing company, real estate entity; or facility may be involved in specific functions. The agreement should name the actual contracting parties, identify the practice locations and covered operations; and say whether affiliates are included. A broad reference to "the practice and its affiliates" can pull in a new site or entity without an explicit decision by its owners. List the intended covered entities and locations in a schedule, with a written process for adding or removing one.
Describe the manager's work in concrete categories. Typical services include bookkeeping, payroll administration, recruiting logistics, information technology, purchasing, revenue cycle administration, credentialing support, facilities coordination; and reporting. For each category, state what the manager performs, what the practice must supply or approve; and the expected output. "Provide administrative support as needed" leaves room for disagreement about whether the manager must staff a function, meet a deadline; or simply advise. A schedule can specify that payroll files are prepared by a stated business day, invoices are coded to agreed categories; and a monthly operating report is delivered with defined supporting schedules.
Separate administrative execution from authority to make decisions. A manager might prepare a budget, obtain vendor bids; or process an approved payment, while the owners retain authority to adopt the budget, select a vendor above a threshold, borrow money, sell assets; or change partner compensation. Spell out limits on signing contracts, opening accounts, transferring funds, hiring employees; and committing the practice to long-term spending. If the manager can act under a power of attorney or bank authorization, identify the scope, duration; and revocation process. The service agreement should not quietly grant discretion that conflicts with the practice's governing documents or partner approval rules.
Define performance in ways owners can see
The services schedule should make performance observable. For each recurring task, define a deliverable, frequency, timing, responsible contact; and the information the practice needs to provide. For example, the manager may reconcile bank and credit card activity each month, deliver a variance report within a fixed number of business days after receiving complete statements; and identify unresolved items and silently carrying them forward. A recruiting support obligation can specify candidate pipeline reports and agreed response times, without promising that a hire will be made.
Use service levels for work that affects business continuity. These may cover response to an accounting question, restoration targets for administrative systems, invoice processing, report delivery; or escalation of suspected payment errors. The measures should account for dependencies the manager does not control. If the practice must approve a payment batch, the service level can measure the manager's processing time after approval and promise the payment will clear by a bank's cutoff. Define how exceptions are logged, who reviews them; and how repeated misses trigger a corrective plan.
Avoid performance language that has no measurement or remedy. "Best efforts," "commercially reasonable support," and "satisfactory service" may express an aspiration but do not establish what happens after missed reports or recurring processing errors. Pair an objective standard with a cure mechanism: written notice, a short root cause review, a correction plan with owners and milestones; and escalation to named executives if the issue recurs. For material failures, the practice may seek a fee adjustment, the right to transition the affected service; or a termination right after a stated pattern. Any remedy should be proportionate and should not depend on a manager's sole judgment that it has cured itself.
Understand the fee and the complete cost
Read the compensation clause together with every schedule, exhibit; and incorporated policy. The manager may charge a fixed monthly amount, a percentage of collections, a per-location fee, a pass-through of costs; or a combination. Define the base for any percentage precisely: cash received or amounts posted, included entities, treatment of refunds and recoupments, timing of adjustments; and whether the manager's own charges are excluded. "Gross revenue" can produce very different invoices depending on whether it includes facility subsidies, interest, investment income; or collections attributable to services outside the covered business.
Distinguish the management fee from reimbursable expenses. The agreement should say whether routine overhead is included, what qualifies as a direct expense, what evidence supports reimbursement; and whether the practice must preapprove unusually large or recurring items. A manager's central office allocation can be difficult to test unless the allocation method is stated. If shared services are allocated among several clients, request a consistent method based on a relevant driver, such as transaction volume or supported headcount; and a right to inspect the calculation. Prohibit duplicate recovery where an item is already included in the base fee.
Establish invoice mechanics. State when invoices arrive, what detail accompanies them, when payment is due, how disputed items are handled; and whether undisputed portions remain payable while a dispute is reviewed. Require the manager to preserve support such as third-party invoices, payroll allocation workpapers; and calculation detail. Set a period for raising billing questions after receipt of complete documentation, but do not make an invoice automatically correct merely because the practice missed a short review window. Late charges, service suspension; and collection costs should apply only to valid, undisputed amounts after notice and an opportunity to cure.
Consider how fees change over time. An automatic annual increase, percentage escalator; or unilateral right to revise rates can erase the value of a competitive initial quote. A fixed fee may need adjustment when locations, transaction volume; or service scope materially change, but specify the trigger, evidence, negotiation period; and consequence if the parties cannot agree. Require written approval for added services and a corresponding fee schedule before work begins, except for narrow emergency expenditures with prompt notice. A budget is not a substitute for an enforceable fee cap if the agreement lets the manager invoice outside it.
Protect records, cash; and access
State that the practice owns its financial and operational records, including ledgers, invoices, payroll records, vendor files, reports; and data created from its operations. The manager may need a limited right to use and store those records to perform the services, subject to confidentiality and security duties. Clarify that the manager cannot hold the practice's records hostage during a fee dispute. Specify export formats and delivery timeframes so a successor can use the information without purchasing a proprietary system or reconstructing years of transactions.
Design controls around money movement. Where feasible, accounts should be in the practice's name, with the practice retaining administrator access and the manager receiving only role-based permissions needed for assigned work. Require separate preparation and approval for payment batches, dual authorization above a stated threshold; and prompt notice of changed vendor banking instructions. Reconcilements should be performed or reviewed by someone who did not initiate the corresponding payments. The agreement can require a monthly list of account users and a process to remove access immediately when duties end.
Address confidentiality and security in operational terms. Define permitted uses, access controls, incident notification, cooperation in investigating an event; retention and deletion; and responsibility for subcontractors. The manager should disclose which subcontractors can access practice data and remain responsible for their performance under the agreement. Require reasonable cooperation with the practice's routine audits and any inquiry related to the manager's work. The record of who accessed a system, approved a transaction; or changed a vendor record can be as important as the final report.
Manage conflicts, subcontracting; and accountability
Ask how the manager earns money beyond the stated fee. It may receive rebates, referral payments, volume discounts; or other benefits from vendors. The agreement should require disclosure of material economic interests connected to purchasing decisions and specify whether benefits are credited to the practice, retained by the manager; or shared. If the manager recommends an affiliated vendor, require disclosure of the relationship and a process for the practice to compare alternatives. Owners should be able to see the basis for a recommendation and infer it from an unexplained expense.
Subcontracting can be efficient, but it should not dissolve accountability. Require advance notice or consent for material subcontractors, identify functions that cannot be delegated without written approval; and make the manager responsible for subcontractor acts and omissions as if its own. Preserve confidentiality, security, record access; and transition obligations throughout the chain. The practice should know who will answer when a payroll file is late or an accounting platform changes, even if a third party performed the work.
Review insurance, indemnity; and liability provisions as one package. The manager should maintain coverage appropriate to the services, including relevant professional or technology coverage when applicable; and provide evidence on request. Indemnity should address losses caused by a party's breach, negligence, misconduct; or violation of law, while avoiding a promise that one party will cover losses caused by the other. A low liability cap can make record loss or a serious security event practically unrecoverable; broad exclusions for consequential damages may also swallow the remedy for interrupted operations. Consider carve-outs for confidentiality breaches, misuse of funds, fraud, willful misconduct; and indemnity obligations, with caps calibrated to the actual risk and insurance available.
Plan for change, termination; and transition
Check the initial term, renewal mechanics; and exit rights before focusing on the monthly price. An agreement that renews automatically unless notice is delivered far in advance can trap owners who discover poor service after a deadline. Provide a workable termination for convenience on reasonable notice, plus immediate or shorter-notice termination for specified serious events. These may include loss of a required license or insurance, insolvency, misuse of funds, material confidentiality breach; or repeated uncured service failures. Give the manager a reciprocal termination right for sustained nonpayment of undisputed amounts after notice and cure.
The transition clause should describe actual assistance. Require delivery of current books, open invoice and receivable status, vendor contacts; login and configuration information, pending commitments; and a reconciliation of funds held. Specify a transition period, named support, reasonable cooperation with a successor; and a rate for work beyond ordinary closeout. The manager should not condition release of records or access credentials on payment of a disputed invoice. At the same time, the practice should plan an orderly final payment of valid charges and return any manager property that contains no practice records.
Address fees and access at termination. Explain whether prepaid amounts are prorated, whether a final true-up is permitted; and when deposits or reserve balances are returned. Require the manager to stop initiating new transactions after the effective date except for actions the practice specifically authorizes to protect operations. Revoke access in a controlled sequence after the practice has secured necessary exports and new administrators. The transition plan should name an owner-side lead, a manager-side lead, the systems involved; and checkpoints for confirming that critical records and permissions have moved.
Work an illustrative fee example and test common mistakes
Consider an illustrative practice with monthly collections of $1,200,000 and a management fee of 4.0% of defined collections. The fee would be $48,000 for that month. If the manager also invoices $9,000 of direct costs, the cash outflow would be $57,000 before any other practice expenses. If the agreement instead defines collections to include a $100,000 facility support payment, the percentage fee rises by $4,000. If that payment is excluded, it does not. This difference is not a forecasting detail; it is a contract definition owners can settle before signing.
Suppose the practice's budget assumes that the $9,000 consists of $5,000 in approved software and $4,000 in documented postage and bank charges. The invoice arrives with $3,000 labeled "shared administrative support," with no allocation method. Under a well-drafted agreement, the manager supplies the underlying calculation, the practice pays the undisputed $6,000 on time; and the parties review the $3,000 under a stated dispute process. The practice can reject a cost that is outside the allowed categories or duplicated in the management fee. The example is illustrative only, but it demonstrates why the fee base, expense categories, support; and dispute timing must work together.
Owners commonly negotiate the percentage while overlooking the denominator. They may agree on 4% without deciding what collections mean, whether cash is counted when received or posted; or how refunds affect a later period. Another mistake is to accept an attractive first-year price alongside unilateral rate resets, uncapped pass-throughs; or a minimum fee that applies even when service volume falls. Some groups also allow the manager to choose affiliates, vendors; or subcontractors without disclosure, leaving conflicts and hidden markups outside the headline fee.
A different mistake is treating "the manager handles billing" as a complete description. It does not say who owns the receivables, who controls bank deposits, which reports the practice receives; or who can correct a posting. Likewise, accepting a general right to inspect records may be ineffective if there is no response deadline, export format, audit cooperation; or remedy for refusal. Owners should test each clause against a real monthly cycle: close, invoice, approval, payment, reconciliation, reporting; and correction.
Finally, do not let a termination clause promise an exit without supplying the means to execute it. A short notice right has little value if data is locked in an inaccessible platform, transition work is billed at an unspecified premium; or the manager can withhold credentials. Nor should owners assume that governance documents will resolve service agreement ambiguity. If the practice's voting rules require a partner vote for major commitments, the agreement should reflect that approval path and identify who has authority to issue operational instructions.
Owner action checklist
- List each signing entity, covered location, service; and owner-side decision authority.
- Attach a deliverables schedule with timing, reporting, escalation; and cure mechanics.
- Define the fee base, expense categories, allocation rules, invoice support; and dispute process.
- Confirm practice ownership of records, bank controls, system access, security duties; and audit rights.
- Address vendor conflicts, subcontractors, insurance, indemnity, liability limits; and rate changes.
- Negotiate usable termination rights, transition assistance, final reconciliation; and data portability.
- Walk through one monthly operating cycle and one disputed invoice using the draft terms before signature.
Questions about your own practice? Contact richard@doctorsinvestorclub.com.
