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.
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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 More
You’ve heard the term “Seller Carryback,” but what does it mean?
Seller carryback financing is when the seller of a given property, or in this case, a seller of a veterinary practice and assets, acts as a lender for the buyer if a conventional bank will not offer the full amount that the buyer needs to close the sale.
Years ago, it was commonplace for a retiring veterinarian to act as the lender for someone to purchase a veterinary practice. Seller financing was driven largely by the fact that banks and financial institutions had yet to embrace the industry like they do today. Therefore, there was a wide variety of structures, interest rates, terms, etc. that were built into those transitions and the exchange of funds between the buyer and seller.
Much like the rest of the veterinary world, the industry and the financing supporting transitions have evolved. In most transactions, it is quite common for the seller to receive all the cash at the time of closing, which is ideal. However, certain circumstances still exist where seller participation in financing is a requirement. In these cases, the buyer’s lender will require the seller to carry a certain portion of the purchase price. Usually, that amount is 10-25% of the total purchase price. Why would a bank need that, you might ask? Some common scenarios include: a declining revenue trend, uncertainty around the buyer’s production capability, and tight cash flow, to name a few.
Every lender has different standards around seller participation, but here are some common features of that path in the current environment:
- Term: Most carrybacks are amortized similar to the buyer’s bank loan. Payments based on a 10-year repayment are common.
- Rate: Since these loans are typically junior to the bank loan it is not unusual to see a seller note 0-2% higher than the banknote. Right now, around 5% is reasonable.
- Prepayment Penalty: Sellers typically want to receive the funds over a shorter timeline of 10 years. Most carrybacks do not have prepayment penalties so that the loan can be paid off or refinanced within 24 months of the transition.
With talks of increasing capital gains taxes in the near future only time will tell how prevalent carrybacks will become.
For more information, please contact us today.Read More
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