Buyer Articles

1. Have good clinical skills.  Be sure you have the clinical skills to produce the same or more production than the average veterinarian.  In other words, don’t buy a practice right out of veterinary school when it takes you four hours to do spay or neuter a dog.   It can take up to 5 years to learn the clinical and management skills to run a practice.
2. Buy existing or Startup new.  Decide if you want to start up a new practice, or buy an existing practice.  We recommend start by looking for an existing practice in the area you’d like to practice.  If after a period of time you cannot find a practice and the numbers make sense in your location of choice, analyze doing a startup.  Cash flow is king in veterinary practice financing and in paying your student loans, so look for an existing practice first and then look at doing a startup.
3. Veterinary Professional Team.  Get professional help from professionals that specialize in the veterinary field.  This includes your attorney, CPA, Banker and Broker.  Just like you don’t want your plumber doing your colonoscopy, you don’t want a bankruptcy attorney helping you with your veterinary practice purchase and sale agreement.
4. Educate yourself on buying a practice.  Know how to read a financial statement, practice management reports, lease terms, etc.,  There is a lot of information online, in the Veterinary Forums and other areas where you can get this for free.  Your professionals that you will be working with can also help educate you.
5. Find your practice.  Use the brokers in the area as well as state and local association contacts to find a practice of your choice.
6. Stop looking for the Unicorn!  Neither a unicorn nor a perfect practice exists.  Don’t cross a practice off a list because the carpet is green and you wanted brown.  Or, everything else in the practice looks good, but the staff is overpaid.  You can’t glue a pointy horn on a horse and call it a unicorn.  But, you can change the carpet, paint the walls, reduce staff pay, add endo to the practice, etc.  You will be in the practice for a long time, so don’t poo-poo the practice because of a change that the practice can handle.
7. Gather practice documents.  At a minimum, you want the following:
   1. 3 years tax returns
   2. 3 years profit and loss statement
   3. 3 years production by procedures and production by provider report
   4. Copy of the current lease and any amendments
   5. Practice statistics report showing patient demographics and other information
   6. Aging balance
   7. List of Staff salaries and benefits
   8. Any associate agreements
   9. List of any vendor contracts
   10. List of equipment
   11. Fee Schedule
8. Consider your offer.  So you like most everything about the practice and you want to make an offer.  You can work with your professional veterinary broker, or consultant and put together an offer.  You’ll want to analyze the purchase price.  If you’ve educated yourself, you can do this on your own.  If not, you can use a veterinary professional broker, CPA or consultant to help you put the offer together.  The offer is in the form of a Letter of Intent.
9. Get a Loan.  Banks love veterinarians.  The failure rate is less than .0125%.  Being a successful veterinarian is like finding a coffee shop in Seattle.  It’s pretty hard to miss.  Ask your broker, attorney, consultant, etc., for a referral to a lender.   Use someone reputable who does veterinary practice financing.  Do not use Suzie Q or Jonny Public the local commercial banker.  She will treat it like any other commercial transaction and try to run it through the SBA ending poorly with high fees.
10. Completing Due Diligence.  After you have agreed to a purchase price and both parties have signed a letter of intent, you will want to schedule due diligence in the office.  Prepare ahead of time for due diligence.  Know which reports you want to run and what the plan is for the due diligence.  You’ll want to truly see what the active patient count is.  You will want to review charts.  You will want to take a closer look at the equipment.  I would also suggest seeing if the seller is available for lunch, or to at least come into the office after due diligence.  This will help you get all of your questions answered by the doctor himself/herself.
11. Preparing to Transition.  The real work begins here as far as the transition goes.  There are somewhere between 50 to 70 items to get done prior to the closing of the sale.   We have a checklist if you’d like to see it.  This includes everything from setting up a legal entity to getting insurance credentials to ordering a credit card terminal.
12. Staff.  All through the process, the staff is hopefully unaware there is a sale going on.  The meetings and due diligence have happened in the dark of night, or on weekends all while wearing camouflage.   Kidding about the camouflage.  The reason the staff is not informed of the sale is there is a potential they may leave.  Part of the goodwill of the practice is staff.  If they all leave, there may be a potential loss of goodwill.  We recommend the seller tell the staff when there is a 99% certainty the transaction will go through to closing.  Sometimes that may mean a month before closing and other times it may mean the day of closing.  Every transaction, every staff, and every veterinarian is different.  It’s a gut feeling we get from experience.  Consult with your professional.
13. Closing the Sale.  Awe, the day is finally here.  It’s similar to any major purchase such as a house.  Some transactions require an escrow company or attorney to handle the closing.  Others can be done by a broker.  You will sign the purchase and sale agreement, bill of sale, closing certificate, loan documents and other agreements.  It’s a pretty painless process.
14. Notifying Patients.  As with staff, patients are not notified until the contracts are signed and the money is in the bank.  We don’t notify patients as they may leave the practice just as staff may leave.  There is a patient letter that is worked and agreed on between the seller and buyer.  The cost is typically split 50/50 between the buyer and seller.
15. Post Sale.  If the practice is running well, do not make any major changes for 6 to 12 months.  The more changes make the staff and patients uncomfortable.  Go in keeping things business as usual.  Of course, if there is an ugly orange shag carpet with teal painted walls, by all means, bring the décor up to date.  Also, if the practice is on a downward trend, you may need to make major changes including letting a staff member or two go, adding procedures, etc.  You need to make sure it will be successful and again, your veterinary professional advisors can help you.

Following these steps will make your acquisition of a practice a smooth process and not be a pain in the end (get it?).  Because you want to step into your new practice with a smile on your face on your first day and not looking like you just had a colonoscopy.

If you’re in it because you love being a veterinarian and love helping patients and not necessarily in it to make the big bucks, you can really practice almost anywhere. A lot of buyers seem to want the downtown metropolitan practice thinking it’s a great place to practice since there are so many potential patients and you can live the urban lifestyle.  We’ve helped doctors who absolutely wanted to be in a metropolitan area, even though the demographics made no sense whatsoever, who then started a practice and did quite well.  One doctor that we helped always dreamed of owning a practice in a particular city.  He went for it and is successful.  And we have seen others want a practice in a certain area, and although the numbers didn’t make sense, they did it anyway and were successful.

Some of you are buying a practice because you want to make a lot of money, in which case, further analysis and discussion is needed. The failure rate for veterinarians is somewhere around .015%.  If you’re buying an existing practice and the practice already has good cash flow that you’ve identified, you can purchase the practice and have success almost no matter where it is. If it’s a poor performing practice, you would need to examine if the poor performance is because of the location, the management, or something else.  If you want to buy an existing practice and are looking for an opportunity to grow and have lower overhead, I would suggest looking outside of the metropolitan areas.  Those areas have less competition, wages and rent are lower and it’s easier to grow those practices.  And if you are considering doing a startup practice, the same rules apply.  Look for a location with good demographics outside of metropolitan areas.  Of course, if you absolutely want to be in a metropolitan area, don’t be afraid to go for it.  Just look closely at the numbers and hire a good veterinarian practice or real estate broker to help you out. 

One of the advantages of working with Omni is we have both practice brokers and real estate brokers to help you traverse the ownership trail in any way we can.  Just give us a call at 877-866-6053 or email info@omnipg-vet.com and we’ll be happy to help get you started.

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.

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. Collections – Most buyers want a good base amount of collections.  The average practice produces around $500,000 per year.  If you’re below this amount, expect your practice to take longer to sell as there are few dentists who want a small practice that they can grow.  Most want to buy it, move in and get cash flow from the very start.
2. Cash Flow – Buyers want to be able to pay the debt service on the practice and also pay themselves a decent paycheck.  If you have an average size practice, your overhead should be at or below the national average of 65%.  This is after the “add-backs” that are done on your tax returns which “add-back” those expenses you are running through your practice which are really not operational to the practice.
3. Hygiene Recall – A solid recall program should be in place.  Approximately 30% of the collections in the practice should be from hygiene for a stable practice.  A little less is okay, but the lower you get, the closer you are to running an emergency clinic than a stable dental practice.  Not that there is anything wrong with that, you just reduce your pool of buyers if you have lower hygiene production.  At the same time, if you have really high hygiene – 40% or higher, that either means your hygienists are awesome and so is your patient retention, or, you’re not doing much in the way of procedures and doing a lot of “watches”, fillings instead of crowns, etc.,
4. Digital Technology – While this isn’t a must, most buyers want to see digital x-rays at a minimum.  You can still sell your practice without digital x-rays, but expect the price to be slightly lower.  Panoramic x-rays are great as the machines are less and less expensive.  Digital charts are also nice to have.
5. Decent Lease – With the commercial real estate market going crazy, you never know what you’re going to get.  It’s good to have a lease term of at least 5 years out with a 3-year option on top.  Problematic leases with tear down clauses, little parking, or those with short-term leases and the landlord not willing to extend the lease will cause a formidable problem in the sale of the practice.
6. Updated equipment and décor – If you have older chairs, be sure and at least have the coverings in good shape.   Older chairs are fine, but torn dental chair covers are not.  Dental chair covers are inexpensive.  Get new ones if yours are not in good shape.  Old carpet, paint and outdated countertops are also a turn-off.  A bit of new carpet, paint, and countertops go a long way in making a practice feel fresh and new for not very much money.
7. Poor Bookkeeping and Accounting – Have I got stories in this area!  However, I’ve been sworn to secrecy.  If you’re running your Porsche lease, spouses’ dermatologist appointments, vacations to Italy, or doing anything remotely grey in the accounting world through your practice, STOP!  We have had practices we could not sell due to too much funny business going on in the books.  Bank credit departments look at the numbers and ask a lot of questions which leads to buyers getting very scared and running away.  I’m sure if you have a good accountant, they are following generally accepted accounting principles for your practice and there will not be a problem.

These are just some of the hot items that can quickly turn off a buyer and will give you the best chance of selling your practice.  Not being able to check off the box for each of these items does not mean you cannot sell your practice, it just means your buyer pool will be smaller and it will take longer to sell.  If you’re two to three years away from selling you can use this as a guideline to prepare your practice to sell over the next couple of years.