6 tips to speed along a veterinary practice sale
Christopher J. Allen, DVM, JD is president of the Associates in Veterinary Law P.C., which provides legal and consulting services exclusively to veterinarians. He can be reached via e-mail at firstname.lastname@example.org. Dr. Allen serves on dvm360 magazine's Editorial Advisory Board.
Here's my advice from years of helping veterinary practice buyers and sellers on financing, finding the right practice and speeding along a practice sale before it goes bad.
My office gets inquiries from veterinarians at all career stages who say they've got “their eye on a practice” they might want to buy. In some instances these doctors have already discussed a possible purchase with the current owner in detail, while in others the potential buyer hasn't even approached the owner yet. What these doctors usually want to know is, “What do I do next?”
So, for them and for you, here are a few useful tips to help move the concept of a practice purchase from an amorphous thought to an expeditious closing (or the reaching of a sensible decision to move on to the next opportunity without wasting months or years pursuing the unattainable).
Step 1: Let someone else do the footwork
Sit with bankers-whether you need one or not. Bankers earn their living by closing loans and acquiring customers. When the idea of buying a practice occurs to you, start interviewing bankers. Talk to several and see how receptive they are to your dream of acquiring a clinic. Ask about their experience and area of expertise or specialization.
If a banker doesn't seem particularly interested in discussing the loan process with you because you don't have a target practice selected, just leave. Move on to the next financial institution. As a person with an eight-year college educational background, you're not to be dismissed simply because you aren't ready to move forward with a loan application today. A banker who's not willing to spend time educating you about the loan process to earn your business later doesn't deserve your business.
You will, in time, find a helpful and knowledgeable banker, and when you do, spend time letting her educate you. Learning what bankers know from their years of loan experience can save you a great deal of time. And once you're familiar with a bank's borrower evaluation criteria, you can save everyone involved time by identifying practices that are (1) too expensive for your objective creditworthiness, (2) not profitable enough to justify the asking price, (3) growing too slowly to justify further investigation or (4) perfectly suited for you to aggressively pursue.
Step 2: Make your introductions
Spending time with adroit bankers will give you the confidence to reach out to practice owners who fall into three categories: sellers who haven't seriously considered selling, sellers who are interested in selling but haven't advertised or listed with a broker, and sellers who've taken actual steps toward selling.
Consider starting your clinic search with a seller who has advertised her facility or listed with a broker. Why? Because regardless of whether you eventually make an offer, you'll learn a plethora of useful information and negotiation skills during the process of dealing with seasoned practice sale professionals. And you might even discover that the clinic is more affordable or desirable than you'd thought. Either way, this first incursion will ramp up your knowledge and experience such that when the ideal target practice does present itself, you'll be more savvy than the dozens of other suitors who never bothered to school themselves on the practice purchase “dance.”
When you approach a seller who hasn't seriously considered an asking price, simply stop in, call or write them. The worst they can say is no. And as vintage automobile enthusiasts such as myself know, “not for sale” very frequently means “not yet for sale.”
Every time you let a practice owner know you're in the market, you maximize the likelihood that that seller will hold on to your contact info. In a month, a year or a couple years, if that seller becomes motivated, who gets the first call? The broker or you. Veterinary practice sellers who manage to avoid the intervention of a broker stand to net a much better price-and may do so while allowing you to pay less.
Step 3: Talking price
Avoid this early on and continue avoiding it for a spell. A potential seller may tell you her “ask” right off the bat or refer to an appraisal she had done last week or a decade ago. Just listen patiently. Don't act crestfallen, overly anxious or shocked. If you demonstrate emotion at the outset, you may inadvertently set the tone for all further negotiations. Also, if you suggest a price too early and with minimal supporting information, you may insult the seller-so much so that you find yourself written off as a “bottom feeder” who tosses out lowball offers in hopes of finding a naïve seller who'll take the bait.
There's plenty of time to discuss and negotiate price after you and the seller get to know each other a bit. And if your seller happens to mention a price range, you can sprint back to your banker. If the banker says, “Sure” to the idea of lending on that clinic, you may already be in the ballpark as to price. If the banker shakes his head and looks down despondently, you can feel confident in offering a lower price and telling the seller, “It's not me, it's my bank.” Insult averted.
Step 4: Shop for a final bank
Once you've got a banker you want to work with on a potential clinic, get his offer and then manipulate the numbers. Based on that first loan offer, “pencil” the transaction multiple ways based on what the banker tells you about the bank's prevailing term options. Ten-year loan? Fifteen? Prepayment penalty? Fixed or adjustable rate?
Simultaneously, use what you learn from “your banker” to evaluate other lending sources with other terms. You can always end up using your preferred banker, but if that banker's rate and terms aren't competitive, you need to agree to disagree and let him move on to the next borrower. You're not intentionally wasting anybody's time, and you've given that banker a second shot at your business-for an equipment loan, checking account or credit card processing services. But after having worked with you, that banker knows you're a price- and fee-sensitive commercial customer.
Get it in writing
If you're negotiating the final deal after an initial acceptance of the terms and you've secured nothing in writing as to the acceptance of your offer, the seller remains open to a more enticing offer. You may be left with a legal bill and a singularly disappointing business experience.
Step 5: Speed up the closing
As one of my real estate agents always reminds me, “Time is the killer of all deals.” What that New Mexico cowboy means is that once a transaction is fundamentally agreed to, the clock starts to run on the buyer's opportunity. The difference between a quick closing and a long-lasting cavalcade of disappointing delays can be total collapse of the sale. Remember:
- Sellers experience pre-closing remorse if they have too much time to think.
- Financing rates change faster than most attorneys work-the rate you're depending on can rise while paperwork slowly meanders its way from your lawyer to the title company … to your lender … to the seller's lawyer … then back to your lawyer.
Step 6: Go back to your banker for the checklist
Your banker wants a commission. Your lawyer wants a fee. But nobody is more highly motivated to get the deal closed than you. It's your only deal, but to your professional helpers, yours is one of many.
So be proactive! Ask your lending institution for an exhaustive list of forms, documents, records and information you need to provide to get a bank's commitment and then funding. The list can be long, including tax records, insurance commitments and explanations of flaws in your credit report. Nothing moves until these items are supplied, and your ability to get these documents can hold things up.
Finally, the only way to move your deal to closing at the fastest possible speed is to keep an eye on all the players, making sure that each of them knows what's required of them and that they're aggressively striving to meet a realistic timetable. This goes for everybody: title officers, escrow agents, surveyors, environmental consultants, everybody.
And last but certainly far from least: If your closing is scheduled in July, August or December, ask everybody involved if and when they'll be away on vacation. Some practice deals get scuttled because summer trips, family reunions and Christmas visits slow things down.
Christopher J. Allen, DVM, JD, is president of Associates in Veterinary Law PC, which provides legal and consulting services exclusively to veterinarians. He can be reached at email@example.com. Dr. Allen serves on dvm360 magazine's Editorial Advisory Board.