Author: omniadmin

Cash is king is an old adage used to describe one of the keys to success in business as well as personal finances.  Cash is essentially physical money or liquidity you have available.  While cash may be king when it comes to having cash on hand, another vitally important ingredient to the success of a practice is Cash Flow.  Cash Flow is the amount of money you have available in a given time period after you have paid all of your expenses (payroll, lab, supplies, debt, etc.).

When analyzing a practice, how do you know how much true cash flow the practice has available? You cannot simply look at a practice’s tax return or a profit and loss statement and know how much cash flow the practice has.  There are a number of steps that someone evaluating a practice would take into consideration when determining the correct cash flow.  Those steps are as follows:

1. Start with the Net Income of the practice.  This is the total revenue or collections minus the total expenses.
2. Add back the owner’s salary and any taxes associated with the owner’s salary.
3. Go through the expenses and “add back” those items that are non-essential to the practice. These are expenses that are for extra-curricular or out of the ordinary expenses. These typically include travel, staff meetings, interest, depreciation, owner life insurance, etc.
4. Calculate what your debt service payments will be by using a mortgage amortization calculator.  You can use bankrate.com or another online calculator.  Use a conservative interest rate based on current market rates for practice loans and a 7-year term.  Subtract the debt service payments from the above 3 items.
5. The result will be the cash flow to the practice after debt service based on the current state of the practice. This will be how much is available to a potential buyer for his/her personal salary, upgrades, updates, etc.

If you need help analyzing the cash flow of a practice, or how you can improve a practice, you can call us anytime for a free consultation. We can be reached at (877) 866-6053 or email at info@omni-pg.com. ​

​Correction: In a previous version of this post, Net Income was incorrectly labeled Gross Income in the calculation of Cash Flow.  We apologize for the error and any confusion.

Brought to you by Omni Veterinary Practice Group, Bank of America Practice Solutions and Patterson Veterinary Practice Solutions

Topics Covered:

• What does today’s marketplace look like for selling your veterinary practice?
• Tax strategies for a successful transition of your practice into retirement
• What should you take to prepare for a proper transition of your practice?
• What legal issues should you be aware of in a transition?

9 am to 5 pm. Dinner will follow shortly afterward.

Attendance cost for you and your significant other: $300
Refreshments, lunch, and dinner included.
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If you’re thinking of buying another practice, here are some benchmarks to consider.  Note: there may be special exceptions, but this will give you a more stress-free acquisition.

1.  Your current practice should be producing between $80,000 and $100,000 per month.
2.  Your hygiene program should have production at 25% to 30% of total collections (for general dental practices).
3.  You should be getting a new patient flow of 20+ new patients per month.
4.  You should have a stable staff with little to no turnover and a good working team.
5.  Systems should be in place so your practice can run without you.    
6.  You have mastered dentistry where you can do most procedures and not refer much work out.
7.  Your finances are in good order.   You have paid your loans down and you have savings. (See Wikipedia for the definition of savings.)
8.  Your spouse or significant other is okay with you opening another location.  Realize that two locations = double the work, potential less spouse and family time.
9.  You know how to read financial statements.  With multiple locations, you now own a business and need to know how to run one.
10.  Your bank, financial planner, accountant and other advisors are in agreement that it would be a good idea to start or buy another location.

By following these guidelines, you will save yourself, your family, bankers, attorneys, lawyers and others a lot of grief should you jump into another location too soon.  We are always happy to help you assess your situation.  Call us anytime, for any reason at no charge- (877) 866-6053.

1.  Assess your equipment.  Upgraded practices sell faster.  If you are more than five years away from retirement, I recommend a few upgrades such as recover your chairs if needed and freshen up the paint.  If you want to sell in less than five years, stick to the paint and carpet because you will not get the tax benefit of major upgrades.
2. Clean up your accounts receivable.  Reimburse patient credits, collect old accounts and keep the A/R current.
3. If you have an associate, make sure you have an associate agreement with a non-compete.
4. If you have an employment agreement with your corporation and you are a C-Corporation, you may need to terminate yourself a few years before retiring.  Consult your tax accountant.
5. Consult your financial advisor and tax accountant.  How much do you need to retire?  How much do you have?  What are the tax consequences?
6. Get a practice valuation to see what proceeds you will get from the sale.
7. Be realistic in the time it takes to sell.  In remote areas, it can take a year or two.  Metro areas, much less.
8. Keep your production up as you near retirement.  I see veterinarians slow down all the time in their last few years.  Work the same number of days.
9. Assess your staff.  Do you have too many staff?  Do you have one that should have been let go seven years ago?
10. Have a practice assessment performed by a qualified consultant.  Many will do it for free or a small fee.  This may help show you some areas to improve over the next few years.

By focusing on these items in the coming years as you near retirement, you will avoid having your practice production and the price of your practice go down in your later years.  Call me for a free consultation.  I would be happy to take a look at your practice and give you my thoughts.  Or, if you are thinking about transition right now, I have a database of buyers looking in your area. 877-866-6053 ext. 2.

For those of you that have been around for a few years, you have probably noticed that the economy is cyclical.  Factors such as interest rates, employment levels, consumer spending and even retirement rates ebb and flow.  This flux creates optimal opportunities to buy and optimal opportunities to sell.
Currently, the market for a practice transition is a seller’s market.   This means there are more buyers looking to acquire a practice than there are sellers looking to sell a practice.  It has been this way for a number of years.  But there are a number of factors that make the current market a perfect storm.  These factors are as follows:

1. There are not a lot of practices on the market.  Low supply and high demand equate to higher practice values.
2. Interest rates are still relatively low.  This makes note payments more affordable, so buyers are looking to take advantage of lower rates by purchasing a practice.
3. The economy is strong.  Patients are getting their dentistry done.  They are employed and have insurance, or can afford to pay cash and get work done.
4. There are more buyers than sellers. Doctors have been holding on to their practices and delaying the sale of their practice in part because of the down market in 2008 to 2010.  The average retirement age for dentists was 62 in 2000 – it’s now closer to 67.

Just as perfect storms at some point break, so will the perfect storm for a transition.  Interest rates are already starting to increase.  Over 50% of doctors are now over the age of 55 and getting older.  They are beginning to sell either to retire or, unfortunately, because of health reasons.  Seller’s markets are flipping to buyers markets in other parts of the country with older populations.  It will eventually happen where you are as well.  If you are thinking about a transition within the next few years, we would be happy to meet with you and answer your questions and put help formulate your transition plan.  Just give us a call at 877.866.6053 or send us an email at info@omni-pg.com.