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Buying and selling essentials (Sponsored by Intervet/Schering-Plough Animal Health)
Whether you're planning to purchase an equine practice, or sell one, you're embarking on a journey that will lead to one of the biggest milestones in your veterinary career. So where do you start? Right here, by keeping these essential tips in mind as you travel toward practice ownership or sale.
Congratulations! Whether you're planning to purchase an equine practice, or sell one—you're embarking on a journey that will lead to one of the biggest milestones in your veterinary career. But don't break out the champagne just yet. Achieving this milestone successfully will take months—even years—of planning and research, and rightly so. Neglecting to invest enough time into the buying and selling process can lead to costly mistakes. So where do you start? Right here, by keeping these essential tips in mind as you travel toward practice ownership or sale.
If you already work as an associate in an equine practice that you want to buy out (purchase 100%) or buy into (purchase less than 100%), then you're one step ahead. But even if you're still searching, remember that your ultimate objective as a buyer is to make enough money to pay for the practice, live comfortably, and save for retirement. To minimize the risks inherent in such a major purchase, always:
Conduct thorough investigations. Analyze potential practices on paper and in person—a process formally known as due diligence, says Tom McFerson, CPA, ABV, co-owner of Gatto McFerson CPAs in Santa Monica, Calif., and a member of the Association of Veterinary Practice Management Consultants and Advisors (AVPMCA). His advice: Carefully review the medical records to see if you can provide the same services as the current owner and the quality of medicine matches your standards. Next, analyze the financial records for cash flow, net profit, and practice growth or decline. Finally, ask the seller for a practice valuation—a report that estimates the practice's fair market value. Usually the seller will pay a certified professional to perform the valuation, McFerson says, but you can hire your own advisor to help you review it. If the seller has not obtained a valuation, consider hiring someone to conduct a feasibility analysis, says Charlotte Lacroix, DVM, JD, owner of Veterinary Business Advisors Inc. in Whitehouse Station, N.J. "It's less expensive than a full-blown valuation, but it will help determine if there's enough cash flow to pay the debt on the practice."
McFerson also stresses the importance of spending time with the owner to see how he or she operates the practice. Look for anything that could pose a problem, such as the number of on-call hours or a cost-cutting measure that you don't agree with. "You want to be certain that the practice you purchase is a good fit," he says. "If the reality of the practice you're buying is already close to the vision you have for it, then your chance for success is much higher."
Protect your new turf. "A noncompete agreement signed by the seller is an essential part of the purchase agreement, so make sure it's rock solid," Dr. Lacroix says. If you're buying a practice with non-owner associates and your state's noncompete laws do not apply to employees, ask your attorney to draft confidentiality and nonsolicitation clauses into the purchase agreement, she advises.
If you are an owner thinking about selling, your ultimate objective is to find an equine veterinarian who is willing to pay the fair market value for your practice. If you already have an associate on staff who is interested in buying, then you're one step ahead. But you still have a long way to go. In the end, you'll gain the most if you:
Demonstrate the value. The best piece of evidence to support your asking price is a practice valuation performed by a reputable firm. Because valuations typically reflect the numbers from your financial statements for the last three years, you'll need to begin preparing at least four or five years prior to the sale. But how do you prepare? McFerson suggests hiring a consultant to analyze the practice and recommend changes that you can implement before the three-year period ensues. These changes are all geared toward one goal: boosting the fair market value of your practice so it will attract more buyers and give you the best chance to sell your practice. See 5 ways to increase practice value to discover some of the most popular strategies for raising your revenue and reducing expenses.
5 ways to increase practice value
When it comes to selling, solo ambulatory practitioners face the biggest challenge. "A single-doctor mobile practice is a tough sell," says Dr. Thom Haig, DVM, of the Profit Profile Corporation in Knoxville, Tenn. and charter member of the AVPMCA. "You could sell your client list and medical records, but the clients can simply go to another equine veterinarian. Plus, many doctors don't want to work the long hours that go with the territory." Drs. Haig and Lacroix agree that your best bet is to hire an associate and work as a team for at least one year to help transfer the goodwill value you've established with clients to the new doctor.
Guard against defaults. Although it's better for you if the buyer obtains 100% financing through a commercial veterinary-specific lender, that scenario might not always be possible. If the situation requires you to carry all or part of the loan (partial if possible), Dr. Lacroix recommends obtaining additional security by requiring that the buyer purchase life and disability insurance, have a family member sign a personal guarantee, or obtain a second mortgage on his or her house.
Something in common
Whichever path you're on, never attempt to go it alone. "One of the biggest mistakes veterinarians make when they're looking to buy or sell a practice is failing to get good outside advice," says Dr. Haig. "In many states, different tax implications affect buyers and sellers of corporations and limited liability corporations, and the guy who does your taxes isn't the person to ask," he says. "Look for an accountant who specializes in buying and selling veterinary practices."
Taxes and practice structure aren't the only areas in which you'll need expert advice in. As Dr. Haig points out, the number and complexity of issues involved in the acquisition of an equine practice depend on three things:
1. Practice size (single- vs. multi-doctor; number of other employees)
2. Practice type (ambulatory vs. haul-in vs. referral)
3. Type of purchase (buy-in vs. buy-out).
For example, veterinarians who want to buy into a multi-doctor, haul-in practice should first address all of the issues associated with having co-ownership status, including your role in making decisions and managing the team members.
With so many variables involved, it's easy to see how buying or selling an equine practice can be such a long and exhausting journey. There are many variables to consider and a lot of preparation to be done. But fortunately, you can ease the way by taking it one step at a time and using these buying and selling principles to guide you along the way. If you encounter any bumps along the way, imagine yourself opening that bottle of champagne on the closing date—tired, but happy.
Julie Gurnon is a freelance writer and editor in Olathe, Kan.