Author: omniadmin

Be an Educated Veterinary Practice Buyer

I meet hundreds of veterinarians each year who are looking to buy an existing veterinary practice.  Of those, I would estimate that 30% have done any research on what is involved in buying a practice. Of that 30%, none know the beginning to end process of buying a veterinary practice.  While all the steps cannot be covered in this article, here is some guidance on where to start and what steps to take before buying a practice.

10 Pitfalls To Avoid In Your Transition

Making just one of these mistakes may cost you hundreds of thousands of dollars.

Ensuring you have a successful transition involves preparation and knowledge.  There are numerous things you should do to make sure your practice is ready to sell.  There are also several things you need to avoid in order to make your transition successful.  Here are a few pitfalls to make sure to avoid:

1. Letting your production go down prior to selling.  We have seen many practices that were producing $300,000 to $500,000 a few years prior to contacting us.  They thought they would cut down their days working and possibly hire an associate veterinarian.  The associate ends up not producing as much, and then collections go down.  The seller doesn’t take corrective action and production tanks.  This can result in a loss of hundreds of thousands of lost practice value, if not more.  So, keep your production numbers up.
2. Counting on selling your practice to your associate.  This always sounds like a great plan.  You bring on an associate, train and mentor them and then you can slow down and eventually transition at your leisure.  But you didn’t account for your associate getting married and moving out of state.  Or, your associate decided they want to practice in another town.  Or, your associate finding another opportunity in another practice.  Or, you discuss the money issues and the relationship changes. We make plans and then… life happens.  Statistics show that over 70% of associate-to-own opportunities do not make it to a sale.  Be sure and get everything in writing and, if possible, use an intermediary. Additionally, consider having your associate put away money in an escrow account that is non-refundable.
3. Not knowing your lease.  …Or, at least, not understanding the impact some of the terms in the lease have on the sale of your practice.  A tear-down clause can be a deal breaker.  This is a clause which states the landlord can give you a 12-month notice to terminate the lease, so they can tear the building down and build a new one.  It can be a longer notice and it can be a shorter lease.   It’s very difficult to sell, if not impossible if you do not have a lease in place.  Banks need to see that the term of the lease be as long as the term of the loan they are giving to your buyer, at least.
4. Not selling your real estate with the sale of your practice.  We have seen practices sold to corporates and to others where the tenant purchased the practice and, two years later, they move the practice to another building down the street with a larger space and better visibility.  You’re now stuck with a vacant veterinary building.  There are 3 vacant veterinary buildings within 5 miles of our office that were the result of this scenario. A careful analysis is required to determine what is best for your scenario.
5. Not keeping tabs on your profitability (EBITDA).  Valuations are based on the profitability of your practice.  Letting your profitability slip by not actively managing your practice, letting payroll get too high, inventory out of control, etc., will result in the value of your practice going down considerably.  In the case of a corporate buyer, it could be as much as a $10,000 in value for every $1,000 in EBITDA lost.
6. Not evaluating all options.  There are various buyers in the market.  We sell to individual buyers, small group practice buyers as well as corporate buyers.  When we ask sellers if they are okay with selling to a corporate buyer, we often get a reaction of, “No way. We won’t sell to that corporation(s).”  We can introduce buyers where, after the sale, nobody would even know that you sold to a corporation because there were NO changes to the way the practice is being run.   It isn’t always the case, but while an individual buyer may be limited to paying 2 to 4 times EBITDA, some corporates are willing to pay 5 to 10 times EBITDA (depending on the type of practice, etc. and in rare circumstances pay over 10 times EBITDA.  We have come in after an individual owner was negotiating with a corporate buyer and we got them $1 million more than what they were originally going to accept. That’s a million dollars to help pay grandchildren’s education, bonus your hardworking staff, and enjoy retirement from working weekends and long hours for decades.  If your practice proceeds are going to be used to fund your retirement, it can make a big difference in your retirement lifestyle.
7. Not understanding the deal. Your transition may be a simple transaction where you are selling to an individual buyer, walk away, and retire.  Even so, you still need to ensure that any long-term contracts, such as leases, are being taken over by the buyer, or a lease is in place, etc., Or, you may have a more complex transaction selling to a corporate.  Corporate buyers often have clauses where you receive a portion of the sales price upfront and then additional dollars a couple of years later, but the practice numbers may need to remain the same or grow.  Or, you may receive the 20% as payroll compensation instead of a purchase price.  This might have tax implications.  You may also be required to work back in the practice or other terms that need to be understood.  Just be sure to have an expert who has experience in these transactions explain the terms of the deal to you.
8. Having the wrong players on your team. The wrong attorney, accountant, broker, or banker can cost you potentially hundreds of thousands of dollars and an entire deal.  Sellers often think they can use their friend or relative who is some type of attorney, bankruptcy, divorce, or real estate attorney whom they think will take care of them.  The problem is, they don’t know the complexity involved in the deal and are not familiar with the terms.  We have seen many transactions where this has occurred where an attorney who specializes in veterinary transitions may charge $5,000 but were charged $40,000 by their “friend” because they did not know what they were doing.   The same can happen for an accountant, broker, or banker.  We have stories for each where the wrong person costs the seller a lot of money and even the loss of a potential buyer.
9. Telling your staff too early. A common question we get asked is, “When should I tell my staff about the sale of the practice?”  We suggest the seller wait until the agreements are signed.  Telling the staff too early may result in them leaving for another opportunity elsewhere.  It also creates a fear of the unknown.  Who’s the new buyer?  Will my job stay intact?  Will my pay be the same?  What about my benefits and hours?  Maybe I should find another job before I get laid off?  Are they going to dictate how I practice? Will I have to change outside the lab? It may not seem like it is the right thing to do to wait until you’re near the end to tell the staff, but believe me, it is.
10. Going it alone. Corporate buyers are throwing out offers to potential practice sellers left and right.  Some are hiring DVMs to tell you that you do not need representation and that they will handle everything.  But, is it the best offer you can get?  Not only from a price perspective but best for your staff and clients, best fit, etc.?   If you don’t know what the others have to offer, how would you know?  A good broker knows all the other buyers and what kind of terms and pricing they typically offer.  If you try to do it on your own, you could sell it to the wrong buyer for the wrong price.  This also relates to individual buyers.

The pitfalls to avoid in a transition are many.  I’ve just listed 10, but there are many more. Making any one of these mistakes could cost you thousands, hundreds of thousands, and even a million dollars.  There’s too much to risk in not having experts on your side to ensure you don’t make these mistakes. 

Take our advice and call us at 877-866-6053 ext. 2 for a free consultation on how to make your transition go as smoothly as possible.

Am I Ready to Purchase a Veterinary Practice?

Am I Ready to Purchase a Veterinary Practice?

Now is the time to invest in yourself and increase your income! Yes, COVID changed our lives and yes, loan rates are a little higher, but if you surround yourself with trusted advisors, you can do it. Start making more money and driving your own ship today.

Transition specialists/brokers are here to help you understand everything about the practice, such as areas of opportunity to grow and to increase collections. If many services are referred out that you may do, what does that increase look like? For example, if the selling veterinarian does no specialty services and you do, we can potentially research the number of referrals and put an average patient fee to it and determine an immediate possible increase in collections.

Loan rates are a little higher, but that little amount is nothing in the life of your career. You may also be able to refinance at some point and your CPA can assist you to take advantage of current tax deductions and accelerated depreciation if it makes sense in your specific situation. Reducing taxes is money in your pocket. As an example, ask your CPA about sections 168, 179, Special Depreciation, and DPAD. Perhaps it is time to incorporate a retirement plan into your office, again, if it makes sense in your situation.

Start talking with us and we can provide contacts for veterinary specific lending, CPAs, and attorneys to help you move forward with your career plans.

Current Trends For Veterinary Practice Buyers

Since Omni started in 2004, we have sold well over 300 practices.  Prior to approximately seven years ago, the majority of the practices had been sold to individual veterinarians buying their own practices.  The past seven years, most of our sales have been to corporations.  They have been paying big bucks to acquire practices.  They have been paying associates handsomely to work in those practices.  But is the trend flipping again back to individual buyers?

Corporate buyers have always told us that they want to acquire large practices with two or more doctors working in the practice.  They have been doing that successfully.  So well, that it’s hard to find a multi-doctor practice that isn’t owned by a corporation.  I know, there still are some, but a lot of them have been gobbled up by the big guys.  And they’ve paid a multiple of EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) ranging from a low of 6 to as high as 20 (or more) in certain cases.   One of the requirements for the sellers is that they stay in the practice and commit to work for anywhere from 2 to 5 years in their practice after it’s sold depending on what’s been negotiated.  Here’s where the corporates are now realizing what happens when the doctors are done with their commitment.  The selling doctor may retire completely.  The corporate then needs to get another associate.  Associate veterinarians are not easy to find these days.  Thus, the rush to open up a few more veterinary schools.  So, that leaves them with a practice with one less doctor if they can’t find an associate.

Here’s another trend we are seeing.  Some of the smart, entrepreneurial younger veterinarians, in their 40’s and 50’s for example, who sold their practices and have fulfilled their commitment to a corporation are now back on the market looking for a practice.  They got tired of some of the corporates telling them which supplies and equipment to use and, in some cases, even which procedures to perform.  (Yes, I know, they’re not supposed to dictate clinical work, but some do).

As I previously stated, corporations have been passing up on acquiring the majority of the solo doctor practices.  We see lots of practices with only one veterinarian collecting a million dollars or more, booked out a month or two, working six days per week and they just can’t find, or afford an associate.  Some of these practices, if they had two doctors, would quickly grow to collect $1.5 to $2.0 million.  Those practices are prime acquisition targets for the solo doctor who sold to the corporate, has practice management skills, can retain the selling doctor, and quickly grow the practice.  They can potentially then sell the practice in a year or two to a corporate as they now have a multi-doctor practice if the seller stays on.  Or, they can hold onto the practice and reap the cash flow from the now two-doctor practice.

Note to the young buyers out there that have been out of veterinary school for 3 to 5 years, you can do this too!  The seller has the experience of running a practice.  Many that we speak with are willing and want to stay on to mentor the buyer and help run the practice, they’re just getting tired and want to cut back a few days.  Most love being a veterinarian and want to continue the clinical aspect of veterinary work.  They just want to pass on the management to the buyer and work less days.  So, the opportunity is ripe for veterinarians who are tired of working for a corporation and want to own your own practice.  You don’t even have to sell to a corporate.  You can hold onto it and make it your own practice for years to come and be proud of what you’ve built, or the legacy you’ve carried on.

There are a lot of great solo-doctor practices out there waiting for a buyer to come along.  The potential is both lucrative and gratifying to the buyer and the seller.  You don’t need to work in a corporate environment the rest of your life.  You can enjoy your freedom and work in your own practice.  The choice is yours.

We’re always just a free phone call away and happy to help in any way we can.

The Short List Before Selling Your Veterinary Practice

There are many steps to selling your veterinary practice and your trusted advisors are here to help. Right now, we want to address just a few items that many veterinarians don’t think about and that can lead to surprises.

Contact your CPA and/or Financial Planner regarding the following items:

1. Are you financially prepared to retire? Your transition specialist (broker) can assist you in determining the potential price of your practice and your real estate (if any).
2. Depending on your entity structure and past depreciation, what taxes will you owe?
3. Depending on your state, what taxes will you owe?
4. If you have any debt against your practice or real estate the debt will be paid at closing from your sales proceeds.
5. What will you do with the final funds? Do you have a retirement plan to maximize or does a 1031 exchange on the real estate make sense for you?

Again, there are many steps to selling your practice, but please address the above items to help reduce surprises.