Author: omniadmin

By Jim Vander Mey, CPA, ABI and Rod Johnston, MBA, CMA

​Every potential practice owner comes to a crossroad where they ask themselves, “Should I buy an existing practice, or should I just go start up a new practice at a new location?”  We typically suggest you find a good existing practice to purchase, but if you cannot find one that fits your needs and desires, then the alternative is to start one from scratch.  There are pros and cons to both and a lot depends on your vision.  Here are some things to consider before making a decision:

1.  Cash Flow – Buying an established practice typically gives you instant cash flow.  That’s if it’s a decent practice and if it already cash flows.  Cash flow is the money left over after paying all of the practice bills and your debt service on the loan for the practice.   If you can find a practice in your desired area that has good cash flow, or you believe you can get it to cash flow, then, by all means, you should buy it.
   With a startup practice, it can take 18 to 24 months before you break even.  Cash flow would happen shortly thereafter.  If you spend some time and do some good research, you can cash flow much sooner.  We’ve assisted with demographics for doctors and helped them find locations which cash flowed in 6 to 9 months.
2. Practice Philosophy – Do you have a certain practice philosophy on managing your practice?  Do you want to do certain procedures, treat clients a certain way, and manage the staff in a certain manner?  Then, buying an existing practice where patients and staff are set in their ways may be a challenge.  Clients may be used to making payments.  Staff may be used to leaving early, using their cell phone during work hours, or having their kids hang out in the staff room during work.  Changing patient protocol or staff habits may result in losing some patients and staff.  At a minimum, you will have disgruntled staff.
   If you start up your own practice, you can mold your patients and staff in your philosophy and style.  Clients can be treated and trained to pay upfront, accept your treatment plans, and trust you.  Staff can learn from the beginning how you want them to work and what you expect.
3. Cost – A good practice in a good location is going to be valued at 70% up to 100% of the last 12 months’ collections in the current market.  Great practices that are high producing with low margins in metropolitan areas are going to sell for between 90% and 100% of collections.  There is a high demand for these practices, and they sell quickly.  In rural areas, these practices may reach 80% and possibly 85%.  Low performing practices in these areas will be priced between 70% and up to 80%.
   Construction costs in the Northwest are currently on the high side reach up to $200/sq. ft.  They are traditionally $135/sq. ft.  That is before any equipment is purchased.  This puts a typical startup practice at around $500,000 to $600,000.  This is a negative for currently doing a startup.  The cost to build it out due to the current market is high.
4. Systems – With an existing practice, the systems are already in place.  Patient flow, collections, insurances, staff salaries, and benefits, etc., are for the most part all set up.  You just need to buy the practice and copy what the current owner is doing.  As long as they are good systems, then you’re in the money.  If the systems are bad and going to potentially cost you more money, then you’re in for a headache.  Changing systems can create problems with staff and clients.
   With a startup practice, you need to create your own systems.   You hire your staff and establish benefits and pay.  If you have experience in doing this, or at least know what type of systems, benefits, etc., you want to put in place, then you’re okay.  If not, you may be learning on the job which will end up in mistakes and cost you money.
5. Finances – In certain situations, lenders may ask you to keep your associate position on a part-time basis.  This is just in case the practice doesn’t cash flow enough to support you or the debt.  Or, you may need to have some cash in the bank in order to have something to fall back on if there is a cash shortage during any one month.
   For a startup, they most likely will suggest you keep your associate job one or two days a week until your practice gets going.  If your practice picks up quick, you can quit your associate job and focus on your practice.

Over 65% of doctors want to eventually own their own practice.  Whether it be via purchasing an existing practice or doing a startup is up to you.  Following a few guidelines, getting good demographics, and seeking wise and experienced advice will help you make a good decision.

Every potential practice owner comes to a crossroad where they ask themselves, “Should I buy an existing practice, or should I just go start up a new practice at a new location?”  We typically suggest you find a good existing practice to purchase, but if you cannot find one that fits your needs and desires, then the alternative is to start one from scratch.  There are pros and cons to both and a lot depends on your vision.  Here are some things to consider before making a decision:

1.  Cash Flow – Buying an established practice typically gives you instant cash flow.  That’s if it’s a decent practice and if it already cash flows.  Cash flow is the money left over after paying all of the practice bills and your debt service on the loan for the practice.   If you can find a practice in your desired area that has good cash flow, or you believe you can get it to cash flow, then by all means, you should buy it.
   With a startup practice, it can take 18 to 24 months before you break even.  Cash flow would happen shortly thereafter.  If you spend some time and do some good research, you can cash flow much sooner.  We’ve assisted with demographics for doctors and helped them find locations which cash flowed in 6 to 9 months.
2. Practice Philosophy – Do you have a certain practice philosophy on managing your practice?  Do you want to do certain procedures, treat patients a certain way and manage the staff in a certain manner?  Then, buying an existing practice where patients and staff are set in their ways may be a challenge.  Patients may be used to making payments.  Staff may be used to leaving early, using their cell phone during work hours, or having their kids hang out in the staff room during work.  Changing patient protocol or staff habits may result in losing some patients and staff.  At a minimum, you will have disgruntled staff.
   If you start up your own practice, you can mold your patients and staff in your philosophy and style.  Patients can be treated and trained to pay up front, accept your treatment plans and trust you.  Staff can learn from the beginning how you want them to work and what you expect.
3. Cost – A good practice in a good location is going to be valued at 70% up to 100% of the last 12 months collections in the current market.  Great practices that are high producing with low margins in metropolitan areas are going to sell for between 90% and 100% of collections.  There is a high demand for these practices and they sell quick.  In rural areas, these practices may reach 80% and possibly 85%.  Low performing practices in these areas will be priced between 70% and up to 80%.
   Construction costs in the Northwest are currently on the high side reach up to $200/sq. ft.  They are traditionally $135/sq. ft.  That is before any equipment is purchased.  This puts a typical startup practice at around $500,000 to $600,000.  This is a negative for currently doing a startup.  The cost to build it out due to the current market is high.
4. Systems – With an existing practice, the systems are already in place.  Patient flow, collections, insurances, staff salaries, and benefits etc., are for the most part all set up.  You just need to buy the practice and copy what the current owner is doing.  As long as they are good systems, then you’re in the money.  If the systems are bad and going to potentially cost you more money, then you’re in for a headache.  Changing systems can create problems with staff and patients.
   With a startup practice, you need to create your own systems.   You hire your staff and establish benefits and pay.  If you have experience in doing this, or at least know what type of systems, benefits, etc., you want to put in place, then your okay.  If not, you may be learning on the job which will end up in mistakes and cost you money.
5. Finances – In certain situations, lenders may ask you to keep your associate position on a part-time basis.  This is just in case the practice doesn’t cash flow enough to support you or the debt.  Or, you may need to have some cash in the bank in order to have something to fall back on if there is a cash shortage during any one month.
   For a startup, they most likely will suggest you keep your associate job one or two days a week until your practice gets going.  If your practice picks up quick, you can quit your associate job and focus on your practice.

Over 65% of doctors want to eventually own their own practice.  Whether it be via purchasing an existing practice or doing a startup is up to you.  Following a few guidelines, getting good demographics and seeking wise and experienced advice will help you make a good decision.

Happy New Year!  We hope that 2018 was full of health and happiness.  We helped many veterinarians buy, sell, or start a new practice.  Those that sold are now free from their duties of managing a practice.  They no longer have to do their books, manage staff, clean toilets, or do whatever most business owners have to do.  I speak from experience as I am a business owner and do all those things myself as well.  You may not have sold your practice in 2019, but I thought I would give you some things to think about that may have you considering selling in the coming year.

1.  Potential change in capital gains tax.  You may have read that Washington state is proposing adding a capital gains tax of 9%.  California already has a capital gains tax of 13%.  Other states are also considering either implement or increasing their capital gains tax rate.  I don’t know if this is going to happen or not, I don’t have a crystal ball, but I suggest you talk to your advisers and get their thoughts on capital gains.
2. Interest rates are starting to go up.  The Federal Reserve just had an increase in interest rates a couple of months ago.  The interest rates on practice loans typically lag home loan rates by six months or so.  We have had a nice run of low-interest rates that have been below 5%.  I expect they’ll be going up over 5% and probably end up between 5.25% and 5.75% on the high end.
3. Corporate practices are becoming more active.  There are more and more corporate and smaller groups buying practices at above-market multiples.  We had several doctors who were not considering selling, but when we told them they get a million dollars or more from a corporate buyer than a single individual buyer, they decided the additional funds were worth it.   They sold their practice and made a lot of money all while continuing to work in the practice.  Last we checked they were ecstatic with their decision and enjoying being a veterinarian again.
4. Management headaches – Let’s face it, managing a business isn’t what it used to be.  New taxes such as the new employee leave tax in Washington are being thrust upon us.  Finding good help has become tougher and tougher.  A good economy hasn’t meant higher-paying jobs for entry-level staff at Fortune 100 companies.  Figuring out how to compete against corporates and other veterinarians down the street has become a daunting task.
5. Uncertainty.  Uncertainty is a scary thing.  The economy has been going well, but how long will it sustain itself.   The stock market is up and down like a roller coaster lately.  In addition, we don’t know what the insurance companies will do with reimbursements.

These are a few things to consider if you’re on the fence about selling your practice.  We are always happy to sit down and buy you a cup of coffee/tea and discuss your individual situation. We’ll even give you an approximate value of your practice from both an individual buyer and a corporate buyer standpoint.  Talking through different options always helps in making your decision.  Best wishes for an extremely happy and healthy New Year!

By Jim Vander Mey, CPA, ABI and Rod Johnston, MBA, CMA
​Happy New Year!  Is this the year you finally take the plunge and buy your own practice?  Or are you content with being an associate working for someone else?  Here are a few reasons why 2019 should be the year you become a practice owner:

1. Interest rates are starting to move up. The past few years have rewarded buyers with interest rates in the 4% to 5% range and some with as low as 3.75%.  Interest rates moving up means you may have higher payments on your practice loan.
2. Bank financing is readily available.  If you think you cannot get financed because of high student loan debt, personal debt, bad credit, etc., then think again.  Banks view your diploma and the accompanying school debt as a positive thing.  It’s an asset that can be used to generate a good income.  Call us and we can hook you up with a bank to discuss your situation.
3. Jump in, the water is warm.  Studies have shown that those who are successful in both business and in their personal lives take calculated risks.  Owning a practice is a well-calculated risk with the failure rate on practice ownership less than .25%.  Yet, many doctors continue to be an associate as they deem practice ownership to be a risk.
4. Pay off debt and retire sooner.  By purchasing or building a new practice this year versus several years down the road, you can pay off your debt sooner, put more money in your pocket and retire sooner.  I know of several examples of doctors who bought a practice two years out of school and five years later had their practice completely paid off and are putting that money towards retirement.  Plus, practice owners make an average of 25% more per year than typical veterinarians who are associate employees in someone else’s practice.
5. Become independent.  Owning your own practice allows you to do the procedures you want to do and work on the patients you want to work on.  It also allows you to choose your staff, location and everything else for that matter.  You get to work when you want to work and go on vacation when you want to go on vacation.  It is all up to you as you are the boss!

Whether you decide to purchase or start a practice in 2019 or continue to work as an associate, Omni Veterinary Practice Group would like to wish you a Happy and Prosperous New Year!

​Happy New Year!  We hope that 2018 was full of health and happiness.  We helped over 60 doctors buy, sell or start a new practice.  Those that sold are now free from their duties of managing a practice.  They no longer have to do their books, manage staff, clean toilets, or do whatever most business owners have to do.  I speak from experience as I am a business owner and do all those things myself as well.  You may not have sold your practice in 2019, but I thought I would give you some things to think about that may have you considering selling in the coming year.
 

1.  The potential change in capital gains tax.  You may have read that Washington state is proposing adding a capital gains tax of 9%.  California already has a capital gains tax of 13%.  Other states are also considering either implement or increasing their capital gains tax rate.  I don’t know if this is going to happen or not, I don’t have a crystal ball, but I suggest you talk to your advisers and get their thoughts on capital gains.
2. Interest rates are starting to go up.  The Federal Reserve just had an increase in interest rates.  The interest rates on practice loans typically lag home loan rates by six months or so.  We have had a nice run of low interest rates that have been below 5%.  I expect they’ll be going up over 5% and probably end up between 5.25% and 5.75% on the high end.
3. Corporate practices are becoming more active.  We’ve been getting calls from some of the corporate practices such as Heartland and a couple others.  They have entered the market and buying practices.  They bought 10 in Washington and 7 in Oregon last year.  They will be more active in the coming years.  We have not sold a practice to them yet, but more buyers will help drive the practice prices up.
4. Change in family leave law.  This is a minor effect, but it’s an added tax to small business owners.  They can choose to pass it on to the employees.  I admit I haven’t studied this one to any extent yet, but it’s something to keep in mind.
5. Uncertainty.  Uncertainty is a scary thing.  The economy has been going well, but how long will it sustain itself?   The stock market is up and down like a roller coaster lately.  In addition, we don’t know what the insurance companies will do with reimbursements.

These are a few things to consider if you’re on the fence about selling your practice.  We are always happy to sit down and buy you a cup of coffee or tea and discuss your individual situation.  Talking through different options always helps in making your decision.  Best wishes for an extremely happy and healthy New Year!
 
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