Author: omniadmin

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 a 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 dentists 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 refer out those you do not want to do.  It also allows you to choose your staff, even choose your patients.  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 a practice in 2019 or continue to work as an associate, Omni Practice Group would like to wish you a Happy and Prosperous New Year!

1. Are you comfortable with your clinical skills?   If you have been out of veterinary school 3 to 5 years, you should have a feel for where you are with your skills.  A lot depends on the clinic(s) or hospital(s) you’ve been working.  Some may limit what you’re doing and others just may not be busy.  If you’re in a location that’s given you a variety and volume of experience, you should be getting a good amount of experience.
2. Have you seen a good practice in operation?  Sure, you’ve been working in one or more clinics, but are they well-run?  Or, if they’re not, you know the difference?  If you are in a well-run practice, you should be observing how the doctor and/or office manager treat the staff.  Whether a veterinary assistant, office manager, or veterinary technician, they should all be treated well.  How about the patients and clients?   They should be given good, Nordstrom-like treatment.  They pay your rent and you want them coming back.
3. Do you know how to read financial statements?  Most veterinarians in the early stages of their career don’t know what a financial statement is, let alone, how to read one.  There are online courses such as accounting for non-accountants and other courses on financial statements and bookkeeping that can fairly quickly teach you what the financial statements are and how to read them.  Understanding them is imperative in running any business.
4. Now that you know how to read a financial statement, do you know what the numbers should be?  What percentage of collections should your payroll numbers be?  What about rent, etc.? If you don’t know, there are resources online.  Watch all of the White-Board Wednesday online videos from Joel Parker, DVM.  They are great at teaching you numbers as well as other aspects.
5. Practice Management – Learn as much as you can with the free stuff online.  From the White-Board Wednesday videos to other online courses, you can learn a lot for no cost to minimal cost.  This will quickly help you grasp the key concepts of managing a practice.

These are just a few things you can do to prepare you to own a practice. And remember, practice owners typically make 20% to 25% more than an associate veterinarian.  In addition, the equity you build in a practice is a great source of retirement.  So, congratulations on completing another year as a Veterinarian and cheers to a New Year which may bring you Happiness, Joy, and Practice Ownership.

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.

When you buy a house, there are certain key things you check to make sure it’s a good, solid house.  Those include the condition of the roof, foundation, electrical, plumbing, etc. Well just like buying a house, there are key things to look for when buying a practice.  Here are a few I suggest you look at to make sure you are getting a good practice:

1. Cash Flow – This is how much cash the practice is producing before paying the doctors salary to pay the debt service.  You can look at the tax return and do some simple calculations by adding back the non-operational expenses (think travel, food, etc.,) and doctor’s salary to the net income. This is a critical piece of the decision.
2. Trended Gross Production – Are the numbers going down year over year, or are they going up?  If they’re going up, that’s great – the practice is growing.  If they’re going down, that means either the doctor is getting near retirement and not doing as much work, or there’s a problem.
3. Active Patients – This can be defined as patients that have been in the office the past 12 months, 18 months, or 24 months. No matter what, you should calculate out how many patients have come in the last 12 months.  If it’s a paper practice, you can count the charts to get the number. If it’s a paperless practice, look at the production by procedure and look at the hygiene appointments to get the number.
4. Staff Salaries – Staff salaries should not be higher than 25%, including the payroll taxes and benefits.  If it’s not, don’t panic.  If you see that production can be quickly lifted, that will help get the salaries into a better perspective.   Or, if it’s already producing at a high number, you may have to look at adjusting salaries.  Do some more research here.   I’ve seen a staff member that can do the job of two people and is worth her/his weight in gold.
5. Production by Procedure Report – Make sure you can do all of the procedures the current doctor is doing.  If there are some that you cannot do, can you take a course and quickly learn that procedure, or will it require a longer length of time? Or, if you don’t want to do that procedure, what will be the impact on the numbers?  You can also bring someone in to perform that procedure, for example, if it’s an orthodontist, you can have an orthodontist come in a couple of days per month to perform ortho treatment.
6. The Lease – How much time is left on the lease?  What is the annual lease?  Did they sign the lease at the height of the market and leases in the area are now 20% lower?  Is there a tear down clause in the lease where the landlord can tear down the building with a 12-month notice?  Note, these are not that uncommon in areas that are growing or regentrifying.  Just know that they are in the lease and know what the likelihood of the building being torn down is.  Look at comparable leases in the area and see where they are in terms of price.
7. Treatment Planned – When doing a chart audit, look at treatment planned.  Is it all done, or is there a decent supply of work to keep the production going?  Some doctors will try to do all of the work on their patients before selling so they can get all of the money.   Others will leave treatment for the buyer to help them out.  Just be sure to know how aggressive the selling doctor was with their patients.
8. Insurances Accepted – Understand for which insurances the seller is a preferred provider.  Also, are there plans that they are a provider, but the insurance company is not offering them to new providers?  This is the case with the Delta Premier Plan. All Delta Premier patients are put on the normal Delta PPO when you come on as a new provider.  The result is a 10% to 20% reduction in fee reimbursement.
9. Is the doctor going to stay and work, or are they going to give you the key and run?  If you have enough experience, in running a practice, you may be okay with the seller getting out of there quick.  If it’s a larger practice with some unique procedures, you may want the doctor to stick around and show you the ropes before they going on a six-month safari to Africa, or elsewhere.
10. Is the staff sticking around, or are they retiring as well? If the doctor is in his 70’s and he/she has an assistant and a front desk person in their 70’s, there’s a high likelihood that they may be retiring as well.  It’s not the end of the world, just know what you’re getting yourself into.

These are just a few things to know and understand before you buy a practice.  Just as in a house where a roof, foundation, plumbing, and electrical can all be fixed, so can production, staff salaries, rent, procedures, etc., in a practice.  You just need to know what you’re getting yourself into.

Best of luck looking for a practice! Our Buyer’s program can always help you to make sure you don’t step into something you’re not expecting. For more information, give us a call at (877) 866-6053 or email info@omni-pg.com.

TIME – Time is money.  I’m not sure who came up with that quote, but boy is it right.  It’s especially true when selling a practice.  We have done studies and found that it takes over 200 hours to sell a practice.  We have had several practices that took over 500 hours.  This includes doing a valuation, putting together a prospectus, posting ads in various publications, receiving phone calls from prospective buyers, emailing them a non-disclosure agreement, sending them the information on the practice, meeting them at the practice during off-hours, following up with them after the showing, possibly showing it to them a second or third time, helping put together a letter of intent, sitting through due diligence with the buyer for hours, reviewing the purchase agreement, following up again with the buyer, cancelling ads, meeting with staff and finally closing.  Hopefully closing.  Attorneys and bankers that specialize in dental practice sales have told us that when a broker is not involved with the sale of a practice, the transaction is 50% more likely to fall apart prior to closing.  

EXPERTISE – You have to be a jack of all trades to complete a practice sale.  A sale involves understanding legal contracts.  You have to know how to write and post effective ads for your practice. You must also be able to read buyers and talk about the practice in a positive manner discussing the opportunities in the practice. Understanding numbers in your tax return and profit and loss statements is a must.  Buyers and their advisors are always asking detailed questions about the numbers in your tax return and profit and loss statements.  Be a good negotiator, from the price to how long you will help with the transition -these are just two of the terms that are negotiated.  Other items will come up as well.  And, of course, you need to know the practice management system, what the reports are saying and how to interpret them.  A good broker will have some level of expertise in all of these areas.

MEDIATOR – Quite often there will be a dispute that arises.  It may be taking over an advertising contract, working back as an associate, or the final price of the practice.  On occasion, the dispute may get heated and the buyer will get upset with the seller or vice versa.  The broker acts as a buffer in maintaining the peace and diffuse the dispute.  Often the broker will keep things under wraps and dissolve the dispute before it becomes a dispute.  This can save the transaction from falling apart.

TRANSACTION ENGINEER – Everyone involved in practice transitions, from the brokers to the bankers, CPAs, and attorneys will tell you that getting the buyer and seller to harmoniously cross the closing finish line is a difficult task.  The broker keeps everyone on task.  The broker ensures the buyer gets approved by a bank, hires the right dental attorney and CPA.  If something is needed, whether for the buyer or seller, the broker is there to get it done. 

Let us be the time-saver, the expert, the mediator, and the transaction engineer so that the sale of your practice is a success. Contact us today to schedule a no-cost, no-obligation planning meeting. 
 
info@omni-pg.com
877-866-6053