Be an Educated Veterinary Practice Buyer
By Jim Vander Mey
Practice Transition Advisor
I meet hundreds of veterinarians each year who are looking to buy an existing veterinary practice. Of those, I would estimate that 30% have done any research on what is involved in buying a practice. Of that 30%, none know the beginning to end process of buying a veterinary practice. While all the steps cannot be covered in this article, here is some guidance on where to start and what steps to take before buying a practice.
- Contact a bank that finances veterinary practice acquisitions and makes sure you can qualify for a good loan. Banks can require decent credit scores, cash in the bank, that you are two years out of school, and show production from your current employer. Every situation is a little bit different. Try to avoid SBA loans if you can, as they can be expensive with early payment penalties. However, if that is the only avenue to ownership, do not pass it up.
- 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. If you are looking at a practice that a corporate entity is also looking at, the rule of thumb is that valuations are out the window. Practices grossing 1 million or less could be worth between 65% and 75% of its’ last 12 months’ production. Remember, that’s a rule of thumb – I’ve seen practices go for as high as 160% of production and as low as 30% of production.
- Think about where you want to practice. You’re probably going to be there a while, so you might as well like the area. Research demographics – there are excellent demographic services that sell great Veterinary demographic information for about $500. It will tell you where the best locations to practice are located. Also, do not ignore the smaller, older, and not-state-of-the-art-equipped practices. These can be the best opportunities allowing a higher return on your investment.
- Put together a good team. Get referrals for a good veterinary broker, attorney, banker, and accountant. They’ll help you analyze the veterinary practice, do the legal work and help you find a practice.
- Get an understanding of the true cash flow of the practice and if expenses are above industry averages. For example, is the staff expense greater than 25% of production? Is the reason because one employee is overpaid and will be retiring at the same time as the seller, or is there an overstaffing issue? Be an informed buyer.
- Be prepared for your due diligence. You need to know what to look for when you do get to the point of buying a veterinary practice. Is it an older veterinarian selling that outsources surgery and does very little dentals? Does the practice have a website? As the practice should be valued on current performance, not future potential, there could be real opportunities for immediate growth. Know how to spot these things.
- Finally, spend some time with a veterinary 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? Does the explanation make sense? Once you’re comfortable with the numbers, then go take a look at the practice.
By being an informed buyer, you will avoid a lot of headaches and potential problems down the road. There are practices that are hidden gold mines and practices that you should not touch. Being educated and knowing the difference is critical in your veterinary practice acquisition success.
