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Buying a veterinary practice: Dream big, but buy smart
Skip the startup nightmares with this guide to buying someone elses dream practice--and making it your own.
Editor's note: Click here for tips for buying a veterinary practice as an associate or a printable version of the "Road to buying checklist" you see below. This is adapted from Your Veterinary Practice: Buying, Selling & Merging (Simmons Educational Fund). For last month's article “The road to owning,” click here. Practice owners and sellers, join us here in February for a guide to selling a veterinary practice.]
If you're ready to own a practice and you don't want to start one from scratch, you've come to the right place. But you'll need to be well prepared before approaching a seller, because most of the better practices are sold with a number of buyers competing for the chance to be the new owner. So let's get started on the road to buying. Just follow the dream clouds! (Owners: Hand this to your favorite associate. Don't take it personally that we told them to shop around for the best practice. Sell them on yours!)
Check your wallet!
With the help of your advisors, assemble letters of credit from your bank(s) as well as a “Verification of Funds” from each bank stating that you do, in fact, have the cash to do business. Hopefully, you have also been established as a “Preferred Purchaser” by the Small Business Association (SBA) or pre-qualified by a veterinary specialty lender, which requires prescreening. And don't worry! Banks love veterinarians, who are among the lowest banking risks for lenders. Most banks love to see a young veterinarian walk through the door and ask for a loan.
Don't be shy!
Practice owners often admit feeling hesitant when approaching an associate, fearing their query could be misinterpreted as pressure to buy. Both owner and associate may silently desire the same outcome, yet each is afraid to ask the other. Make your intentions known!
Find the right fit!
Don't want to buy from your current boss? Check classified ads in veterinary journals and magazines, veterinary association newsletters, industry and veterinary broker websites, or continuing-education (CE) bulletin boards. Talk to veterinary sales reps, who travel to numerous practices on a regular basis. And let your colleagues know you're in the market. People genuinely like to help others, and they can share with you any lead they discover if they know you're actively looking to buy a practice.
Do your homework!
Once you find a practice, review the basic characteristics and financials, and then visit and interview the owner. Explore the community and get a handle on the practice's business and medical philosophies. Eventually, it'll be time to verify financial records and other business documentation through the process of “due diligence.” You may need to retain an attorney, an accountant, a practice and/or a real estate appraiser at this stage of the process.
Ask the right questions!
Mentors, consultants and professional brokers can guide you through the maze of what questions to ask as well as when and why. Remember that not all information will be available at the same time or for all practices, and it may be necessary to sign a nondisclosure or privacy statement to obtain more sensitive personal or financial documents.
Head to the next page for information on what you'll need to evaluate a practice, evaluate a facility and evaluate your own financing before buying somebody else's veterinary hospital ...
Checklist: The road to buying
Evaluate the practice
> Years in existence
> Level and quality of fees and fee structure
> Quality and stability of existing client base
> Number of new clients
> Employee turnover and loyalty
> Average client transaction
> Level and persistence of future earnings. Most practice owners don't know this, so check with a consultant and your practice valuator.
> Competitive situation within practice region
> Consistency of growth in earnings
> Availability of emergency and specialty services
> Gross revenue for practice and individual doctors. A great way to cross-check the reported gross income is to view 12 bank statements and add up the total deposits. If there‘s a big difference, ask more questions.
> Transferability of business and personal goodwill
> Adequacy and quality of equipment
> Enforceable noncompete covenants
> Demographics of the practice environment. Make sure this is a community you want to live in or very close. Long commutes can be rough on a new business owner.
> Quality of succession of workforce in place. Make sure the team is happy and ready to stay for the long haul. Yes, you'll eventually make some changes, but take it slow with with a new buy.
> Quality and stability of management in place. Make sure the practice manager isn't leaving with the retiring practice owner. If management is leaving with the old owner, make sure all processes are covered in workplace manuals and institutional knowledge with other team members.
> Level and quality of practice's technology
Evaluate the facility
> Parking availability
> Condition and attractiveness
> Functionality and layout. Keep in mind that almost any hospital you buy will be more than a few years old. Maybe there aren't enough exam rooms, maybe there's no dedicated surgery suite or dental area, or maybe the overall look is just dated. While you shouldn't buy a hospital you hate, you also should remember that there's time to change and renovate later.
> Site adequacy or restrictions
> Zoning permissions and restrictions
> Terms of facility lease. One nice option would be a three-to-five-year lease with two to four guaranteed renewals.
> Building and environmental inspections
> Quality of signage
Evaluate your financing
> Acquire and review broker's or owner's practice information package
> Get asking price and terms of sale for transaction
> Investigate available financing with prospective financial institutions. Do this early.
> Acquire and review the practice's financial and performance data. Sellers must disclose: financial statements, tax records, bank statements, leases on property or equipment, debts or other liabilities, pet-owner payment records, patient medical records, documentation of legal action taken by or against the practice, documentation of compliance with regulatory agencies, and information about any actions against the practice by regulatory agencies.
> Perform a feasibility or cash-flow analysis of the purchase opportunity.
Dr. Byron Farquer, Dr. Doyle Watson and David McCormick work for the veterinary practice appraisal and brokerage firm Simmons & Associates.