By Corey Young, MBA, CEPA, CVA, ABI
Congratulations, you just accepted an offer on your practice! With all the emotions associated with the transition, when to notify your staff is surely at the top of your “to-do” list. Telling employees that you are selling your practice is an extremely delicate process. Breaking the news too early can come with many risks, so best to wait until all final closing documents are signed by both parties and no more than one week before the new owner takes over.
So, what are some potential risks?
One of the primary risks is that employees will naturally be worried about their job security the moment you make your announcement. Oftentimes if they have too much of an advanced notice they may start searching for other opportunities. Staff leaving could negatively impact the transition and patient experience because of how instrumental they can be in helping the buyer and the patients adjust to new ownership.
The other major risk is that nothing is final until its final. Veterinary practice sales are extremely complex and can be delayed for a multitude of reasons or fall through completely. Making the announcement before the sale is complete will cause stress and heartache amongst your staff during a time that you will be preoccupied with navigating a significant professional milestone. If the staff were to find out before closing was final, you wouldn’t be able to offer any reassuring answers because of unforeseen changes to the closing timeline.
Finally, regardless of your views of your staff’s maturity level, gossip will ensue. I have seen it countless times where a veterinarian tries to provide honest reasons on why they are selling, only to have their words misconstrued. Comments such as, “I’m selling my practice to focus on my health” can quickly morph into, “S/he is selling because the practice is going under,” or lead to unfounded conclusions such as, “After the new guy starts, we will all be replaced.” This kind of fear and uncertainty will have a profound impact on staff morale during a time where they will be needed to ensure a great patient experience during the transition process.
In the end, you probably have a deep and meaningful relationship with your staff. They deserve to know about ownership changes as they will be impacted, but it is best for them (and for you) that they be kept out of the loop until you have concrete answers to provide them.
Jim Vander Mey, CPA, ABI, and Certified Practice Transition Broker with OMNI Practice Group, helps veterinarians analyze whether or not it is the right time to sell.Read More
Are you ready to transition?
Is your practice ready to transition?
What is the market like?
These are all key questions to ask yourself. When is a good time to start thinking about all of this? The real answer is as soon as you buy or start your practice, but the more practical answer is dependent on you. If there any chance you will want to transition in the next five years, you should start working on your transition today.Personal readiness and practice readiness are both more important than current market conditions; however, considering the COVID crisis, I am going to focus on market timing.
If any of the following sounds even slightly familiar, raise your hand:
I was ready personally, and my practice was ready in August 2019. I choose to wait because (pick one or more):
- I have a kid with one year left in college
- I have one year until I can draw Medicare
- There is one more room in the house I would like to finish
- My spouse retires in a year
- I pay off my house in a year
- I turn (insert round number like 60 or 70) next year and I would like to wait until then
Now, for those of you that raised your hand, consider the reality of August 2020. How does that August 2019 decision to wait look? Questionable at best.
My intent is not to beat up on those of you that this struck a chord. Rather, I want to emphasize the need for starting early and getting help.
Transitioning is a difficult process. Do not go it alone. Contact an experienced, qualified transition specialist and get the ball rolling. We are here to help.
Freshen up your practice – Buyers like to see a fresh, clean and somewhat updated practice. That does not mean you need to do a complete remodel and spend a $100,000. It does mean you need to take a look at your flooring and your walls. If you have large holes in your wall or your flooring was leftover linoleum from World War II, you should fix the holes and put in new flooring. Talk to your landlord, sometimes they will help with the cost. If you have equipment that is held together by the “fix everything” duct tape, contact your local equipment rep and have it fixed.
Update your technology – We run into an occasional practice owner that considers indoor plumbing as new technology. If you are in that category, or if you have not done any technology updates since Richard Nixon was president, you should look into digital x-rays and other technology that will not only appeal to buyers but will help you increase your production in the practice. Contact your equipment rep for the latest and great technology.
Financial Review – Have a meeting with your financial planner or advisor to see where you currently stand with your retirement portfolio. This will help determine how soon you can possibly retire, how much more you may need to put away to retire and/or how much you need to get out of your practice sale in order to retire.
Practice Valuation – You should get a valuation done on your practice. This will help your financial planner and you see where you stand with your entire portfolio. Some doctors rely heavily on their practice sale to be a piece of their retirement nest-egg, so if you don’t know what your practice may be worth, you don’t know what size of nest-egg you have. Call Omni for a free snapshot valuation.
Clean up your books – If you have been aggressive in running expenses and other items through payroll, you should work on making sure the books are clean. If you have multiple practices but run all of your income and expenses through one tax id number, you should ensure you can separate the income and expenses of both practices. Meet with your CPA to analyze your numbers and see if you are in line with industry averages.
Grow your practice – One of the worst things you can do is take your foot off of the gas pedal. If you want to maximize the value of your practice, keep production at least level with prior years. A growing practice sells quicker and easier than a dying practice. If you don’t know how to grow your practice and make it more sellable, contact a consultant, or have a practice assessment done.
These are just a few items that you can do to help prepare your practice for a sale. If you work on these items now and over the next 3 years, you will maximize your practice value, enlarge your pool of potential buyers and be able to sell your practice quicker. For a free consultation or an expanded list of things to work on, give us a call at 877-866-6053.
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…