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 More
Experts estimate that more than 70 percent of veterinarians are embezzled with an average loss of $200,000. But, because the embezzlers often steal small amounts of money over many years, the thief is never noticed. The US chamber of commerce estimated that 75 percent of employees steal from their workplace and that most do so repeatedly.
A majority of people, if given an opportunity, will take advantage of a situation to steal from their employer on the following frequency:
-3 percent will steal daily
-7 percent will steal weekly
-20 percent will steal 4-12 times a year
-70 percent will steal 1-2 times a year
-4 in 10 doctors experience theft in some form from the practice. 1 in 3 veterinary practices experiences monetary theft from their practice.
The significant types of theft in veterinary practices are:
-Goods and services in Kind
All types of theft can hurt the bottom line of the practice. The Monetary thief, in most cases, has the most negative effect on the practice bottom line. Most veterinarians find it hard to believe that their handpicked, trusted, longer-term staff would steal from the practice.
Here is an unfortunate, and real-life, example. A veterinarian had a highly successful practice with five employees. One was a long-term office manager who came to work early and left late every day. She managed all the financial transactions daily along with the insurance and statement billing. The office manager took an extended vacation. While she was gone, the office sent out statements and received numerous calls from patients that their statement was incorrect and that either their insurance had paid the bill, or they paid on the day of service by check or credit card. The doctor had the staff investigate all the disputes and found out that the office manager had embezzled more than one hundred thousand dollars over the years. He was devasted and could not believe that the long-term, most trusted employee had done this to him.
Methods that have been used by staff to steal from the practice:
Zero Charge- Patient comes in for services, and the office staff member posts a zero-balance charge and pockets the money. At the end of the day, the computer collections balance to the deposit slip. No one notices.
Falsify Deposit Slip– Employee brings the doctor a deposit slip to sign for the day matching all the collections taken in for the day but then takes out all the cash from the deposit bag or envelope and changes the deposit slip when depositing the money.
Multiple Adjustments to Accounts- Courtesy discounts like cash discounts or senior discounts are used. Employee charges the full amount to the patients and keeps the cash discounts and pockets it.
Fictitious Vendor- Employee sets up a fake business with an account and has doctor sign supply order checks for supplies. The employee deposits these checks into an account and keeps the money.
Make sure that even your closest friend in the veterinary practice is being watched. Here are some suggested internal controls to help prevent thief and embezzlement:
Segregation of Duties– Make sure one person does not control all cash flow processes.
Daily Audit Trail– Review daily transactions to catch zero balance postings.
Rotate Duties– This will help to reduce the chance for embezzlement.
Verify the End-day Report to Deposit Slip– Ensure that you see the end-of-day report and it balances with cash deposits. The doctor should be responsible for depositing funds in the bank.
Review Bank Statement– Take time to review the statements monthly.
Require Vacations– All employees must take vacation days that they have earned.
Performance Plans– If the practice meets specific goals and the practice is increasing its revenue, give incentives to employees in monetary form.
Background Checks- Make sure you follow through on background checks before hiring new employees.
Verify References- Check all references.
Having internal controls will help protect the practice and staff that are honest and want to do a good job. It will also help everyone stay focused on their tasks and goals at hand and take away the opportunity for someone to embezzle. You don’t want to have good employees turn into liabilities.
Omni Practice Group has been helping veterinarians for over 15 years developing plans to transition their practice. Our goal is to help you find the right buyer and make a smooth transition of your practice when the time is right. Contact us today for a free no-obligation consultation with one of our Practice Transition Advisors.Read More
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+.
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 More
There are many reasons why veterinary practices are put up for sale. Some of the more common reasons actually have little to do with the practice’s general performance. For example, many veterinarians discover that they need to sell for health reasons or personal concerns, such as divorce or partnership issues. While a business downturn might prompt many veterinarians to sell, economic drivers are not the only issue. Owners may want and need to sell, but often it isn’t always that simple.
Many veterinarians are looking to retire but are unpleasantly surprised to learn that they simply can’t afford to do so. Still yet, many veterinarians don’t truly want to retire or sell, but instead, they just want more freedom in their lives. The day-to-day responsibilities of owning and operating a practice can take their toll. Many veterinarians are looking to make a change and would love to be free of this burden. This class of owner has already “checked out” mentally, and this can have profound negative consequences for their businesses.
When a veterinarian wants out but discovers that he or she simply can’t afford to sell or retire, it will come as no surprise that there is usually an accompanying drop off in enthusiasm. Ultimately, the vast majority of practice owners will start to lose focus. Often, we find that they stop investing the capital necessary to continue the growth of the business, which can trigger other events, such as the loss of key staff members and/or customers. The failure of the practice to maintain its footing and competitive advantage can lead to a more aggressive posture by existing competitors or even encourage a new competitor to move into the market.
In time, the practice owner may come face-to-face with the harsh realization that they have no choice but to sell if they are to salvage any of the practice’s value. The best way for a practice owner to safeguard against this situation is to sell when his or her practice is doing well, as this helps to ensure an optimal price.
Working with a practice broker, even years before one is interested in selling, is one of the single smartest moves any business owner can make. The time to think about selling your practice is now, as no veterinarian knows what life or the market will bring.
To help figure out where to start, contact us today – phone: 877-866-6053 or email: email@example.com.Read More
In my experience, sellers get concerned with the “correct” time to tell their team about the transition. We recommend informing them when all documents or some are signed and there is no doubt the sale will go through. It may be 2 weeks or 2 days before closing, it depends, and your transition advisor will assist you.
If you tell your team too early, they may become stressed, confused, and unsure of their future, so they may panic and find another job and possibly tell clients or other veterinarians. None of this is good! Your team and clients are important to the goodwill of your practice.
When you do announce the new buyer, remind the team that they love their teammates and patients and that isn’t changing. Explain a bit about the new veterinarian and schedule time for them to meet. Help them feel confident that the transition will be great, and the new veterinarian will need their assistance for everyone to be successful. If you are going to continue to work for a period of time in the practice, let them know that and say, “I’ll be here to assist in the transition to make sure it goes smoothly”.
A letter to clients is typically sent from the seller with the buyer’s approval. Depending on both the buyer and seller and the unique area, a newspaper ad can be placed, and an open house can be scheduled. The letter should emphasize your appreciation of serving them as their veterinarian over the years and also tell clients how happy you are that you found a great veterinarian, or group if it’s a corporate buyer, to take as good of care of the clients and patients as you did. Your transition advisor will provide ideas and examples to help you choose the best method for announcing the transition.
Clients may be unsure of the new buyer, so if you are in the office “brag” him or her up a bit. Post the letter at the front desk and have copies on tables so the clients can read about the new buyer while they wait. It’s important that the buyer of your practice not make any large changes in the practice and mirror you and your philosophy as much as possible. This will help make the transition seamless.
The new team will be concerned about the new buyer’s expectations so consider not changing much in the practice for a while, so they have a chance to transition and become comfortable. Provide information they won’t know such as how to schedule and what instruments you need for each procedure. Help everyone to be successful in their position.
Remember to remind your team often that everything is ok. Consider having one-on-one meetings with each new team member and ask specific questions. “What keeps you coming here every day? What’s one thing you would change in the practice if you could? Can I count on you to bring questions and concerns to me rather than involve the entire team?”
Transitions can be stressful. Work with your transition advisor that has many experiences and ideas to share to help everyone be successful.Read More