Choosing Between Buying an Existing Practice or Doing a New Build
By Corey Young, Practice Transition Advisor
Choosing between buying an existing practice and doing a start-up practice can be one of the biggest decisions of your life. Here are four considerations and two suggestions for when you are contemplating.
The four considerations:
Market Saturation – How many veterinarians are practicing in the area you are considering? Hardly any? One on every corner? Somewhere in between? Establishing traction in a high competition area will require a much higher marketing budget. Do you know your marketing budget? Do you have a marketing plan?
Available Practices for Sale – How many practices are for sale in the area you are considering? Do those practices have a broker representing them? Broker representation usually equates to well-substantiated pricing and a defined plan for acquisition. For-sale-by-owner practices can be more of a wild card.
Population Demographics – If you are considering an area for a new build, will the demographics of the area you are considering support your business plan?
Personal Financial Situation – Do you have the financial reserves to weather a start-up? While there are pros and cons to both routes, buying an established practice certainly generates more initial cash flow.
The two suggestions:
Get Help – This will be one of the biggest decisions of your life, whichever route you take. There are some truly skilled and experienced professionals out there that will help guide you through this process in an efficient manner and allow you to minimize risk while seizing the opportunity.
If You Can Produce, Get Moving – Are you a high producer? Can you manage and lead? Can you practice great veterinary medicine without someone looking over your shoulder? If you answered yes to these questions, what are you waiting for?
Read More7 Questions to Ask When Forming a Partnership
By Jim Vander Mey, CPA, ABI, Practice Transition Advisor
You and your friend from school want to purchase a practice together. Here are just a few questions to ask.
A sole owner is often an easier path to ownership, but partnerships can certainly be successful. But like any healthy relationship, it requires work. To help prepare consider getting together with your business partner, turn off the cell phones, meet in a closed room, and ask the following questions to each other.
How much debt do you have?
Does your business partner have a bankruptcy in their past? Do they secretly owe their parents money for school? Do they drive a BMW 7 series, and you drive a Yugo? (google it!) Pre-existing debt could limit your financial flexibility for emergencies and growth. Will their spending and saving style affect how they run the practice?
How updated does the practice need to be?
We have seen state-of-the-art practices that have been remodeled every 5 years and converted 50-year-old homes. Both can be profitable. We have seen many practices that do not follow textbook expense percentages, but still have excellent reputations, and are extremely profitable.
Number of staff?
You want a Licensed Tech with you at all times, and your partner doesn’t. You want to hire a cleaning service, but your partner wants to come in on Sunday afternoons and clean the practice to save money.
Equipment purchases?
You want a fully digital x-ray and a new surgical laser, and your partner is fine with a CR x-ray and a used ultrasound. Now what?
Vacation? Sick?
You want to take 6 weeks off every year to coincide with your spouse’s vacation and your partner only wants a couple of weeks off. Does your compensation arrangement cover this? Even if you compensate for the difference, will you feel comfortable with this?
Skeletons in the closet?
Yes, you got along famously in school… Studied together, got along socially, have a similar philosophy regarding practicing, etc. Do you both need to agree to a full background check, as in searching for bankruptcy and criminal activity?
How will you solve disagreements?
You probably won’t see eye to eye on everything. Assume you will be diametrically opposed to your partner on an issue – how will this be resolved? What if disaster strikes? Or what if you need to move out of state to take care of a family member? Or what if your spouse has an out-of-state opportunity, or a permanent debilitating health issue arises. What if it ultimately leads to the point that you no longer want to be co-owners and you get to the point where you have the ultimate disagreement and just cannot get along? What is the break-up formula?
Answer Key to above questions
The answer to the above of course is – there are no set answers. It will vary from partnership to partnership, person to person what will work. Long before you make an offer on a practice, set some time aside to discuss the above questions – at the very least discuss the last paragraph. And of course, we recommend meeting with a veterinary attorney to form your partnership agreement.
Read MoreMarket Prices of Veterinary Practices – A Closer Look
By Corey Young, Practice Transition Advisor
“What are practices going for?” I get asked this question a lot. I like to ask the following question back. Are you buying a house to live in or a rental unit? This of course usually gets me a confused look, as the person asking me this is looking for a practice and not a property. Let me explain my analogy.
A residential house is a non-cash producing, market-based asset. Its value is largely determined by the resale value of similar houses in the area. Most of the big purchases we make in life are in this category. Paying ten percent too much for such an asset usually is a bad move. Being a good shopper really pays off.
Conversely, let us look at a rental unit. Actually, let us look at two rental units. Both units are very similar on a physical basis and are two blocks apart. Unit one is selling for $250,000. Unit two is selling for $300,000. Unit one is the better deal, right? What if I told you unit one ends up losing $100 a month after everything is paid for? What if I told you unit two ends up making $200 a month after everything is paid for?
If you approached the rental unit only worried about the asking price, you are looking at the wrong numbers. If you are looking at practices only based on asking price based on a percentage of gross collections, you are doing the same thing. I have seen practices selling for 50% of gross collections that are overpriced. I have seen practices selling for 90% of gross collections that are a steal.
My advice is to not go it alone. Seek out qualified transition specialists. Find the practice that enriches your future.
Read MoreSelling Your Practice Yourself – Penny Smart and Dollar Foolish
By Rod Johnston, MBA, CMA, Practice Transition Advisor, and Jim Vander Mey, CPA, ABI, Practice Transition Advisor
You’ve heard the stories of people doing their own electrical work on their house only to be electrocuted when they try fixing the bathroom light while standing in the bathtub full of water. Or the person who decides to fix his brakes on his car only to accidentally cut his brake line and end up driving off a cliff. They have awards for some of these mishaps. They’re called the Darwin Awards.
Deciding to sell your own practice may not give you a fate as extreme as the Darwin Awards, but it could cost you money, your staff, lose patients for the buyer, or end up in a lawsuit. That’s if the sale even makes it all the way to the closing table. I have been selling practices for 15 years. I keep thinking I have seen it all, but then something out of the blue pops up. For example, I was called as an expert witness to review agreements in a prior sale where the buyers were suing the seller. The buyers thought they were buying a practice and a building. They wanted to save money and not use a broker, or an attorney. The buyers showed up at the practice after closing only to find an empty space. It turned out, they just bought the building and not the practice. The agreement used was a real estate purchase and sale agreement and was not for a practice sale – a big and costly mistake on both sides.
Lenders and attorneys report that practices that are sold without a broker have a 50% chance of failing before the practice closes. I believe the failure rate to be higher than that. Reasons they fail include buyers losing interest, seller and buyer can’t negotiate a disputed item or clause, seller and buyer don’t know the steps to the transaction, and confidentiality is breached by one of the parties. A failed sale can disrupt a practice if the staff leaves knowing the practice is on the market.
When selling a practice, you need to wear a lot of hats and possess expertise in a wide variety of areas. Transition consultants need to be knowledgeable in law, accounting, tax, real estate, valuations, psychology, negotiations, design, equipment, technology, software, project management, sales, analysis, practice management, human resources, and mediation. In addition, you need to have a lot of extra time. On average it takes 200 hours to sell a practice a lot more if the sale is to a corporate buyer. That time includes gathering data to do the valuation. Putting the valuation together. Developing a prospectus or offering. Creating advertising, placing the ad, taking phone calls, meeting prospective buyers, doing background checks on buyers, talking with lenders, assisting buyers in due diligence, working with attorneys, negotiating bumps in the road, reviewing agreements, and more.
You also run a financial risk. You could undervalue your practice or get taken by a buyer who is good at talking and negotiating a good deal for themselves. If there is a corporate buyer involved, you need a broker even more. Brokers can assist in negotiating amongst several corporate buyers to ensure you get not only the best value for your practice but also the best terms. Corporate transactions require a lot more scrutiny, due diligence, negotiating, and time. Done right and with patience and you also can reap the reward.
Selling your practice on your own may not get you a Darwin Award. But, doing so comes with a lot of risks and requires a lot of time and expertise. Why risk the equity you have built up over the years to save money? Pennywise and dollar foolish could cost you thousands, if not hundreds of thousands of dollars as well as non-monetary losses.
Give Omni a call today for a free consultation and learn how we can help. Call 877-866-6053 or email us at info@omnipg-vet.com.
Read MoreThree Reasons to List your Veterinary Practice For Sale with Omni
At OMNI Veterinary Practice Group, maintaining seller confidentiality is one of their highest priorities. Deciding to list a Veterinary practice for sale a major career move, regardless of the reasons behind it. When confidentiality is breached, the practice risks losing valuable patients and employees who would otherwise have remained during and after the sale, which reduces the overall value of the practice. For this reason, the professional team at OMNI Veterinary Practice Group have dedicated themselves to becoming experts at maintaining complete confidentiality throughout the process, while ensuring high listing exposure.
Marketing Experts
Even the most profitable Veterinary practices for sale can sit on the listing pages indefinitely when marketing efforts are lacking. At OMNI Veterinary Practice Group, this is not an option. The OMNI team of professionals has extensive experience and formal training as marketing experts to ensure the highest exposure for the listing as possible without risking the seller’s confidentiality. Each practice is listed across the nation in over 30 locations, including:
- Universities
- Associations
- Programs
- Social Media Platforms
- Online Marketing Efforts
- Mailers
- And More
Strong Relationships
To better expose Veterinary practices for sale, OMNI Veterinary Practice Group has built strong lasting relationships within the field. These relationships, which also help in speeding up Veterinary practice transitions, include:
- Vendors
- Bankers
- Attorneys
When you are ready for a career move involving the selling of your current practice, you can trust the experts at OMNI Veterinary Practice Group to maintain your confidentiality, while marketing your practice to a large group of potential buyers. To better assist you in the transition, OMNI Veterinary Practice Group is a leading provider of a wide range of services to Veterinary professionals, which include:
- Practice Sales or Transitions
- Valuations
- Consulting
- Real Estate Service
- Buyer Representation
To learn more about listing your Veterinary practice, please contact the expert team at Omni Veterinary Practice Group. OMNI specializes in Veterinary practice sales, and are dedicated to ensuring your success throughout the entire process.
