Did You Achieve Your Goal in 2021?
By Did you reach your goals this year? Was one of them to buy a practice by the end of 2021? Ahem, it’s December. You know who I’m talking about! Do you remember when the year started back in January, and you said to yourself, and perhaps to some of your family and friends, “This is the year I’m going to buy a practice!” Well? What happened?
Did you know that on average a veterinary practice owner makes 20% to 25% more than an associate veterinarian? Practice owners also build up equity in their practice similar to owning a house. A million-dollar practice with no debt will give you a million dollars in equity. Did you know that most practice owners tend to be happy in their veterinary profession? Practice owners get the privilege of setting their own hours. They get to choose what type of hospital they want to have and even which procedures they want to do. They also hire their own staff and let go of those that they don’t believe are doing a good job. Practice owners even get to pick out the music that gets played at the practice. (Although, staff may overrule you on that last one).
We gave buyers a mulligan in 2020. Covid-19 hit us all pretty hard. I caught it early and it took most of the year for me to get back to normal. The industry reeled for a few months due to the Covid shutdowns and various mandates provided at the federal and state levels. But after the shutdown was over, practices came back. Offices that were collecting $80,000 per month prior to the Covid-19 shutdowns were doing $80,000 per month if not more. We can’t predict when this Covid craziness will go away, especially with a new variant popping up every six months or so. But we can say that veterinary practices are resilient.
Those of you who kept your goals and purchased a practice in 2021 are doing well. The practices they purchased are at least producing what they were producing prior to them acquiring the practice. They took out a 10-year loan and they are now 1/10 of the way to paying off their practice debt. Think about those who purchased a practice five years ago. They’re halfway to paying off their practice debt. If they purchased a million-dollar practice, they now have $500,000 of equity in their practice. A half a million dollars! I tell the story of a veterinarian who would come to our buyer’s seminars year after year. At year 7 this veterinarian came to our buyer’s seminar, and I called her out. I pointed out that if she would have purchased the first practice that I showed her 7 years ago with a 7-year loan, she would have had the practice paid off. The practice was a $950,000 practice. She would have equity of close to and if not more than $1 million if she would have just taken action. That motivated her to purchase a practice a few months after the buyer’s seminar. The practice she purchased was three miles from the first practice I had shown her 7 years earlier!
So, as we end the year and you start to think about your goals for next year, think beyond the goal. What can you do better this year that will help you reach the goal of purchasing a practice in 2022? Make finding a practice to buy a priority. In the not-so-long run, you will be thankful you did. The brokers at Omni are always available for a phone call to discuss what you need to do to purchase a practice. Just pick up the phone and give us a call – 877-866-6053.
Read MoreIdeal Practice Benchmarks
By Jim Vander Mey, CPA, ABI – jim@omnipg-vet.com
People love benchmarks. They want to know how many glasses of water we should drink each day. How much we should work out every week. Or, how many miles per gallon our cars can achieve.
There are also benchmarks to look at when you are buying a practice. They may not necessarily be deal-breakers, but they help determine what you will need to do to get to your target. Here are some of the benchmarks you should look at and calculate when buying a practice:
- Staff overhead as a percentage of collections – 20% to 25%. If it’s higher, the practice is overpaying staff, underperforming collections, or too many staff.
- Facilities Expense – 7% to 9% of collections – Too high and the practice is either paying high rent, space is underutilized or production is too low.
- Supplies – 5% to 7% of collections – If this is too high, it could be that the practice is using high-end supplies, or the supplies inventory (or vendor) is not managed properly.
- Marketing expense – 3% to 5% depending on the growth stage. A practice that is looking to grow will have a high percentage. A static practice may not spend much on marketing at all.
- Collection Rate – Minimum of 98% for a well-run practice. A low rate means the front desk is not keeping up or managing the accounts receivables very well.
- Total Overhead (all expenses less owner and associate pay) – Ideally should be less than 85%.
These are just a few benchmarks to analyze when looking at a practice. Remember, if the practice you are analyzing does not meet or exceed these benchmarks, it does not mean it’s a bad practice, it simply means you have work to do in those specific areas.
Contact me if you would like more information.
Read MoreSeller Carrybacks and Veterinary Practice Transitions Today
You’ve heard the term “Seller Carryback,” but what does it mean?
Seller carryback financing is when the seller of a given property, or in this case, a seller of a veterinary practice and assets, acts as a lender for the buyer if a conventional bank will not offer the full amount that the buyer needs to close the sale.
Years ago, it was commonplace for a retiring veterinarian to act as the lender for someone to purchase a veterinary practice. Seller financing was driven largely by the fact that banks and financial institutions had yet to embrace the industry like they do today. Therefore, there was a wide variety of structures, interest rates, terms, etc. that were built into those transitions and the exchange of funds between the buyer and seller.
Much like the rest of the veterinary world, the industry and the financing supporting transitions have evolved. In most transactions, it is quite common for the seller to receive all the cash at the time of closing, which is ideal. However, certain circumstances still exist where seller participation in financing is a requirement. In these cases, the buyer’s lender will require the seller to carry a certain portion of the purchase price. Usually, that amount is 10-25% of the total purchase price. Why would a bank need that, you might ask? Some common scenarios include: a declining revenue trend, uncertainty around the buyer’s production capability, and tight cash flow, to name a few.
Every lender has different standards around seller participation, but here are some common features of that path in the current environment:
- Term: Most carrybacks are amortized similar to the buyer’s bank loan. Payments based on a 10-year repayment are common.
- Rate: Since these loans are typically junior to the bank loan it is not unusual to see a seller note 0-2% higher than the banknote. Right now, around 5% is reasonable.
- Prepayment Penalty: Sellers typically want to receive the funds over a shorter timeline of 10 years. Most carrybacks do not have prepayment penalties so that the loan can be paid off or refinanced within 24 months of the transition.
With talks of increasing capital gains taxes in the near future only time will tell how prevalent carrybacks will become.
For more information, please contact us today.
Read MoreTips for Managing Your Team When Acquiring a Veterinary Practice
When you purchase a veterinary practice, you aren’t just responsible for the building and equipment, but you also have a big role to play in making sure that new and existing team members come together smoothly. This can be a delicate process and quite difficult to navigate on your own, but there are a few tips you can follow to make everyone’s lives a lot easier.
Value Your Acquired Team Members
It should never be a case of “out with the old, in with the new” when it comes to putting together a veterinary team for your newly bought practice. The acquired team members have a lot of value and are an integral part of the relationship the practice has with the patient base. They may also be a big reason that many patients decide to stick with the practice. It’s essential to let existing team members know that they are important and take the time to communicate any changes on how the office will be run. Try to be patient if the transition seems slow because this will make things much more seamless compared to trying to implement whole new systems right off the bat.
Prepare for Bumps
Some of the team members at your newly purchased practice may have been there for decades or done things very differently under the previous owner. Any big changes you make will almost inevitably lead to some dissatisfaction and conflict, so it’s important to be mentally prepared that not everyone is going to like your decisions, even if you know they are in the best interest of the practice. Make it apparent that the lines of communication are always open so that team members can express grievances through the right channels. It’s also important to let your incoming staff know that they may need to help the acquired team acclimate to any shifts in day-to-day operations (they should be instructed on productive ways to do this).
How a Veterinary Consultant Can Help
Before you find yourself dealing with a mixed veterinary team, it’s important to work with an experienced consultant when buying a practice so that the transition can be as quick and harmonious as possible. They can help you choose a practice that aligns with your business and personal goals, show you how to train and retrain team members, and help you find the right people so the practice starts on the right foot. Contact us today and we will help get you started!
Read MoreThe Business Side of Veterinary Medicine – Theft & Embezzlement
Experts estimate that more than 70 percent of veterinarians are embezzled with an average loss of $200,000. But, because the embezzlers often steal small amounts of money over many years, the thief is never noticed. The US chamber of commerce estimated that 75 percent of employees steal from their workplace and that most do so repeatedly.
A majority of people, if given an opportunity, will take advantage of a situation to steal from their employer on the following frequency:
-3 percent will steal daily
-7 percent will steal weekly
-20 percent will steal 4-12 times a year
-70 percent will steal 1-2 times a year
-4 in 10 doctors experience theft in some form from the practice. 1 in 3 veterinary practices experiences monetary theft from their practice.
The significant types of theft in veterinary practices are:
-Time
-Office supplies
-Veterinary supplies
-Goods and services in Kind
-Money
All types of theft can hurt the bottom line of the practice. The Monetary thief, in most cases, has the most negative effect on the practice bottom line. Most veterinarians find it hard to believe that their handpicked, trusted, longer-term staff would steal from the practice.
Here is an unfortunate, and real-life, example. A veterinarian had a highly successful practice with five employees. One was a long-term office manager who came to work early and left late every day. She managed all the financial transactions daily along with the insurance and statement billing. The office manager took an extended vacation. While she was gone, the office sent out statements and received numerous calls from patients that their statement was incorrect and that either their insurance had paid the bill, or they paid on the day of service by check or credit card. The doctor had the staff investigate all the disputes and found out that the office manager had embezzled more than one hundred thousand dollars over the years. He was devasted and could not believe that the long-term, most trusted employee had done this to him.
Methods that have been used by staff to steal from the practice:
Zero Charge- Patient comes in for services, and the office staff member posts a zero-balance charge and pockets the money. At the end of the day, the computer collections balance to the deposit slip. No one notices.
Falsify Deposit Slip– Employee brings the doctor a deposit slip to sign for the day matching all the collections taken in for the day but then takes out all the cash from the deposit bag or envelope and changes the deposit slip when depositing the money.
Multiple Adjustments to Accounts- Courtesy discounts like cash discounts or senior discounts are used. Employee charges the full amount to the patients and keeps the cash discounts and pockets it.
Fictitious Vendor- Employee sets up a fake business with an account and has doctor sign supply order checks for supplies. The employee deposits these checks into an account and keeps the money.
Internal Controls
Make sure that even your closest friend in the veterinary practice is being watched. Here are some suggested internal controls to help prevent thief and embezzlement:
Segregation of Duties– Make sure one person does not control all cash flow processes.
Daily Audit Trail– Review daily transactions to catch zero balance postings.
Rotate Duties– This will help to reduce the chance for embezzlement.
Verify the End-day Report to Deposit Slip– Ensure that you see the end-of-day report and it balances with cash deposits. The doctor should be responsible for depositing funds in the bank.
Review Bank Statement– Take time to review the statements monthly.
Require Vacations– All employees must take vacation days that they have earned.
Performance Plans– If the practice meets specific goals and the practice is increasing its revenue, give incentives to employees in monetary form.
Background Checks- Make sure you follow through on background checks before hiring new employees.
Verify References- Check all references.
Having internal controls will help protect the practice and staff that are honest and want to do a good job. It will also help everyone stay focused on their tasks and goals at hand and take away the opportunity for someone to embezzle. You don’t want to have good employees turn into liabilities.
Omni Practice Group has been helping veterinarians for over 15 years developing plans to transition their practice. Our goal is to help you find the right buyer and make a smooth transition of your practice when the time is right. Contact us today for a free no-obligation consultation with one of our Practice Transition Advisors.
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