Merging an Existing Veterinary Practice
If you already own a practice, have you ever considered buying an existing veterinary practice located close to your first practice and merging the two together? If you ask most doctors, they will say the best way to build a practice is through taking care of your patients and bringing in new patients via word of mouth and marketing. And, they would be correct. However, acquiring a second practice and merging the two together makes sense in many ways.
First off, have you ever calculated the cost of acquiring a patient via old fashioned word of mouth? It requires a lot of work if you include everything from building your brand, training your staff, maintaining a spotless, high-tech practice, etc., the cost could easily be hundreds of dollars or more per patient. The cost of acquiring a patient via marketing is even more. Acquiring a veterinary practice with existing patients can typically run from several hundred dollars per active patient to $1,000 per active patient. Slightly less to maybe equal of acquiring a patient through a normal channel. However, you get a high volume of patients very quickly in addition to adding income to your pocket.
Secondly, you acquire a stream of revenue at a near dollar to dollar relationship. If the selling practice is producing $500,000 per year, you should be able to repeat the $500,000 in revenue by merging the practices together, or worst case, slightly below the $500,000. The good news, is you don’t bring over all of the expenses of the selling practice. You typically can save in a number of ways including reducing staff of the selling practice, utilities are not double as the practices merge to one location, there is only one rent payment (more on that in a minute), only one set of books, so only one payroll service and one bookkeeper and accountant and several other services can be eliminated. So, while getting the majority of the revenue to increase your practice collections, you only get a portion of the expenses. This increases the income of the practice owner – you!
Thirdly, by acquiring another veterinarian’s office, you reduce the number of practices in your area by one. Less competition equals more new patients for you. You can hire the selling doctor as an employee to help with the veterinary transition as well as perform some other things that will help with patient retention
Preparing To Buy A Dental Practice
You’ve heard it before, the separation is in the preparation. This is a quote that is typically heard in athletics, but can be applied to other endeavors as well, including buying or starting a new practice. But, what do you prepare for before you jump into dental practice ownership. Just ask any practice owner, there are a lot of things you can prepare for before you buy a dental practice. Here are a few things that will help you separate yourself from the rest of the pack and allow you to hit the ground running when you become a practice owner:
1. Where You Practice Matters – Know where you want to practice and the demographics of the area you are looking to practice. There are a lot of different websites and services you can look to in order to get this information. A lot of commercial brokers (Steve at Omni Healthcare Real Estate) will have data ranging from a breakdown of the age of the population, to ethnicity, income levels, how much money was spent on dog food per person, etc., There are several services such as Scott McDonald’s that will help you gather data as well.
2. Knowing Your Market – Understand what the numbers and ratios of a typical dental practice should look like. Your state or national association has resources that will show how much you should be spending on staff salaries and benefits as a percentage of total collections, as well as rent, marketing and other financial data as a percentage of collections.
3. Basic Accounting – Start educating yourself on basic accounting principles. Specifically, learn how to read a financial statement – profit and loss report and balance sheet. You will be given these by the dental broker when looking at a practice, so you should at least know what they are and what a financially viable practice looks like vs. a not so nice practice.
4. Bank Financing – Contact a bank that specializes in dental practice financing before you start looking. They cannot necessarily pre-approve you for a certain practice, but they can tell you whether you can get a loan, approximately what rate and terms you can get and possibly how much you may be able to qualify for. You don’t want to go after a $2 million practice if you cannot get a $2 million loan.
5. Looking For Red Flags – Knowing where to find the skeletons in the practice is a key element in the process. Where do you look for embezzlement in the practice? How about hidden staff incentives and payments? Over or under treating patients? Uncollected accounts receivable? Etc.,
6. Learn About Leases – What is a triple net lease? What is the market rate for leases? How much time is left on the lease? What’s a tear down clause?,etc.,
7. Surround Yourself With a Good Team– Surround yourself with a good team; CPA, Broker, Attorney, Consultant, etc., Find those that specialize in your specific discipline. They can help you avoid some of the pitfalls you may miss.
By preparing yourself ahead of time with some of these things, you can avoid having to spend more than you need to and find a practice that will bring you great professional challenges and rewards in the long run.
PREPARING TO BUY A VETERINARY PRACTICE
1. Where You Practice Matters – Know where you want to practice and the demographics of the area you are looking to practice. There are a lot of different websites and services you can look to in order to get this information. A lot of commercial brokers (Steve at Omni Healthcare Real Estate) will have data ranging from a breakdown of the age of the population, to ethnicity, income levels, how much money was spent on dog food per person, etc., There are several services such as Scott McDonald’s that will help you gather data as well.
2. Knowing Your Market – Understand what the numbers and ratios of a typical Veterinary practice should look like. Your state or national association has resources that will show how much you should be spending on staff salaries and benefits as a percentage of total collections, as well as rent, marketing and other financial data as a percentage of collections.
3. Basic Accounting – Start educating yourself on basic accounting principles. Specifically, learn how to read a financial statement – profit and loss report and balance sheet. You will be given these by the Veterinary broker when looking at a practice, so you should at least know what they are and what a financially viable practice looks like vs. a not so nice practice.
4. Bank Financing – Contact a bank that specializes in Veterinary practice financing before you start looking. They cannot necessarily pre-approve you for a certain practice, but they can tell you whether you can get a loan, approximately what rate and terms you can get and possibly how much you may be able to qualify for. You don’t want to go after a $2 million practice if you cannot get a $2 million loan.
5. Looking For Red Flags – Knowing where to find the skeletons in the practice is a key element in the process. Where do you look for embezzlement in the practice? How about hidden staff incentives and payments? Over or under treating patients? Uncollected accounts receivable? Etc.,
6. Learn About Leases – What is a triple net lease? What is the market rate for leases? How much time is left on the lease? What’s a tear down clause?,etc.,
7. Surround Yourself With a Good Team – Surround yourself with a good team; CPA, Broker, Attorney, Consultant, etc., Find those that specialize in your specific discipline. They can help you avoid some of the pitfalls you may miss.
By preparing yourself ahead of time with some of these things, you can avoid having to spend more than you need to and find a practice that will bring you great professional challenges and rewards in the long run.