Seller Preparation Checklist
The best time to start preparing for your practice transition is three to five years from the date you plan on selling your practice. Since you may not really know that date, the best time to prepare is NOW! Here is a checklist of things you should do as you get closer to deciding to sell your practice:
___ Meet with your Financial Advisor – Discuss with your financial advisor that you are thinking of selling your practice. If the intention is to retire, let them know that is your plan. Ask them how much you may need to retire at the income level you desire.
___ Discuss Taxes with your Accountant – This is especially important in the current environment. There have been discussions at the government level to increase both capital gains and income tax rates significantly. Both affect the proceeds you will receive from the sale of your practice.
___ Obtain a Practice Valuation – It’s best to get a full valuation. You can provide this to your financial planner which will help determine when you will be able to retire if you get the desired amount from the sale of your practice. If you can’t yet retire now, most practice valuation companies or brokers will update the valuation for a minimal charge.
___ Keep your foot on the gas – Don’t slow down in your production. In fact, if possible, ramp up production to get the maximum value from your practice sale. Banks and buyers like practices that are trending up in production instead of going down.
___ Assess the condition of your practice – Do you have 20-year-old flooring that is faded, stained or torn. Replace it. Do you have mustard-colored countertops from 1970? Update the countertops. Paint will do wonders as well. Don’t spend a mint, but spend a reasonable amount – $10,000 to $20,000, to make the practice look and feel fresh and updated.
___ Clean up your Accounts Receivable – If you have credit balances on patient accounts, you’re required to send those back to the patient after a certain number of years. Each state has its own Unclaimed Property or Escheatment law. You can find it on the internet. If you cannot find the patient, you are required to submit the balance to the state. Note that you can charge a nominal processing fee to the patient.
___ Self-assess your practice numbers – Is your staff payroll and benefits expense above 25% of your total collections? Is your production down, but you have the same staffing level? Is your veterinary supply fee over 7% of collections? Know what your ratios should be and manage to your numbers. Contact a consultant if you’re not sure what to do.
___ Know the market – Are practices in your area selling quickly? Are interest rates super high? If it takes two or three years to sell a practice in your area, then you may want to list it soon rather than later.
___ Do a self-assessment – Think you’re five years away, but your back, neck, or hands are telling you – SELL NOW! Burned out on managing staff and insurance companies? Just tired of living where you live and are ready for a change? All these may lead to selling sooner than your retirement date. Just because you sell your practice does not mean you have to retire. You can still practice either in your or someone else’s practice. Or, maybe you’ve always wanted to do something different. Maybe it’s time to test the waters. You can always go back to being a veterinarian. I know several veterinarians who are semi-retired and work as a veterinarian two days per week and drive Uber or LYFT two days per week for fun.
___ Contact a broker – Some of the best transitions we have done began several years before the sale occurred. We built relationships with the seller. In several cases, we found a buyer asking for a specific area. We made the call to one of the veterinarians we had a relationship with and they said “it’s time”. Brokers can also be advisors over the final two, three, or five years of your practice ownership. Should you buy the new x-ray equipment? Should you hire an associate? We can help answer those questions.
Selling your practice is a major life event right up there with buying your first practice. Be sure and prepare, have a plan and get the right advisors. We’re always here for you and phone calls are always free. Give us a call – 877-866-6053.
Download your own checklist here: Seller Preparation Checklist
Read MoreTop 5 Fears Veterinarians Have About Practice Ownership (And How to Overcome Them)
By Rod Johnston MBA, CMA, and Jim Vander Mey, CPA, ABI
There are many advantages to owning a veterinary practice over being an associate veterinarian and not owning a practice. For one, the average veterinary practice owner makes approximately 20% more in income than an associate veterinarian working for someone else. A veterinary practice owner also gets to choose what procedures he wants to perform and what type of animals he or she wants to work on. Heck, they even get to choose which animals they want to work on. They can also choose their own hours, pick the days they want to work, and how much vacation they want to take. So, why aren’t veterinary associates owning practices? What are they afraid of? Here are a few fears we have encountered and how to overcome those fears:
- Fear of the unknown – Associates feel they don’t have the experience in owning a practice. They haven’t managed staff. They haven’t kept financial records. They don’t know what marketing to put in place. They don’t know what benefits to give employees, how to hire or fire employees, or even how to balance a checkbook.
Fear not, you don’t have to know everything at once. You know how to do veterinary medicine. That’s the first step in owning a practice. You have a few years of experience working as an associate in a veterinary practice. You’ve observed the owner working with and managing staff. You may have experience leading a team in school, playing sports, etc. These are all examples of good experience in handling staff. You don’t have to know how to keep books right away. We suggest getting a veterinary bookkeeper and then getting educated on reading financial statements. This can happen over time. Bottom line is if you are good at what you do and willing to learn the other parts of practice ownership, you’ll be just fine. - Fear of taking on more Debt – Read Robert Kiyosaki’s book, “Rich Dad, Poor Dad”. Not all debt is created equal. There is good debt such as student loans and practice debt that helps generate an income and there is bad debt such as credit card debt where you just borrowed money because you wanted something. Practice debt used to buy a practice that will help you make more money and build equity in an asset (the practice) is a positive thing. As long as it’s a good practice with good cash flow, you’ll be money ahead in the long run.
- Fear of the Corporate Giants – Don’t fear the corporate giants. They have their own niche targeting bargain shoppers and lemmings who follow the crowd. They also have a high turnover in their staff and doctors. You will provide excellent service with the same staff and veterinarian that the clients will see every time they come to your office. In a corporate environment, they’re not sure who they’re going to get.
- Fear of not knowing what to look for – This is a valid concern. You can educate yourself in a number of ways. There are great resources via podcasts, YouTube, etc., that can help you know what to look for. Quite simply, you start by looking at your desired location, then look at the cash flow of the practice and after that, you can get into the details. There are consultants and brokers who can also help you with reviewing practices. Identify your team that will help you overcome this fear.
- Fear of a recession – Recessions happen, typically every 8 to 10 years and last 10 to 12 months. You cannot avoid recessions or downturns in the economy, it’s part of life. But, during recessions, employees typically get laid off from work. If you own your own practice, you’re probably not going to fire yourself. You’ll probably keep yourself employed and busy. Owning a practice is a deterrent from getting laid off during a recession.
These are a few of the fears that we’ve seen over the years, and there are others as well. But, the best thing you can do is educate yourself and talk to practice owners, brokers and bankers. Seek advice and counsel from everyone you can. This will help you make a wise decision in moving forward with practice ownership.
Read More5 Practice Transition Pitfalls and How to Avoid Them
A successful transition involves preparation and knowledge. There are numerous things you should do to get your practice ready to sell and making even one mistake can cost you. Here are five transition pitfalls and how to avoid them.
Letting your production and profitability go down prior to selling. We have seen many practices that were producing $300k to $500k a few years prior to contacting us, but collections and profit tanked when the veterinarians cut back on their hours and their associates didn’t make up the difference. This can result in hundreds of thousands in lost practice value. As you head closer to a transition, keep your production numbers, and your profit, up.
Counting on selling your practice to your associate. This always sounds like a great plan. But statistics show that over 70% of associate-to-own opportunities do not make it to a sale. What happens if your associate decides they want to practice in another town? Or your associate finds an opportunity in another practice? Protect yourself by getting everything in writing and using an intermediary if possible. In addition, consider having your associate put away money in a non-refundable escrow account.
Not evaluating all options. When we ask veterinarians if they are okay with selling to a corporate buyer, we often hear, “No way.” Here’s why you should keep an open mind. While an individual buyer may be limited to paying 2 to 4 times earnings before interest, tax, depreciation, and amortization (EBITDA), some corporations are willing to pay 5 to 10 times EBITDA, and sometimes even more. We have negotiated sales to corporate buyers that got the sellers $1M more than originally expected. That’s a million dollars to help pay for grandchildren’s education, give bonuses to hardworking staff and enjoy retirement.
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 waiting until the agreements are signed. Telling staff too early may result in them leaving for another opportunity. For those who stay, it 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? Waiting may not seem like the right thing to do, but it really is.
Going it alone. Corporate buyers are throwing out offers to potential practice sellers left and right. Some are even hiring DVMs to tell you that you do not need representation, that they will handle everything. But is their offer the best one you can get? Without representation, how would you even know? A good practice transition broker knows all the different buyer types and what kind of terms and pricing they typically offer. If you try to sell your practice on your own, you could sell to the wrong buyer for the wrong price.
These are just a few of the many pitfalls you might encounter when selling your veterinary practice. With experts on your side, you can avoid them – and other costly mistakes.
Want to make your transition as smooth as possible? We can help. Contact us for a free consultation.
Read More3 Reasons to Sell your Practice While the Tides are High
Timing is everything. If you would have invested $1,000 in Nike stock at its initial public offering in 1980, your investment would be worth over $190,000 today. The same can be said for many other stocks or investments. You see, the tides of the economy ebb and flow. But how does that relate to your veterinary practice?
We have been experiencing a perfect storm of sorts over the past several years. The economy has been doing well, interest rates are at all-time lows, buyers are plentiful with both corporate and individual buyers and capital gains and income tax rates are relatively stable. We’ve been on the “flow” end of ebbing and flowing with practice values at an all-time high. But when do the tides start to recede?
We can’t predict the future. But there are several things we know with relative certainty. Corporates have been paying incredible prices for practices. How long will this last? According to an article in Entrepreneur magazine, corporates expect to own 25% of all veterinary practices by 2023. After that, they will slow down their purchasing of practices as fewer practices will generate enough revenue to peak their interest. Practice values will in turn go down.
We also know with a high level of certainty that both capital gains and income tax will be going up. President Joe Biden explicitly stated this during his campaign and is currently proposing this as we speak. This will affect practice sales as it’s not uncommon for a practice purchased by a corporate to sell for $2 million and higher. The proposed capital gains will be on amounts over $1 million. This will reduce the amount of funds that you take home after taxes. It could be by as much as 20% or more.
As I stated, we can’t predict the future, but we do know the present. If you are even considering selling your practice in the next 3 years, we believe it would be well worth a phone call to us for a free consultation. Selling in 2021 instead of waiting a year or two could earn you a significant amount of extra money. The cost of a phone call = $0. The cost of waiting = potentially $100,000+.
Call us at 877-866-6053 or email info@omnipg-vet.com.
PS: If you have an offer from a corporate, call us anyways. We’ve helped a number of veterinarians get a much higher offer than their initial corporate offer.
Read MoreWhat You Need to Know Before Signing a Covenant Not to Compete
You’ve graduated from veterinary school so naturally, you’re ready to get your feet wet and start practicing. Nearly every veterinarian will be an associate at the beginning of their career and with that comes the dreaded associate contract. You found a great associate opportunity and you’re eager to start collecting paychecks. But before signing that contract, particularly the noncompete clause, be aware of the details that could prevent your opportunity to start your own practice in the areas/neighborhoods you desire.
A covenant not to compete, otherwise known as a non-compete agreement, or restrictive covenant, is a clause in the contract that prohibits the restricted party from engaging in services similar to those of a non-restricted party. Non-compete agreements may restrict a veterinarian’s actions by time, location, and clients.
Here are some valuable tips before signing a non-compete agreement for veterinarians who plan on owning their own practice in the near future.
Be sure you understand every detail: Associate contracts are designed to protect the owner more so than the associate. OMNI Practice Group highly recommends you have an attorney who specializes in veterinary Associates contracts review all legal documents before signing. If you don’t already have an attorney, we will be more than happy to recommend one.
Advocate for the minimal non-compete radius: A standard non-compete radius should be between 3 to 5 miles. Keep in mind the radius is “as the crow flies.” In more rural areas, we have seen up to 15 to 20 miles, but of course try to negotiate for less, especially if you plan to stay in the area.
The shorter the better: We’ve seen unfavorable terms of up to five years. Typically, your non-compete clause should only be enforceable for 1 to 2 years. Try to negotiate to a shorter period, that will work in your favor when you’re ready to own your own practice.
Be sure your non-compete only covers the location in which you are employed: If your employer owns multiple locations, but you’re only seeing patients at one specific office, make sure your non-compete only applies to that location.
Notice of resignation: Keep in mind that when you’ve found the ideal practice to purchase or if you decide to do a start-up, the process can move rather quickly. We’ve seen contracts that require the associate to give up to 6 months’ notice before leaving their position – a fair amount of notice is typically 30 days. Be sure to negotiate the least amount.
My rule of thumb when it comes to associate contracts is “Less is Best” …well, with the exception of wages!
When you’re ready to purchase a practice or just want to discuss the process in preparation please feel free to give us a call at 877-866-6053 for a free, no-obligation consultation. We’re here to help you!
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