Seller Articles

10 Pitfalls To Avoid In Your Transition

Making just one of these mistakes may cost you hundreds of thousands of dollars.

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.

Preparing To Sell My Dental Practice

Preparing To Sell My Dental Practice

By Megan Urban

Selling your practice can be a difficult decision to make for many reasons. Perhaps you aren’t ready to stop treating patients but want fewer headaches. Perhaps you don’t know where to start or how the process works. Start today by contacting us to provide you with years of experience to bring you comfort and understanding. Below are a few things to consider.

You can start by having us provide you with the potential value of your practice, without the cost of doing a full valuation. We can do the same for your property if you own it. These potential prices will assist you in working with your CPA and financial planner to determine what your retirement cash flow looks like. Be prepared to pay off any debt on the practice at the time of closing. Debt could be from recently purchased equipment or any loan you may have taken out against the practice. If you lease your space, please review your lease.

Start thinking about whether or not you want to continue working a bit. You may not be able to stay on at your office if there is not enough production for two providers. Perhaps you want to work at the dental school or cover for your friends when they are on vacation or sick. These important issues will need to be included in the purchase and sale documents if anything is outside the standard non-complete.

If you have a family member working in a main position in your practice who will be retiring as well or leaving the practice, consider options. We can discuss if it makes sense to hire and train someone new and if the wages you pay family are inflated, we need to consider that in the expenses and adjust potential income to a new buyer. The family member may also be held to a non-solicitation agreement or the like.

Preparing to sell also includes us looking at your dental software reports and tax returns. If dental reports don’t look accurate, they may need to be researched. If you refer out services, please start tracking this so we can provide a buyer with potential immediate increase in income if they can keep the services in-house.

Please look at your credit balances. Some dentists are surprised to see how high those balances are, and they will need to be addressed. It may be an error you can fix, such as unposted treatment or incorrect insurance adjustments. If it is truly a patient credit, get the patient in for an exam, cleaning, or any incomplete treatment. Any credit balances at closing will be directly reduced from the sale price.

If you have a lot of old accounts receivable, determine what needs to be written off, such as old accounts receivable that you know you cannot collect or family members that you don’t intend to charge. Accounts receivable are often purchased separate from the practice sale and aging amounts are reduced. If you allow monthly payments in your office and the patients are up to date on payments, you may decide to not sell these or negotiate for a higher price for this specific piece of accounts receivable.

Now may not be the time to get all new equipment if you are preparing to sell, but it may be time to shape up a few things. If you do not have digital x-rays and electronic charts, consider investigating the cost and process to determine if you want to take that on or not. We can discuss if painting or other minor aesthetic changes might make sense. Decluttering is always encouraged!

If you have a website, be sure to increase Google reviews. This is important to new young buyers.

Please do not tell patients and team members about potentially selling. We can discuss the timing of this for you and your specific situation.

If you are considering selling, let’s schedule a time to talk about the general process of selling your practice and how we are different in our approach to representing you and your best interests.

The Short List Before Selling Your Veterinary Practice

There are many steps to selling your veterinary practice and your trusted advisors are here to help. Right now, we want to address just a few items that many veterinarians don’t think about and that can lead to surprises.

Contact your CPA and/or Financial Planner regarding the following items:

1. Are you financially prepared to retire? Your transition specialist (broker) can assist you in determining the potential price of your practice and your real estate (if any).
2. Depending on your entity structure and past depreciation, what taxes will you owe?
3. Depending on your state, what taxes will you owe?
4. If you have any debt against your practice or real estate the debt will be paid at closing from your sales proceeds.
5. What will you do with the final funds? Do you have a retirement plan to maximize or does a 1031 exchange on the real estate make sense for you?

Again, there are many steps to selling your practice, but please address the above items to help reduce surprises.

The Short List Before Selling Your Dental Practice

by Megan Urban, Practice Transition Advisor, Omni Practice Group

There are many steps to selling your practice and your trusted advisors are here to help. Right now, I want to address just a few items that many dentists don’t think about and that can lead to surprises.

Contact your CPA and/or Financial Planner regarding the following items:

1. Are you financially prepared to retire? Your transition specialist (broker) can assist you in determining the potential price of your practice and your real estate (if any).
2. Depending on your entity structure and past depreciation, what taxes will you owe?
3. Depending on your state, what taxes will you owe?
4. If you have any debt against your practice or real estate the debt will be paid at closing from your sales proceeds
5. What will you do with the final funds? Do you have a retirement plan to maximize or does a 1031 exchange on the real estate make sense for you?

Again, there are many steps to selling your practice, but please address the above items to help reduce surprises.

Veterinary Partnerships

Veterinary partnerships can be great or not-so-great. They can include different scenarios: buying a partnership, adding a partner to your existing practice, or a start-up partnership. To ensure you have the best outcome, financially and emotionally, you’ll need to consider some important questions.

• Are you friends, relatives, or colleagues with the people whom you are considering entering into a partnership with? Are you convinced you can get along in a work environment?
• How will you resolve disagreements and make decisions regarding advertising, patient care, team management, and acquiring new equipment and technology?
• How will you divide up responsibilities within the practice?
• Is there enough physical space for more than one veterinarian? Are there enough patients?
• How will you divide up new patients and exams?
• How are you going to determine compensation, such as 30% of individual collections, then 50% split on all additional income and costs? If one of you performs procedures with much higher lab bills, you may need to consider a lab payment These items will need to be written up by your attorney as part of your partnership documents.
• Do your legal documents include specifics on terminating the partnership? You will need to address details regarding non-compete agreements, disability or death, and how to sell a practice when one or both partners are ready.
• Do you know a good CPA who specializes in veterinary practices and can assist you with setting up the entity or entities that make the most sense?

There are many items to consider to ensure that you make the right decision, but we can help make the process go smoothly with the best outcome for all parties. We have guided many veterinarians through purchasing and selling practices, partnerships, multiple locations, and every size and type of practice. We have the experience and the expertise to help you achieve your goals.