The very first recommendation I have is that you should be at least 2 years out of school. I have seen doctors buy a practice right out of school, but the majority of them struggled for two to three years before they finally figured things out. So, here are the steps you should take to become educated in buying a practice:
1. Contact a bank that finances veterinary practice acquisitions and make sure you can qualify for a good loan. The days of just having a DVM behind your name and being qualified are gone. Banks now require decent credit scores, cash in the bank, and in some cases a current associateship.
2. The next step is to understand a little bit about veterinary practice valuations. You don’t want to go into a sale not knowing if the practice is worth the price listed or not. A “rule of thumb” is that a practice is typically worth between 85% and 95% of its’ last 12 months production. Remember, that’s a rule of thumb. I’ve seen practices go for as high as 110% of production and as low as 50% of production. A formal valuation is the best way to get the true value of a practice as not all practices are the same.
3. Think about where you want to practice. You’re probably going to be there a while, so you might as well like the area. Also, research demographics. There are excellent demographic sites that sell great demographic information for about $500. It will tell you where the best locations to practice are.
4. Put together a good team. Get referrals for a good veterinary attorney, a good broker or consultant and a good accountant. They’ll help you analyze the practice, do the legal work and help you find a practice.
5. Study up on practice management and veterinary financial ratios. You should know that lab fees should not be any higher than 10% of the practice production. Or, that staff expense should be between 20% to 25% of production. Be an informed buyer.
6. Be prepared for your due diligence. You need to know what to look for when you do get to the point of buying a practice. Scrub the financials, practice management reports and audit charts. Work with your consultant to thoroughly go through the practice. Take your time and do not rush into it.
7. Finally, spend some time with a broker before you go look at the practice. Understand what the practice you are looking at is all about. Does the broker think it’s honestly a good practice? Why? Once you’re comfortable with the numbers, then go take a look at the practice.
By being an informed veterinary practice buyer, you will avoid a lot of headaches and potential problems down the road. There are practices that are excellent and practices that you may want to pass on. Being educated and knowing the difference is critical in your veterinary practice acquisition success.
-Rod Johnston, MBA. CMA