Buying a Practice

By  Rod Johnston and Jim Vander Mey

​There are many advantages to owning a veterinary practice over being an associate veterinarian and not owning a practice.  For one, the average veterinary practice owner makes approximately 20% more in income than an associate veterinarian working for someone else.  A veterinary practice owner also gets to choose what procedures he wants to perform and what type of animals he or she wants to work on.  Heck, they even get to choose which animals they want to work on.  They can also choose their own hours, pick the days they want to work and how much vacation they want to take.  So, why aren’t veterinary associates owning practices?  What are they afraid of?  Here are a few fears we have encountered and how to overcome those fears:

1. Fear of the unknown – Associates feel they don’t have the experience in owning a practice.  They haven’t managed staff.  They haven’t kept financial records.  They don’t know what marketing to put in place.  They don’t know what benefits to give employees, how to hire or fire employees, or even how to balance a checkbook.

   Fear not, you don’t have to know everything at once.  You know how to do veterinary medicine.  That’s the first step in owning a practice.  You have a few years of experience working as an associate in a veterinary practice.  You’ve observed the owner working with and managing staff.  You may have experience leading a team in school, playing sports, etc.  These are all examples of good experience in handling staff.  You don’t have to know how to keep books right away.   We suggest getting a veterinary bookkeeper and then getting educated on reading financial statements.  This can happen over time.  Bottom line is if you are good at what you do and willing to learn the other parts of practice ownership, you’ll be just fine.

2. Fear of taking on more Debt – Read Robert Kiyosaki’s book, “Rich Dad, Poor Dad”.  Not all debt is created equal.  There is good debt such as student loans and practice debt that helps generate an income and there is bad debt such as credit card debt where you just borrowed money because you wanted something.  Practice debt used to buy a practice that will help you make more money and build equity in an asset (the practice) is a positive thing.  As long as it’s a good practice with good cash flow, you’ll be money ahead in the long run.
3. Fear of the Corporate Giants – Don’t fear the corporate giants.  They have their own niche targeting the bargain shoppers and lemmings who follow the crowd.   They also have a high turnover in their staff and doctors.  You will provide excellent service with the same staff and veterinarian that the clients will see every time they come to your office.  In a corporate environment, they’re not sure who they’re going to get.
4. Fear of not knowing what to look for – This is a valid concern.  You can educate yourself in a number of ways.  There are great resources via podcasts, YouTube, etc., that can help you know what to look for.  Quite simply, you start by looking at your desired location, then look at the cash flow of the practice and after that, you can get into the details.   There are consultants and brokers who can also help you with reviewing practices.  Identify your team that will help you overcome this fear.
5. Fear of a recession – Recessions happen, typically every 8 to 10 years and last 10 to 12 months.  You cannot avoid recessions or downturns in the economy, it’s part of life.  But, during recessions, employees typically get laid off of work.  If you own your own practice, you’re probably not going to fire yourself.  You’ll probably keep yourself employed and busy.  Owning a practice is a deterrent from getting laid off during a recession.

These are a few of the fears that we’ve seen over the years, and there are others as well.  But, the best thing you can do is educate yourself and talk to practice owners, brokers and bankers.  Seek advice and counsel from everyone you can.   This will help you make a wise decision in moving forward with practice ownership.

For a chance to get advice from a team of experts all in one place – broker, banker, attorney, etc., we have 4 Practice Ownership seminars coming up this fall, all are free!  Click the link below for more information.

Who can help me? 
This is a very important decision and time for you and your family, so it’s critical to build your team of trusted advisors, such as veterinary specific broker (with a commercial real estate license), lender, CPA, attorney. These professionals have done many unique transitions, and often with each other, so they work well together and know how to provide you with a successful transition. You can use your relative or friend in these professions, but they can’t know the things veterinary specific advisors know. Experience and knowledge in a select niche are worth its weight in gold.

Can I afford a practice and associated real estate?
Veterinarian-specific lenders understand the veterinary industry and understand that you may have student loan debt in excess of $150,000. If the practice cash flows and provides you with the money to pay your practice and student debt, plus living expenses, you may be good to go. If you are thinking about a start-up, you will most likely need to work part-time somewhere else as you grow your new practice. Your trusted advisors can provide you with ideas to assist with your startup as well as potentially referring to a veterinary-specific marketing company. So, the answer is, typically, yes, you can afford a practice and associated real estate.
Sometimes, depending on the seller and your finances, you may rent a few years. The things to consider here are that if you rent, you may still have the seller “visiting” when they want and still act as though it’s their building and try to deter you from making your own decisions. It’s hard to make changes and you will someday understand this! If you rent, you will want your attorney to ensure there are solid details surrounding future purchases.
Some veterinarians prefer to own their own real estate and that can be beneficial for those with property ownership goals. Leasing in a commercial space or strip mall can be worth the potentially high rent if you have the opportunity to gain increased collections.

What do I need to know when looking at potential practices?
Where do you want to live and work? Once you determine the general location, look for a practice with a good and visible location and parking.
Work with your broker or buyer-representative to assist you to review the formal valuation or the following statistics.
Last 3 years financials to see collections and expenses. Some expenses may be backed out that would not pertain to the new veterinarian, such as “large” continuing education, cars, 401K, and family members on the payroll that may not have an active/necessary function in the practice.

I want multiple offices.
Having multiple offices can be profitable if done correctly. Ensure you have solid processes in place that can be replicated. Consider doing a demographic study to determine where you want your locations. If clients may be going to more than 1 location, ensure your veterinary software is capable of being accessed by all locations.

What do I need to know/do before starting my first day in my new practice?
Work with your CPA to set up your entity, accounting system, payroll, and tax payments. Plan to have a confident first conversation with your new team. They will be anxious about the transition so you will want to put your arms around them and help them understand you want to continue the quality care and any small changes will only be for the better for clients and team. Be prepared for difficult questions such as asking for a wage increase, change in schedule, or complaints about other team members. Guide the team on how you want them to discuss you to the clients and how your goal is to retain clients.
Become familiar with your veterinary software. Most veterinarians and teams do not maximize the reports and statistics available to you. Remember, your veterinary software and accounting system are the 2 biggest tools you have to run your practice.

Purchasing a practice, with your team of trusted advisors, should be a pleasant process that leads to a profitable and enjoyable career!

By Jim Vander Mey

​People love benchmarks.  They want to know how many glasses of water we should drink each day.  How much we should work out every week.  Or, how many miles per gallon our cars can achieve.

There are also benchmarks to look at when you are buying a practice.  They may not necessarily be deal-breakers, but they help determine what you will need to do to get to your target.  Here are some of the benchmarks you should look at and calculate when buying a practice:

• Staff overhead as a percentage of collections – 20% to 25%.  If it’s higher, the practice is overpaying staff, underperforming collections, or too many staff.
• Facilities Expense – 7% to 9% of collections – Too high and the practice is either paying high rent, space is underutilized or production is too low.
• Supplies – 5% to 7% of collections – If this is too high, it could be that the practice is using high-end supplies, or the supplies inventory (or vendor) is not managed properly.
• Marketing expense – 3% to 5% depending on the growth stage.  A practice that is looking to grow will have a high percentage.  A static practice may not spend much on marketing at all.
• Collection Rate – Minimum of 98% for a well-run practice.  A low rate means the front desk is not keeping up or managing the accounts receivables very well.
• Total Overhead (all expenses less owner and associate pay) – Ideally should be less than 85%.

These are just a few benchmarks to analyze when looking at a practice.  Remember, if the practice you are analyzing does not meet or exceed these benchmarks, it does not mean it’s a bad practice, it simply means you have work to do in those specific areas.

Contact me if you would like more information – jim@omni-pg.com.

With so few practices on the market, I often get the question “Should I just start a new veterinary practice?”  Since I am a commercial real estate broker specializing in helping veterinarians find new locations, as well as being a Veterinary practice broker, I can give you an educated answer.  That answer is “it depends”.

Here are 10 questions to ask yourself to see if you are a candidate to do a scratch start practice:

1. Do the demographics support another veterinarian in the area?  (1,500 people per 1 veterinarian)
2. Do you have the patience to do a startup?  (It may take up to 24 to 36 months to break even.)
3. Do you have another income, or 12 months cash reserves, to support yourself while you get your new practice going?
4. Are you good at project management – managing contractors, designers, vendors, etc. – to get things going?
5. Have you hired staff before?
6. Are you good at self-promoting and marketing? You may need to go door-to-door to get recognition and to get patients coming in.
7. Have you set up insurances, bank accounts, patient financing, etc., before?
8. Do you have good credit and some cash reserves in the bank to obtain a loan?
9. Do you have enough experience (minimum of 2 years) to jump in and get things going?
10. Do you have the fortitude to succeed? There will be down times when you want to throw in the towel. You need to fight through those down times to achieve success.

I have helped many Veterinary practices get started in their new practices, from finding locations to consulting on the entire set up. Each practice has achieved break-even in less than 18 months.  If you are on the fence on whether to do a startup, give me a call and I can help with analyzing your situation.

Today we address a question we hear frequently from veterinarians: If you are at a point in your career where you have paid off your school and initial practice loans, and are tired of paying your landlord’s mortgage payments for him or her, then now is one of the best times to purchase real estate as an owner-user.

As everyone knows, we are in the midst of a good economy.  Commercial real estate interest rates are still very low compared to prior years.  We are seeing interest rates in the 4.25% to 5.25% range.  In year’s past, we typically see them at 5.5% to 7%.  The low-interest rates oftentimes make your potential mortgage note payment lower than what you’re currently paying for your lease.  Also, the Small Business Administration (SBA) has loans where if you occupy more than 50% of the building, they have lower down payments and other requirements on the loans.

The real estate market is also at an interesting point in time.  Baby boomer building owners (try saying that three times fast) are divesting their real estate portfolios in order to get their equity out to fund their retirement.  This makes it an opportune time to acquire a building – the building where your practice is located or another one in your neighborhood.  Or, possibly an investment property.

In times like these, there are winners and losers in the investment and real estate world. If you are sitting on real estate and need to move it, you are at quite an advantage. If you are in the market for buying real estate, however, now is also a golden opportunity. Veterinarians looking to purchase their own buildings have three options. One is to look for an existing building that can be converted over to veterinary use.  The second option is to find vacant land on which a veterinary office can be built. The third option is to approach the landlord who owns the building you currently occupy and see if they would be willing to sell.  There are advantages and disadvantages to each.  Of course, if you are currently in a nice building, purchasing the building you are already in, makes the most sense.  The main advantage of buying an existing building and converting it is time. It takes considerably less time to convert an existing building into a veterinary office than to start from the ground up. The largest disadvantage is the commitment to the basic structure of the building and the existing lot. The main advantage of starting from the ground up is that the building can be designed and built to exactly meet the veterinarian’s needs. The disadvantage is that it takes much more time to find the land, to have the building designed and permitted, and to construct the building.

As commercial real estate brokers, we can help you with the process of purchasing an existing building or land on which to build your ideal veterinary building. We can also assist in speaking with your current building owner to see if they would be willing to sell their building.  The biggest mistake a veterinarian can make is to start the process with time running out on his/her lease. The process should be started at least 18 to 24 months before the end of your lease. It can take up to 6 months or more to find the ideal building or land and then an additional 1 to 2 years to convert an existing building or build from the ground up. It is also important to assemble a team that can support you throughout the entire process. We can act as a resource in helping you assemble your team. Your team should include people experienced in the veterinary field, who are familiar with the veterinarian’s wants and needs. Your team should include a general contractor, and may or may not include an architect, depending on the scale of the project. Your team should also include an attorney and a lender. The key to any successful venture is planning. Picking an experienced team of experts and working closely with them is critical to making a successful transition to owning your own office building.

If you think this might be the time for you to start looking for that ideal veterinary building, you can begin by calling the best veterinary real estate broker in the Northwest – Omni’s own, Steve Kikikis.  Steve can sit down with you to start the process and layout a plan for owning your own building.  Steve can be reached at steve@omni-pg.com, or you can call him at 425-905-6920.