Maximizing Practice Price

Maximizing Practice Price

By: Bruce Johnson, DDS

If you are considering selling your practice, always try to plan at least three to five years prior to the date that you hope to sell. We would all love to obtain the maximum price for the sale of our practices and I have listed some major points to help you achieve that goal.

1. Do not take your foot off the pedal. It is very common for those getting ready to sell to start slowing down by taking more time off and decreasing the working hours. Anything that decreases your overall production will result in a decreased value for your practice.
2. Try to keep your existing staff happy and motivated! You may want to consider pay raises or bonuses. I feel bonuses based on production level would be best rather than just hourly pay raises that the new buyer would need to maintain. If it is out of the standard range that may not be viewed favorably by a new buyer. Also, I do not recommend sharing your plans to sell with the staff. People are often afraid of change and sharing your plans too soon could cause some staff to start looking elsewhere. Staff turnover prior to a sale is not something a new buyer wants to see. Your plans to sell should only be discussed with your broker, your immediate family, accountant, and attorney.
3. Clean up your accounts receivables and eliminate all credits. Stay on top of collecting from both patients and insurance companies. Call those patients with outstanding balances and do everything you can to collect monies owed. Run your credit balance reports and reach out to patients to whom you owe money. You want to keep clean credit balance reports and stay current on your state’s process and procedures for unclaimed property.
4. Make your practice look attractive. Fresh paint, nice carpets, and new or recent countertops. Clean out storage areas and move your personal belongings to your home or to a storage facility. The outdoor landscape needs to be attractive. So, consider a landscape company to help. Make sure your outdoor signage is visible and clean.
5. Do not buy expensive dental equipment like a CEREC or a Cone Beam CT because you will likely not recover that investment. But do make sure you have the basic equipment that buyers want. Most everyone expects digital x-rays so consider updating to digital technology. An existing dark room with dip tanks will be viewed less favorably. Evaluate your office computer system and software. Your broker will be happy to provide guidance and best suggestions if some of your systems and office equipment are dated. Make sure handpieces are all in good working condition. If dental chairs are over ten years old, considering having them reconditioned. Buyers will often decrease their offer to allow for major updates.
6. If you are leasing your place of business, make sure your lease is current and has at least seven to ten years left with options. Banks will not loan with a weak lease structure. For example, if your lease expires five years from now, be sure there is at least one or more five-year options. The lender will need to assure the buyer can remain in that space for the life of the loan.
7. Review your fees and make sure they are in the normal fee range. If they are too low, you should work on increasing them to the normal fee range for your area.
8. Review your overall office overhead costs and try to get all categories into the standard range. Avoid running personal expenses/vacations through your practice. Your practice should reflect the true expenses of running the practice. Accountants have ranges in each dental category that are standard in general dentistry.

Reducing COGS in a Veterinary Hospital to Boost Profitability

By: Max Truesdel

In the veterinary industry, managing costs is critical to maintaining profitability. One significant area where veterinary hospitals can improve their financial health is by reducing the Cost of Goods Sold (COGS). Here are some effective strategies to achieve this goal.

1. Optimize Inventory Management:

Proper inventory management is essential for reducing COGS. Veterinary hospitals should conduct regular audits to track inventory levels accurately. Implementing an inventory management system can help avoid overstocking or stockouts, both of which can be costly. By ordering supplies just in time and negotiating better terms with suppliers, hospitals can significantly cut down on waste and reduce holding costs. Many practice managers and staff members avoid conducting regular audits, but performing these audits consistently on a quarterly or annual basis can provide valuable insights into the hospital’s ordering habits. This practice helps reduce excess inventory that sits on shelves, costing the hospital money, and instead, optimizes inventory levels to enhance profitability.

2. Leverage Bulk Purchasing:

Buying in bulk can lead to substantial discounts from suppliers. Veterinary hospitals can form purchasing cooperatives with other practices to increase their buying power. This strategy not only reduces the unit cost of goods but also strengthens relationships with suppliers, often leading to better service and additional savings.

3. Evaluate Supplier Contracts:

Regularly reviewing and renegotiating supplier contracts can lead to cost savings. Veterinary hospitals should compare prices from multiple suppliers and seek competitive bids for high-cost items. Developing a strategic partnership with key suppliers can also lead to long-term cost reductions and more favorable payment terms.

4. Implement Standardized Procedures:

Standardizing procedures and protocols can reduce the wastage of medical supplies. Training staff to follow these procedures ensures that materials are used efficiently, minimizing unnecessary consumption. Additionally, using generic drugs and supplies where appropriate can also help reduce costs without compromising the quality of care.

5. Invest in Technology:

Investing in technology can streamline operations and reduce COGS. For instance, practice management software can automate inventory tracking, appointment scheduling, and billing processes, reducing the need for manual intervention and lowering labor costs. Telemedicine solutions can also help manage patient care more efficiently, reducing the need for physical resources.

6. Monitor and Analyze Costs:

Regularly monitoring and analyzing COGS can help identify areas for improvement. Veterinary hospitals should use financial metrics to track performance and set benchmarks. This continuous evaluation allows for timely adjustments and ensures that cost-saving measures are effective.

In conclusion, reducing COGS is a strategic approach to enhance the profitability of a veterinary hospital. By optimizing inventory, leveraging bulk purchasing, renegotiating supplier contracts, standardizing procedures, investing in technology, and continuously monitoring costs, veterinary practices can significantly improve their financial health while maintaining high standards of patient care.

Overcoming Veterinary Student Debt Through Practice Ownership

Overcoming Veterinary Student Debt Through Practice Ownership

By: Max Truesdel
Veterinary students often graduate with substantial debt, which can be daunting.
However, practice ownership presents a viable strategy to overcome this financial
burden. By owning a veterinary practice, veterinarians can significantly increase their
income potential and build equity, offering a path to financial freedom.
The veterinary industry has seen remarkable growth over the past decade, with
increased pet ownership and spending on pet healthcare. This expansion presents a
lucrative opportunity for veterinarians to capitalize on a thriving market. Owning a
practice allows veterinarians to directly benefit from this growth, as opposed to working
as salaried employees where income potential is capped.
One critical step in this process is to find the right practice to purchase. This is where a
business broker becomes invaluable. Business brokers specialize in connecting buyers
with suitable practices, ensuring that the location and operational aspects align with the
buyer’s goals. They provide insights into market trends, financial evaluations, and
facilitate negotiations, making the complex process of purchasing a practice more
manageable and less risky.
Using a business broker also helps to identify practices in high-growth areas, ensuring
better patient flow and higher revenue potential. They can access a wide range of
listings that may not be publicly available, providing more opportunities to find the
perfect match.
Additionally, brokers can assist with due diligence, ensuring that the financial health of
the practice is sound and that there are no hidden liabilities. This thorough vetting
process is crucial for new owners to start on solid ground and focus on growing their
business.
In conclusion, practice ownership is a powerful way for veterinarians to overcome
student debt and achieve financial stability. The veterinary industry’s growth over the
past decade enhances this opportunity, and using a business broker can significantly
ease the transition into ownership. By leveraging the expertise of brokers, veterinarians
can find the right practice, set the stage for success, and turn their debt into a stepping
stone towards a prosperous career.

How Much Will I Get for the Sale of My Practice?

By Rod Johnston, MBA, CMA

Whether you’re selling a car, a house, or your veterinary practice the ultimate question
that everyone wants to know is…. How much do I get? After all the years of blood,
sweat, and tears you have put into your practice and you come to the point of
retirement, or just selling to take a break from ownership, you want to know, after all the
fees and expenses, how much money will you be putting in your pocket. Or, hopefully,
bank account. Of course, the answer varies from sale to sale, but there are some
general expenses and fees that you can be sure will be part of your transaction.

Valuation Fee – To calculate what your practice is worth; you will need a valuation. If
you are using a broker, they will charge anywhere from $1,500 to $20,000. Many will
waive the fee if you are going to list your practice for sale with them. Others will back
the fee out of the commission when your practice is sold. If you do not use a broker,
you will still want a valuation. I suggest using a broker that has some type of
certification in valuing a business. Rule-of-thumb-valuations are back of the envelope
estimates at best and could cost you hundreds of thousands of dollars.
Attorney Fee – You will need an attorney to draft up the purchase and sale and other
agreements necessary to close the sale of your practice. Be sure and use an attorney
that specializes in or has completed a lot of veterinary practice sales. Attorney fees can
range from $4,000 up to $15,000 with the average being around $6,500. Of course, this
depends on the complexity of the transaction, who is representing the buyer and how
many changes are requested during the review phase. It also depends on if its’ a
corporate sale, or selling your practice to an individual. Corporate sales are more
complex.
Broker Fee – If you are using a broker, you will pay between 6% and 12% of the sale of
your practice. The range is due to a number of factors such as how much service you
will get from the broker, what documents and expertise the broker has and other factors
around service. Discount brokers charge a lower fee because they don’t come out and
see your practice, they don’t show your practice and all they do is advertise it and send
the buyer to you. Full service brokers will meet with you in person, value your practice,
show your practice numerous times and do all of the marketing for you. A discount
broker will put in about 20 hours worth of work. A full service broker will spend between
200 and 400 hours, or whatever it takes to complete the sale of your practice.

Other factors on the fee may include the size and complexity of your practice. Smaller
practices that produce less than $400,000 per year are harder to sell, require a lot of
money spent on marketing and require many more hours to get to the closing finish line;
therefore, those are typically in the 10% to 12% range. Larger practices typically are in
the 8% to 10% range depending on a number of other factors. You can decide not to
use a broker if you choose. Bankers and attorneys estimate that 50% of the practices
sold without a broker fall apart before the sale is closed. Buyers lose interest in the
practice, another opportunity pops up, or a disagreement occurs – and without an
intermediary, sellers and buyers clash, and the sale falls apart. A typical transition from
beginning to end can take 200 to 400 hours to complete. Be sure you have that extra
time in your life if you decide to sell without a broker.
Taxes – Here’s the biggie. When you sell a practice, the purchase price is allocated
between goodwill and tangible assets, such as equipment. Goodwill typically makes up
80% to 90% of the purchase price. It is taxed at the capital gains rate of from 18% to
24% by the IRS. The tangible assets make up 10% to 15% of the purchase price.
These are taxed at your ordinary income tax rate by the IRS. Most veterinarians fall
between 28% and 35% ordinary income tax rates. The average is 33%. So, you can
see, you want as much allocated to goodwill as your accountant and the IRS will allow.
Depending on the state you are selling your practice, there may also be a state capital
gains tax. California for example also has a state capital gains tax. Consult your
accountant to find out what the tax will be for your practice sale.
Equipment Valuation – This is typically not required, but occasionally requested by a
buyer. This is commonly around $400 for the equipment valuation.
Escrow – We like to complete a transition by using an escrow service. Escrow will
make sure all liens are paid off, everyone involved is license, state payroll taxes and
other taxes have been paid, and will prorate any items the seller has paid in advance
such as personal property taxes or an annual software maintenance contract. Escrow
fees range are typically split evenly between the seller and buyer and range from
$1,000 per side, up to $2,500 per side depending on complexity and whether real estate
is also involved.
When the dust has settled and the ink has dried on the agreements, you should walk
away with approximately 70% of the proceeds in your bank account after all fees have
been paid. Keep in mind these are just estimates to give you a ballpark figure of the
cost of selling a practice. As with most things in life, the fees will vary depending on the
variables mentioned above. Be sure and consult your team of experts to help you
better understand what the cost will be for your transition. Contact Omni Practice Group
at info@omni-pg.com and we can help you get started.

How Much Will I Get for the Sale of My Practice?

By Rod Johnston, MBA, CMA

Whether you’re selling a car, a house, or your veterinary practice the ultimate question
that everyone wants to know is…. How much do I get? After all the years of blood,
sweat, and tears you have put into your practice and you come to the point of
retirement, or just selling to take a break from ownership, you want to know, after all the
fees and expenses, how much money will you be putting in your pocket. Or, hopefully,
bank account. Of course, the answer varies from sale to sale, but there are some
general expenses and fees that you can be sure will be part of your transaction.

Valuation Fee – To calculate what your practice is worth; you will need a valuation. If
you are using a broker, they will charge anywhere from $1,500 to $20,000. Many will
waive the fee if you are going to list your practice for sale with them. Others will back
the fee out of the commission when your practice is sold. If you do not use a broker,
you will still want a valuation. I suggest using a broker that has some type of
certification in valuing a business. Rule-of-thumb-valuations are back of the envelope
estimates at best and could cost you hundreds of thousands of dollars.
Attorney Fee – You will need an attorney to draft up the purchase and sale and other
agreements necessary to close the sale of your practice. Be sure and use an attorney
that specializes in or has completed a lot of veterinary practice sales. Attorney fees can
range from $4,000 up to $15,000 with the average being around $6,500. Of course, this
depends on the complexity of the transaction, who is representing the buyer and how
many changes are requested during the review phase. It also depends on if its’ a
corporate sale, or selling your practice to an individual. Corporate sales are more
complex.
Broker Fee – If you are using a broker, you will pay between 6% and 12% of the sale of
your practice. The range is due to a number of factors such as how much service you
will get from the broker, what documents and expertise the broker has and other factors
around service. Discount brokers charge a lower fee because they don’t come out and
see your practice, they don’t show your practice and all they do is advertise it and send
the buyer to you. Full service brokers will meet with you in person, value your practice,
show your practice numerous times and do all of the marketing for you. A discount
broker will put in about 20 hours worth of work. A full service broker will spend between
200 and 400 hours, or whatever it takes to complete the sale of your practice.

Other factors on the fee may include the size and complexity of your practice. Smaller
practices that produce less than $400,000 per year are harder to sell, require a lot of
money spent on marketing and require many more hours to get to the closing finish line;
therefore, those are typically in the 10% to 12% range. Larger practices typically are in
the 8% to 10% range depending on a number of other factors. You can decide not to
use a broker if you choose. Bankers and attorneys estimate that 50% of the practices
sold without a broker fall apart before the sale is closed. Buyers lose interest in the
practice, another opportunity pops up, or a disagreement occurs – and without an
intermediary, sellers and buyers clash, and the sale falls apart. A typical transition from
beginning to end can take 200 to 400 hours to complete. Be sure you have that extra
time in your life if you decide to sell without a broker.
Taxes – Here’s the biggie. When you sell a practice, the purchase price is allocated
between goodwill and tangible assets, such as equipment. Goodwill typically makes up
80% to 90% of the purchase price. It is taxed at the capital gains rate of from 18% to
24% by the IRS. The tangible assets make up 10% to 15% of the purchase price.
These are taxed at your ordinary income tax rate by the IRS. Most veterinarians fall
between 28% and 35% ordinary income tax rates. The average is 33%. So, you can
see, you want as much allocated to goodwill as your accountant and the IRS will allow.
Depending on the state you are selling your practice, there may also be a state capital
gains tax. California for example also has a state capital gains tax. Consult your
accountant to find out what the tax will be for your practice sale.
Equipment Valuation – This is typically not required, but occasionally requested by a
buyer. This is commonly around $400 for the equipment valuation.
Escrow – We like to complete a transition by using an escrow service. Escrow will
make sure all liens are paid off, everyone involved is license, state payroll taxes and
other taxes have been paid, and will prorate any items the seller has paid in advance
such as personal property taxes or an annual software maintenance contract. Escrow
fees range are typically split evenly between the seller and buyer and range from
$1,000 per side, up to $2,500 per side depending on complexity and whether real estate
is also involved.
When the dust has settled and the ink has dried on the agreements, you should walk
away with approximately 70% of the proceeds in your bank account after all fees have
been paid. Keep in mind these are just estimates to give you a ballpark figure of the
cost of selling a practice. As with most things in life, the fees will vary depending on the
variables mentioned above. Be sure and consult your team of experts to help you
better understand what the cost will be for your transition. Contact Omni Practice Group
at info@omni-pg.com and we can help you get started.