Happy New Year! Thank goodness 2020 is over and we can start looking forward to 2021. We all hope this is a year of change. We hope to begin getting control of Covid-19 with vaccines and some immunity for those who caught and survived COVID. There will be a change in the Presidency. Hopefully, there will be a change and restaurants can be fully open again. But what about you? Is this the year you change and become a practice owner?
Most veterinarians dream of eventually owning their own veterinary practice. But veterinarians tend to put off ownership for a variety of reasons. A couple of big reasons are that you have never done it before, you are not familiar with the process, or you’re just completely afraid of the unknown.
A great philosopher once said, “If you can dodge a wrench, you can dodge a ball”. What does that have to do with buying a practice? A lot, actually. What the philosopher is referring to is that if you can dodge an object, a wrench, for example, you can dodge another object, such as a ball. Applying this theorem to the practice buying world, if you have ever completed a major purchase, or made a major decision, the process and steps are the same.
We know you have made major decisions in your life, otherwise, you wouldn’t have a DVM behind your name. You decided which veterinary school to go to. In doing so, you did research. You looked at the pros and cons of each veterinary school and weighed them. You may have talked with some friends or mentors who went to those schools. You analyzed other factors like the location, cost, and how good of veterinarians the schools have turned out. You also may look at socio-economic considerations. Then, you made the decision and lived with it. And here you are facing another major decision in your life. Purchasing a veterinary practice.
Buying a veterinary practice is similar. The first step is figuring out the variables of what type of practice you want. Where do you want to practice? How many rooms do you want to have? Do you want to own the real estate? Do you want a practice with high production or one that you can build? Once you’ve come up with your criteria, the next step is to locate potential practices that may be on the market. You may also consider doing a startup. You analyze the practices that are on the market. You may see one or two you like. You contact the broker to get information on the practice. This is typically called a practice prospectus or practice offering memorandum. Some brokers will send tax returns, profit, and loss statements, and practice management reports up-front. You get all this information, and it looks like it is written in Latin. You may not have any clue how to read the reports. The broker can go over the numbers with you, or you can also hire an independent broker, phone a friend who knows business, or possibly a CPA. After you have looked at the numbers and that passes your and your advisor’s scrutiny, the next step is to go see the practice.
You contact the broker and set up a showing of a couple of practices. Looking at a practice is like looking at a house for sale. You may see things you like and things you do not like. But know that things can be changed. We have had doctors decide they don’t want a practice because the carpet is outdated, or the paint is ugly. There are people who can paint and change out the carpet. They do it for a living. They’re called painters and carpet layers. So, don’t exclude a practice because it is ugly. Have a little vision and think about how you may make it your own style.
Another one that throws potential buyers off is equipment. The exam tables may be dated and worn, the x-ray machine may be old, etc. Prices of equipment have come down. Remember, you may be in this practice for 20+ years. Spreading out the cost of new equipment, even if it’s $50,000 or $100,000, can be as little as $2,000 per year.
After you have looked at the practice, you like the location, but there may be one or two things that do not fit your criteria. Remember that the cash flow of the practice is always the number one consideration. I have been selling practices for 15 years and I have seen some ugly, small, outdated practices collecting $1,000,000 and taking home $500,000. I have seen ugly practices collecting $400,000 and taking home $250,000 on 3 days of work per week. Don’t judge the book by its cover. It is what’s inside, or the cash flow inside that really counts.
After you have decided that this is a good practice and you would like to purchase the practice, you make an offer through a letter of intent. It is a non-binding agreement where the broker typically provides a template. You can either come up with your own offer or work with your advisor to come up with the offer. If it’s a good practice and the broker has reasonably priced the practice, make a good offer close to or at the asking price. DO NOT LOW BALL THE PURCHASE PRICE IF YOU ARE SERIOUS ABOUT PURCHASING THE PRACTICE! You will just upset the seller and they won’t even want to work with you after receiving a low-ball offer.
You will want to begin contacting bankers who specialize in veterinary practice financing. Brokers know most all of them and which ones are lending at the moment. Ask the broker for a name or two. The banker will ask for your personal financials. They love to see you have some cash in the bank and not much credit card debt. Bankers will be more interested in how the practice is doing. They love to see a practice with great cash flow.
You next jump into due diligence on the practice after the offer has been accepted. You go into the practice on the weekend and go through the charts, x-rays, equipment, etc. There are checklists you can use to do the due diligence or bring along an advisor. However, be careful with advisors as some will just want to look for the bad things in the practice. Don’t throw out the baby with the bathwater if they point out vaccine appointments are not what they should be. Remember, almost everything can be fixed. Just note it and continue on.
If everything goes well on the due diligence, you let the broker know you are moving forward. The seller’s attorney will draft up agreements. You will then hire your own attorney. Ask your advisor or broker for a veterinary specific attorney. Using a non-veterinary attorney will cost you additional money. We have seen non-veterinary attorneys charge double, triple, and more to put agreements together. After the agreements have been “agreed” upon, the next and final step is closing. At closing, you sign the agreements and take over the practice.
There are some additional steps in the process that your broker can help you with, but these are the basic steps in purchasing a practice. So, just like purchasing anything else or making any major decisions, you just need to go through the steps, rely on your advisors, and dodge those wrenches! As always, we are here for you for a free consultation, just give one of our experienced brokers a call.Read More
Jim Vander Mey, CPA, ABI, is a Senior Veterinary Practice Broker with OMNI Practice Group, as well as a Certified Public Accountant. In this video, Jim explains the cost of waiting to buy a veterinary practice. You may be surprised how much money you could lose out on by waiting to buy, even in 2020, and why overpaying for a veterinary practice now can end up saving you $$$ in the long run.Read More
By Corey Young, DDS, MBA, ABI and Jen Bennett, OMNI Practice Group
Congratulations! You just achieved a major professional milestone in completing the purchase of your new practice.
There are many tasks that will require your immediate attention after closing, but one often overlooked item that is crucial to your transition is ensuring you retain the staff.
Here are some helpful tips for you to consider:
The first thing you will want to do is a formal “meet and greet.” I highly recommend that you meet your new employees within two days of the seller notifying the staff. This will help ease their anxiety about who the new boss is and give you an opportunity to personally remind them that they are an asset to the practice. It is also always a nice touch to schedule the introduction during lunch hour and as a kind gesture, to bring lunch for all. Be sure to check with the seller on any dietary restrictions, food allergies, and favorite restaurants.
Next, your new staff will be worried that you will be making changes that may negatively impact their lives such as pay, benefits, work hours, scheduled time off, etc. Make it a top priority to understand their concerns and to assure them that you will carefully evaluate all potential changes before making any decisions. While things might not be run exactly how you want them to be, be sure to weigh the consequences of losing a key staff member because of a decision you might make. Sometimes it is better to leave things intact while you get yourself established with the staff and with your new patients before you implement your desired changes.
Finally, you will be busy but find time to make a personal connection. Set aside one-on-one time with each staff member, get to know them, what they care about, and why they got into veterinary practice. Establishing a relationship early on will pay dividends down the road as your new patients will certainly be asking their trusted veterinary technician, assistant, or office staff member, “What do you think about the new guy/gal?” The goal is to not only retain your staff but to retain patients as well. Having staff in your corner is critical to your long-term success.
Jim Vander Mey, CPA, ABI, and licensed commercial broker with OMNI Practice Group, explains to veterinarians the cost of waiting to own a practice and how buying a practice now should pay off.Read More
By Corey Young, DDS, MBA, AVI
I know. Running a business seems daunting. You just want to be a doctor and not have to worry about the rest. I understand. That said, it is wise to consider what is left on the table by being a career employee, or by waiting for that perfect practice to show up.
Let us consider a fictitious practice:
- Overhead: 60%
- Gross: $550,000
- Net: $220,000
- Acquisition price today, due to COVID environment: $300,000
- Interest rate: 4%
- Loan of $330,000 (acquisition price plus one month of working capital) over ten years: $3,341 monthly payment/$40,000 annually/$400,930 over life of loan
Let us assume 10% growth in the first two years and 5% growth in the next eight, all while maintaining overhead percentages.
- Total income over those ten years $2,600,000
- Estimate of practice value in ten years $700,000
Sum of income and asset value $3,300,000
As an associate, how does this compare your compensation package over the next decade?