Medical records are worth more than the paper they're printed on. When it's too hard to sell your equine practice outright, consider selling your best asset-your clients.
You're ready. You've spent years at your equine practice, and it's time for the next step. Maybe you're retiring. Maybe you're looking to pull up stakes and move to a warmer or less expensive location. Maybe you're looking for a part-time position as an associate. But what do you do if you can't find anyone to buy your practice?
As a practice owner, you've spent years investing your time, sweat, and hundreds of thousands of dollars in equipment, real estate, drugs, and payroll. When it comes time to liquidate this big investment, it's easy to become disenchanted with your prized possession if you hit roadblocks. First off, don't be full of doom and gloom. And don't simply close your doors and walk away. You can sell your practice. You just need to approach it a little differently.
You can always sell any real estate you own on the open market. You can sell equipment on auction websites or the Association of American Equine Practitioners website. But what about your practice itself? If you're unable to sell the business to your associate or another veterinarian, there is another workable approach: sell your medical records.
You skeptics out there will ask, "Why would someone want to buy records when they can get my clients for nothing if I leave?" Consider this: If other veterinarians in the area are trying to solicit your clients, they'll most likely end up with just a few each. So there's plenty of motivation for one practice to purchase the majority of your clients' records. And getting something for these records—as opposed to nothing if you simply walk away—is a much better option, wouldn't you agree?
Mergers and acquisitions
Selling your records to a colleague works best if the purchasing practice is similar to yours in terms of standards and ethics. If you focus on creating strong bonds with clients, you want to know your prospective practice buyer does too. If you refer cases to specialty clinics and your prospective buyer seems to take on cases you think are beyond your limits, that's a bad sign. You need to have a respectful and collegial relationship with the practice owner.
Also, you may need to work in the purchasing practice for a while to help bond your clients to their new practice. Six to 12 months is typical, but you may enjoy your new practice life and stay on longer. If you can swing both those requirements, selling your medical records is the way to go.
The process starts with a meeting of the minds between you and the potential buyer. I once consulted with two practice owners who were in this exact situation. One of the doctors wanted to retire and knew his current practice location would be a challenge to sell. This owner had done his homework and knew his medical records were worth more than his facility and equipment combined. The other owner wanted to grow his practice quickly with high-quality clients. The two held similar practice philosophies and already worked well together.
The next question is, what are your medical records worth? In the past, records were typically valued at $20 apiece. That's not nearly enough. My starting price for each record is the amount of money an average client brings in every year. Look at what's included in a record: an entire patient history—a roadmap of the revenue that a particular horse brought to the practice and a good indicator of what it will bring in the future.
If you know your practice's average client transaction, number of patient visits per year, and who the most active clients are (those who visit at least every 18 months), you have a great starting point for arriving at an asking price for the records. You can get this information from your practice software. But be careful—not all your clients will want to go to the other practice. I try to be conservative and say roughly 70 percent of identified clients will transfer if the seller works in the new practice and helps bond clients to the new team.
Here's an example of how this valuation works. Let's say the practice saw 500 clients in the past 18 months who spent two times the average client transaction (ACT=$150, so $300). If you assume 70 percent of those clients will transfer, that's 350 clients. That means the medical records could be worth $105,000 (300 clients times $300).
If you're still not sure why a practice owner would want to spend so much money on records, consider this: When you add a huge chunk of new clients to a practice, you have only variable expenses to pay for, because the hospital overhead—staffing, equipment, marketing—is already covered by the existing client base. That means the profit margin from new clients is greater and will more quickly improve the profit margin for the practice.
To make a medical-records sale work, the new practice owner must keep familiar team members, veterinarians, and contact numbers available for the new batch of clients from the old practice. The potential seller may also want a confidentiality agreement to keep the sale quiet until it's time to let staff and clients know. In the sale I mentioned earlier, the purchasing doctor had the selling doctor's office phone number rerouted to his office. He also hired some of the most essential staff members from the selling doctor's practice to answer the phones and work with new staff to aid in transitioning clients to the practice. If they were good additions to the new merged team, they stayed on. And the selling doctor came to the new practice to work with his clients and to introduce and validate the new doctors in clients' eyes. Eventually the transition was be complete and the seller's staff and clients felt at home in their new practice.
It's not just doctors who need to have a meeting of the minds. The staffs of both practices should convene several times before the sale to meet each other, discuss and resolve any differences in procedures and protocols, and figure out the best way to transition clients. In the best-case scenario, the result will be improved protocols and medical standards for everyone involved, and the biggest success will be a more cohesive practice in the future.
Keep in mind that selling medical records is an option for a practice owner who's nearly ready to retire, who's moving away, or who doesn't want to be an owner in the area any longer. This seller becomes a temporary associate—with some specific differences, the most significant being compensation. In the example above, the two doctors created a simple arrangement. Seller and buyer agreed on the value of the medical records. The buyer made a small down payment, then paid a percentage of each invoice generated from the seller's clients for two years. The terms stipulated that if the money paid to the seller amounted to less than the agreed-on assigned value in two years, the lesser amount would become the final amount paid to the seller.
In this situation, the seller sold his equipment on eBay and was paid the full amount for the medical records in 18 months. He's extremely happy and has put off retirement to stay at work as an associate. The buyer was thrilled, too. He was able to increase his gross and net immediately because so many new clients were using his practice's services.
If it's time for you to retire or leave the area, get creative. Selling medical records is a good option for those who've tried—and failed—to sell their equine practice outright. That could be you.
Dr. James Guenther, MBA, CVPM, is owner and president of Strategic Veterinary Consulting in Asheville, N.C., and a member of Veterinary Economics' Editorial Advisory Board. Send questions or comments to firstname.lastname@example.org, or post them at dvm360.com/comment.