Sell a Practice Now?
What a crazy time we are in. At least to me, this is a sober reminder that major disruptors are almost impossible to predict. I am reassured that our nation seems to be taking the situation seriously and I do firmly believe we can weather this storm. Most of you reading this are making difficult decisions about staffing, how to deal with emergencies, and how you are going to pay the rent for the next few months. I don’t envy any of you right now. There is a strong support system in this industry ready to help. Don’t hesitate to reach out. I think you will find all of us willing to go the extra mile right now to help you keep the ship afloat.
Many of you reading this are very close to transitioning your practice, some of you being on the fence. It is human nature to want to put off transitioning until after this crisis is over. You may even be getting that advice from your CPA or financial adviser. I am going to give you three reasons why you should do exactly the opposite.
One, value. We have been in a booming economy. Many of your numbers have been at all time highs over the last couple of years. Now COVID-19 hits. How long will we be shut down? How will the economy look on the other side? Will the clients pull way back on elective treatments for a couple of years like they have done in other recessions? In the present, buyers and bankers will mostly be willing to look past these next couple of months as an anomaly. Practice values will hold. For a while. That said, as someone who does Valuations and sells practices, I can assure you that in two years no one will care what your 2018 and 2019 numbers look like. In two years, what happens in 2020 and 2021 will be the new reality.
Two, market. There is a backlog of practices that are nearing the market. The people who work the transition market have been wondering when that bubble will burst for a few years now. I for one believe this crisis will do the job. Most doctors are going to ignore me and wait two, three, even five years, watch the market flood, the economy falls off its current pace, and wonder why their practices are down in value and are hard to sell. The early bird gets the worm.
Three, time. Many of your potential buyers had their hours cut, some by 100%. They have unprecedented time right now to look at practices. Odds are you also have more free time than normal. Realistically, practice sales won’t close until this crisis is over. That said, there are months of work between deciding to put a practice on the market and a practice changing hands. When life gives you lemons…
What Owning a Veterinary Practice is Really Like
Many of you have recognized the power and need to delegate. You have people you can trust – your knowledgeable service rep now fixes your equipment, a skilled plumber who fixes the leaky sink, and an expert commercial broker who takes care of your lease. By delegating you have freed up your time, reduced your stress, and let the experts use their skills to do what they do best.
When it comes time for your veterinary transition, you can try doing it yourself, but that’s like giving the patient a sharp veterinary instrument to spay their own pet. They don’t have the knowledge, experience, or skills to do it right and may end up bleeding in the end. Or, you can entrust your veterinary transition to the people at OMNI Veterinary Practice Group who have the experience, knowledge, and track record to help you achieve your goal giving you peace of mind, freedom, and more happiness. Contact us today for a free consultation – 877-866-6053 or email info@omnipg-vet.com.
The Many Different Types of Veterinary Practice Transitions
Partnership
Selling a portion of your practice via a partnership has its own pros and cons. One of the pros is that if you can find a partner with similar interests and philosophies as well as a set of skills that enhances your practice and you get along well, you’ve found a winner. The cons are that those types are difficult to find. The ADA states that 70% of partnerships fail. However, if done right using experts in partnerships, you can have a successful and happy partnership transition.
Walk Away Sale
A walk away sale involves the seller removing themselves and their business interests from the practice the moment the sale is completed. This could be ideal for those in the process of retiring or relocating to a new area across the country. But sellers must analyze whether they truly want to walk away from the business they helped create. To complete a walk away sale effectively, sellers must tie up all loose ends many weeks before the buyer completes their transaction. This ensures a seamless handover process and allows the buyer to immediately enter the business with a fresh start.
Sell and Work Back
This can often be very gratifying. The seller sells 100% of the practice but stays to work as an employee in the practice. The seller may cut back their hours or may keep up the pace. The seller and buyer work together, and the seller may even mentor the buyer. The seller no longer has any management responsibility or ownership. He simply does clinical veterinary medicine. As long as the two get along, this can work wonders.
Customized Transition
Working with a Veterinary practice transaction broker can help sellers customize the sale according to their unique requirements. Brokers are experts in managing the transition process, from organizing the timing of asset sales to implementing buy back procedures once the sale has been completed. It’s important the company the seller works with has a full understanding of their business plans before they begin the transition process, as this will help reduce potential issues as the transaction is completed.
By having a clear understanding of the available Veterinary practice transition options, owners can ensure the right model is found for their sale process. To learn more, contact us today!
Questions Frequently Asked by Veterinarians Who Are Thinking About Selling Their Practice
- When should I start thinking about and preparing to sell my practice?
The earlier the better, but no later than 3 years prior to selling your practice in order to optimize your sales price and find a good buyer match. Practice values are typically based on 3 to 5 years of financial information with the numbers weighted heavier towards the most recent years. If you focus your last 3 years in your practice on maximizing collections, overhead and updating your practice, you will come out money and time ahead. - Will I get a higher price if I ramp up production for another year?
Typically, no. Since values are based on up to 5 years of production and net income, simply ramping up numbers for one year will not increase the value a whole lot. In fact, if it goes up too much in one year, a potential buyer and banks may even question why the production all of a sudden went up in one year. - Should I buy new equipment or remodel before I sell my practice?
If you are 5 to 10 years away from selling your practice and your practice is looking dated, then you should update the practice. That can range from simply painting the practice and installing new carpet, up to replacing tables, adding new x-rays and other technology. If you spend a lot of money too close to the sale, you will not get the depreciation write-off that you would get if you had done it much earlier. The exception to this rule (there’s always an exception, isn’t there?) would be digital x-rays and computers. If you are not digital, don’t have computers, or your computers are 10 years old, you should consider adding those before selling. - What are buyers looking for in a practice?
Individual buyers like to see a well-run practice with a decent amount of production, typically over $500,000 per year, average to low overhead (below 75% is good), somewhat up to date look and feel to the practice and a good location.Corporate buyers like to see similar things, but also want the seller to stay on and work in the practice for another 1 to 3 years (depends on which corporate buyer). They also want the seller to carry-back approximately 20% or more of the purchase price of the practice. This means you get 80% of the purchase price upfront and then you receive the rest of it – 20% after you’ve completed your 1 to 3-years work requirement and have met established production, and other targets in the practice. If you don’t reach those targets, you may not receive the final 20%.
- I have an offer from several corporate buyers, why do I need a broker?
It’s been said that “the man who represents himself has a fool for a client”. A broker wears many hats in a transition. Finding a buyer is only one small role they play. The broker also takes a look at the offer and looks out for the clients’ best interest. Corporate offers are all not alike, so brokers also play the role of analyst by looking at each offer. They have to understand accounting, finance, the law, contracts, and even human resources. If you try to do this all yourself, you will end up costing yourself, your family, your staff and patients more time, money and grief than if you just hired a broker in the beginning. We have case studies where we have caught things in the offer that would have cost clients hundreds of thousands of dollars. We have helped negotiate and solicit more offers that have put hundreds of thousands and even one million dollars more than what the clients first offer was. - The person representing a corporate buyer told us they prefer us (seller) to not work with a broker. Why is that?
They don’t want you to use a broker because it weighs the negotiations in their favor and gives them an upper hand. They have powerful attorneys, CPAs, and professional negotiators to pit against you. They may first knock on your door with a friendly neighborhood veterinarian as their representative, but behind that friendly veterinarian lurks the professionals hoping you don’t have anyone helping you out. They’re able to get lower prices, better terms and corporate favored contracts if the seller doesn’t have a broker. - I own my building, should I keep it as a rental for future retirement income?
In the current real estate market, the short answer is “no”, especially if you’re considering a corporate buyer. We have pictures and case studies of sellers who kept their building only to have the veterinary corporate buyer move out of the building two years later to a new building they built down the street. The seller is left with an empty building that was a veterinary practice and will be difficult to find a tenant. The exception could be if you have an extraordinary building in a fantastic location on a busy street with great visibility and the building is in pristine condition – these practices make up less than 10% of all veterinary buildings. - I want to do an associate to own transition. Can you help me with that?
Absolutely. We can help with pretty much any type of sale. Whether you want to do an associate to own transition, a straight sale to an individual, a corporate sale, or anything in between, we can help. We will show you all the options and scenarios to help you make the right decision. Often times, doctors think they want an associate to own transition and not sell to a corporate. But, when we show them that they can make $500,000, $1,000,000, or more by selling to a corporate, they change their mind. We’ll help walk you through each scenario to do what’s best for you and your family. - I want to continue working in the practice after I sell, is that possible?
It depends. If you sell to an individual and your practice isn’t large enough to support multiple doctors, then the answer is probably not. But we can help identify the right buyer for you who will allow you to do what you want to do. In fact, one of the questions we ask is “What is your dream transition scenario?” We then go from there and do our best to make your dreams come true. - I want to make sure my staff and clients are taken care of. How do we make sure that happens?
We like to call ourselves matchmakers. We spend time getting to know you as a veterinarian, practice owner, family person, etc. We ask a lot of questions to find out what your needs, wants, and dreams are in a transition. We then go out and find a perfect match — whether it’s an associate, individual buyer, or a corporate. Even corporate buyers have their own unique personality, culture, philosophy, and terms. We make sure that the buyers who will want to buy your practice are a good match for both you and your practice.
Do you have more questions? Attend one of our upcoming Practice Transition Seminars this fall, where we will go into all of the above in more detail, and you’ll get a chance to discuss your situation with a panel of experts – broker, banker, attorney, CPA, etc. – all in one place.
Broker Vs. No Broker
Thinking of selling your practice but don’t want to pay the broker’s commission? Think again. History shows that any time you sell your business and/or real estate yourself, the chance of failure of the transaction is over 50%. A commission will be much more digestible than the result if you try to do it yourself. We receive calls from senior veterinarians stating they sold their practices and took payments and it didn’t work out. After one year, they often must take the practice back and struggle to resurrect it to try and sell again. This is typically an experience that is new to both buyers and sellers. It takes time, marketing expertise, sales experience, buyer and advisor contacts, and lots of patience.
Your broker may spend hundreds of hours on your transition and your time is better spent at the clinic and planning your retirement agenda. Brokers do lots of specialized marketing which can be costly and time-consuming, and it includes many weekends and evenings meeting with potential buyers. When working with a broker, the average practice sells in about 6 months so selling it alone can be much longer. Your broker should have a list of qualified buyers and a commercial real estate license. If you own your space, it’s often critical to sell the building at the same time or get a solid agreement together for future purchase. Time and time again we see senior veterinarians sell the practice and lease the space with a loose agreement and lose their renter. The buyer decides they like a newer building down the street and leave you with an empty veterinary building.
A good broker will determine the value of your practice and there is much that goes into this process. It’s not just about collections. Everyone’s goal should be to sell at a fair price in a timely manner. If the price isn’t “right”, the banks won’t finance, and you certainly don’t want to carry the loan. If you get pressured to sell too low, which we often see, you can lose tens of thousands of dollars. Brokers spend a lot of time working with all the trusted advisors you need such as veterinary specific banks, CPAs, and attorneys to determine the value of your practice and facilitate a smooth and successful transition.
