Selling a Practice

​You have had a great career and now you are thinking about selling and transitioning out of your veterinary practice. You would like to get the best value for your practice. Do you just walk away?  Being prepared can not only help you get the best price, it will help ensure a smooth transition.

Here are a few things you can do to help prepare for your veterinary practice transition:

1. Know your Financial Situation – Meet with your financial advisor, CPA, or whoever gives you financial advice to get a good picture of where you are with your savings and investments.
2. Get a Practice Valuation – A practice valuation will help you see how much equity you have in your practice.  Additionally, a CPA can help you figure out what the taxes and net proceeds from your sale will be.
3. Update Technology – Buyer’s like to see new technology in a practice.
4. Cosmetic Updates – Have you updated the interior with paint and carpet in the last 20 years?  If not, it’s time.  Buyers like a practice with a fresh feel to it.  A 1970’s feel was good in the 1970’s.
5. Review Accounts Receivable Aging – Collect any past due accounts, send to collections or write them off.  Also, review credits to either pay back to the patient or send unclaimed property to the State.
6. Review Staffing – Are you over or understaffed?  Adjust accordingly.
7. Clean Up your Financial Statements – Make sure the expenses you’re running through your veterinary practice are related to your practice, or at least identifiable as an adjustment.
8. Consider Ramping Up Production – If you are not sure how then hire a veterinary consultant.  Ramping up your practice when you’re 3 or more years out will pay dividends on the sales price.
9. Review Your Fees – Do you have the lowest fees in the area?  Consider a fee increase to catch up.
10. Harvest your Equity – Maybe you are a few years away from retirement but tired of being an owner.  You should consider selling now, take the equity out of your veterinary practice and work back as a veterinary associate.

We’d be happy to answer your questions, give recommendations, and talk through the process of your transition. Contact us if you’d like to get together for a free consultation and a cup of coffee or lunch. Email info@omnipg-vet.com or call 877-866-6053.

​Just like any successful sports franchise, in order to have a successful transition, acquisition or startup, you need to have the best players on your team.  There’s no “I” in team (I hate that phrase) and there’s no “I” in a transition.  You can’t do it all yourself and do it well.
The first team member you need to bring on board is someone who can help evaluate a practice.  That can be an accountant, consultant, or broker that specializes in dental practices.  Those last four words of that sentence are critical.   Specializes in dental practices.  They have to know what they are doing and how to analyze and value a dental practice.  I once was representing a seller who had a practice collecting $800,000 with a net income of $300,000.  The buyer’s consultant put together an offer of $280,000 when we had it valued at $550,000.  The consultant ruined the deal.  The seller was so upset with the buyers low-ball offer that the seller refused to even work with that buyer even with a higher offer.
The second team member is the attorney.  Again, use an attorney specializing in dental practice transitions.  It’s critically important.  Do not use your cousin, friend, neighbor etc., who are divorce, bankruptcy or personal injury attorneys who took a contract class in law school.  I’ve seen “friends” charge the dentist $25,000 for a review of a contract where a dental attorney would charge around $5,000.
You also need a dental CPA to help you with the numbers.  They can help with the valuation, analyze the payroll and tax returns, help with the purchase price allocation and set up your legal entity.
Fourth is your banker.  There are a number of banks that finance practice acquisitions and startups, and they all have their pros and cons.  It’s important you work with someone you trust who will give you a fair deal.  Sure, banker B may have a slightly better rate, or a cool toaster give away for new accounts, but go with someone you like and can build a relationship with.  They’ll be there in the good times and the bad times to help you out.
If you need some names of good team members, let us know.  We work with a lot of CPA, attorneys, consultants, bankers and brokers.  We have a good feel for who will be looking out for your best interest and will do a good job for you.  Give us a call and we’ll help you build your team for your practice acquisition or startup.

We occasionally hear that the future of solo dental practices is bleak.  They will eventually be extinct like the Golden Toad (look it up).  Corporate dentistry is growing and going to drive out the solo practitioners.  My personal opinion is that I don’t think this is true.  I believe there will always be a need and a demand for the solo/non-corporate practice.
When I talk about corporate practices, I’m primarily speaking of the non-dentist owned corporate practice.  There are dentist owned practices where a licensed dentist owns 3, 5 or more practices.  He or she has full and legal ownership of their practices.   I call these small group practices.  Corporate practices tip-toe down the legal sidelines of practice ownership by having a dentist own the clinical aspect of the practice, called Dental Services Organization (DSO) and the non-licensed dentist corporation owns the non-dental management aspects, called a Management Services Organization (MSO).  Note that this structure can also occur in small groups, but in the small group, a licensed dentist owns both the MSO and DSO.  The large corporates include Aspen, Gentle Dental, Pacific Dental Services and others.  Both solo practices and corporate practices have their pros and cons from both a patient perspective and from a dentist perspective.
As a patient, I prefer to know who my dentist is going to be when I go into the office.  I want to build a relationship with him or her and want my dentist to know the history of my dental care — and a little bit about me as well.  In a corporation, you might get the same dentist the next time you go in, but there’s a good chance it will be a different dentist.  Small groups lean more towards a solo practice and you will have a reasonably good chance to get the same dentist in the well run small groups.
From a dentist perspective, most dentists do not want to be told what treatment to focus on, what supplies to use, etc.,  The majority of dentists surveyed by the ADA still have a dream of owning their own practice, being their own boss, making their own decisions.
Recent court decisions in New Jersey, Allstate vs. Northfield, sided on the side of dentists.  It may begin to set the tone to start scaring away the non-dentist corporate owners.  Washington State has been trying to pass a bill to allow non-dentist owners and so far has been successful.  If you’d like to read an article on the New Jersey case, you can read it here.
So, if you have been holding off on not buying a practice because corporates are going to drive solo practices away, think again.  There will always be a need and demand for a solo practice.  Court cases like Allstate vs. Northfield will help ensure non-dentist owned practices stay away.  Join the practice ownership club today!

​Taxes are a fact of life, and an extremely important consideration when considering a veterinary practice transition or sale. Let’s explore some potential tax mitigation strategies to consider.

Stock Sale. If you are incorporated, sale of the stock in your corporation to the veterinary practice buyer can potentially yield you the greatest tax savings, because the sale of stock is almost exclusively taxed at the lower fixed capital gains rate as compared to the higher, tiered ordinary income rates. However, and this is a BIG however, stock is a non-depreciable asset to the buyer. As such, the veterinary practice buyer is not able to write off the sales price and essentially ends up buying your practice with after-tax dollars. Consequently, a buyer is likely only to agree to buy your stock if you are willing to reduce your purchase price by 30 percent or more. For this reason (and many associated legal and liability complications), almost all veterinary practices are sold as “asset sales.” In other words, the seller retains his/her corporation and all of its stock and instead sells all of the tangible and intangible assets of the corporation (i.e., the veterinary practice). The buyer is then able to depreciate and amortize (write off) the entire purchase price.

Price Allocation. The IRS requires the total price of a veterinary practice for sale to be allocated to the various types of assets being sold and that the allocation be made according to the fair market value of the assets. As a general rule, the tangible assets are taxed as ordinary income above basis, and the intangible assets are taxed as capital gains. (Above basis means the difference between what you are selling the tangible assets for and your book value or depreciated value.) Any consideration for a covenant not to compete will also be taxed as ordinary income. Since fair market value is somewhat subjective, there is some room for negotiating the overall allocation of the purchase price. As a veterinary practice seller, you will save taxes if you can negotiate with a buyer for a lower allocation to tangible assets (equipment, furniture, fixtures, supplies, etc.) and a higher allocation to intangible assets (goodwill and patient records). (Unfortunately, it will benefit the veterinary practice buyer to have just the opposite allocation, so consideration must be given to making the allocation fair to both parties.)

Carry back a note. Sellers frequently ask us, “Won’t I save on taxes if I self-finance part or all of the sales price (i.e., carry back a promissory note from the buyer)?” The answer is, “No, but maybe . . .” As mentioned above, the portion of the price in an asset sale that will be taxed as ordinary income will be due in the year of the sale. That recapture will be taxed regardless of the receipt of any actual cash at closing, which means you owe the ordinary income tax associated with the recapture even if you do not receive a cent at closing. Consequently, if you do not want to have to pay to sell your practice, it would be prudent to ask for enough of a cash down payment to cover the tax liability you will incur from the recapture. Since most of the remainder of the sales price will be taxed as capital gains and since the capital gain tax rate is a fixed rate, the same tax will be applied and the same tax amount owed whether you receive that portion of the price now or paid to you over time; unless . . . there is a change in the capital gains tax rate before the note you are carrying is paid off. If the rates go up, you would be taxed at that higher rate on that income as it comes in. Otherwise, self-financing a portion of the price serves only to defer capital gains tax, but it will not lower the total tax. (Also note that the interest portion of any promissory note payments will be taxed as ordinary income to the holder, while the principal portion subject to capital gains will be taxed at the capital gains rate.)

Sale Timing. As discussed above, the tax associated with recapture over basis on the sale of tangible assets will be determined by your ordinary income tax bracket in the year of the sale. If you are planning to retire after the sale of your practice and, consequently, will have a drop in your ordinary income level, it may behoove you to strategically time the sale of your practice until after the start of the next tax year. Also, if you have owned your veterinary practice for less than one year, you should, if possible, wait at least one full year before selling it since the sale of goodwill within a year of ownership will result in the higher short-term capital gains rate being applied instead of the long-term capital gains rate.

“C” Corporation Consideration. If you are currently incorporated and being taxed as a regular “C” Corporation, the sale of goodwill by your corporation will likely be subject to double taxation, once as capital gains inside your corporation and then again as ordinary income when paid as a distribution to the shareholder(s). There is some case precedence that allows for the shareholder(s) of “C” Corporations in closely held and professional businesses to sell goodwill individually, outside of the corporation, thus avoiding that double taxation. If this applies to you, consult with your CPA and/or tax attorney regarding the details of such a tax strategy and its application to your particular situation.

1031 Exchanges. If you are selling a veterinary practice now and are planning to buy another practice within six months, a 1031 or “Like Kind” Exchange may be a tax deferral strategy to consider. It allows you to defer the taxes associated with recapture over basis you would otherwise incur with the sale of your tangible assets. A 1031 Exchange has very specific and rigid requirements. Consult with your CPA and/or tax attorney regarding the details of such a tax strategy.
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Charitable Remainder Trusts. Charitable Remainder Trusts are not subject to capital gains tax. As such, a seller may potentially eliminate capital gains tax on the sale of his goodwill by donating it to a qualified charity. The downside, obviously, is that the seller must donate the goodwill proceeds to that charity. This is another strategy where you would want to receive guidance from your CPA and/or tax attorney.