Selling your hospital to a chain is not your only option

August 9, 2019
Natalie Stilwell, DVM, MS, PhD

Dr. Natalie Stilwell provides freelance medical writing and aquatic veterinary consulting services through her business, Seastar Communications and Consulting. In addition to her DVM obtained from Auburn University, she holds a MS in fisheries and aquatic sciences and a PhD in veterinary medical sciences from the University of Florida.

Selling to an associate shapes the future of the veterinary profession. In this era of corporate buyouts and growing multipractice chains, dont give up on selling to a smart millennial quite yet.

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As a millennial, a veterinarian and a solo practice owner, Eva Evans, DVM, MBA, is no stranger to the ups and downs of running a business. At the recent Fetch dvm360 conference in Baltimore, Dr. Evans educated attendees on the benefits of buying and selling a veterinary practice privately in an increasingly corporatized climate and how both sides can ensure a seamless transition for associates, staff and clients.

According to Dr. Evans, millennials are not only the most rapidly growing demographic of veterinarians and pet owners, but they also are a generation of people who “want to challenge what veterinary medicine looks like and what every business looks like.” Selling directly to a millennial veterinarian, she explained, could greatly benefit the veterinary profession.

The future looks bright

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Competing with corporate buyouts

Today's young veterinarians are struggling to match offers from corporate spenders: “And it's really hard to compete with corporations,” Dr. Evans explained, “because they come with deep pockets and they overpay.”

At first glance, the quicker timeline and generous lump-sum payment associated with a typical corporate sale may seem enticing to sellers, compared with a private sale. Corporations typically pay more for a practice in anticipation of future growth or “practice flipping,” a rapid turnover from one corporation to another. These quick and cash-focused business moves could drastically alter a practice's culture, Dr. Evans warned, resulting in decreased morale among the veterinary team. If new practice policies contrast substantially with the previous owner's values and standard of care, then associates, staff, clients and the outgoing owner are all affected.

Benefits of selling to a millennial

According to Dr. Evans, passing a practice on to a fellow veterinarian, rather than a corporation, offers many personal and professional rewards. These include the ability to influence the future of your practice and continuity of care for your clients and patients. Retiring veterinarians may find peace in securing their legacy with a new single owner or set of partners. Also, a private sale ensures that future success and long-term wealth are passed onto veterinary colleagues, rather than nonveterinary CEOs, executives and shareholders.

Considerations for millennial buyers

Even if practice owners are eager to sell privately, Dr. Evans noted that “part of the burden falls on young veterinarians to step up to the plate.” More millennials need to be willing to buy. While she admitted that business ownership is time-consuming, stressful and tedious, it's also incredibly rewarding. New graduates should consider the long-term benefits of ownership, including increased income, flexibility and control of the working environment.

As a practice owner, Dr. Evans is able to enjoy time away from the clinic for travel and community work while trusting her team (plus a relief veterinarian) to make good decisions in her absence. “You should be able to step away from your business and have it run without you,” she says. Practice ownership also allows Dr. Evans to enforce her own standard of care and hire team members who reflect her practice's values.

Practice owners can also take advantage of many financial options to build wealth, she added. Not only are regular retirement accounts available to small business owners, but investing in the business also offers tax benefits. Dr. Evans noted that funds directed toward the practice, staff, equipment and repairs can be tax deductible; furthermore, recent tax law revisions allow veterinary practice owners to deduct up to 20% of business income if their household is under certain amounts. Practice owners whose household income exceeds the limits can still reduce taxable income by investing in new equipment or other practice updates.

 

How to transition a practice

A good window for selling a practice is two to five years in advance.

“The more time, effort and research you can [devote ahead of time], the more opportunity you will have,” Dr. Evans explained.

Consider completing minor cosmetic updates and going paperless before selling, as new graduates typically rely on technological advancements to increase efficiency and flow.

Because most veterinary curricula offer minimal business training, young veterinarians may feel incapable of owning a practice. For this reason, Dr. Evans advised practice owners to share aspects of the job-including finances, employment law and taxes-with associates who show an interest in buying into the practice.

When the time comes to sell, enlist the help of a consultant to establish a fair market value for the practice, and expect a six- to 12-month transition period to ensure the practice changes hands smoothly. Having a practice manager can also increase the practice's value and help ease the transition period for the new owner.

Financing options: bank loan, owner financing or buy-in

Millennial veterinarians often have significant student loan debt, and many graduated into the recession.

“The economy is going great now,” Dr. Evans told the audience, but emphasized that “there were many years where it wasn't.”

Bank lending is the most common method of funding a practice purchase, and some banks even have veterinary-specific lending groups. Dr. Evans said she found that today's average veterinary practice loan totals $468,000, and bank loans are more easily secured for those who can demonstrate financial responsibility via a credit score of at least 680, bank savings of at least $10,000 to $20,000 and on-time payments for minimal “bad debts.” Student loan debt, which lenders consider “good debt,” rarely prevents buyers from securing a loan. For current associates, it also helps to keep track of production numbers to demonstrate earning potential.

Another option, owner financing, allows the buyer to pay principal plus an agreed-upon interest value to the seller on a monthly basis, effectively providing the seller with an annuity. If the buyer defaults on the loan (which some estimates put at just 0.25% of practice sales), the seller rather than a financial institution resumes ownership of the practice. This option may be ideal for those sellers who prefer 10 to 20 years of compounded interest to a lower, lump-sum payment.

Graduated buy-in, which involves purchasing a certain percentage of the practice at predetermined time intervals, may be desirable for veterinarians with significant student loan debt or those wanting a gradual transition to ownership. For this option, Dr. Evans recommended that both parties seek professional advice to establish agreed-upon terms.

Dr. Stilwell received her DVM from Auburn University, followed by a MS in fisheries and aquatic sciences and a PhD in veterinary medical sciences from the University of Florida. She provides freelance medical writing and aquatic veterinary consulting services through her business, Seastar Communications and Consulting.