Overcoming the Mental Hurdles of Owning your own Veterinary Practice
By Perhaps, you are a few years out of school with DVM credentials under your belt. Maybe you have been working as an Associate Vet and your confidence has grown to the point where you’re ready to take the next step with your career – owning your own practice. However, the mindset of this prospect can seem overwhelming and daunting. Most of your schooling has trained you for the practice of medicine, with the bare minimum of business course offerings. You spent more time focused on diagnosing parasites and animal dermatology than on economics classes and how to manage a business.
Perhaps you’ve heard through the grapevine that some of your fellow vets from school have taken the leap and purchased their own practices. Now you’re curious about purchasing your own practice and what your life would look like. But you’re not 100% sure that this is the right move for you. You are confident as a veterinarian, but not so much as a business owner.
Some of the questions that we field when working with potential buyers are the “what if” scenarios. What if the stock market crashes and I’m stuck owning a business that’s now underwater? How can I finance the purchase price of a practice while I still have student debt? What if I wait until I start a family and buy a house first before owning a business? On a good note, maybe the one positive part of living through the pandemic is that it has proven that being a veterinarian is not only an essential service but one that is resilient to major upheaval where other businesses have failed.
Undoubtedly, the financial aspect of owning a business is the biggest obstacle that every business owner faces. A good veterinary transition broker will help you understand the long-term potential of positioning yourself as an owner instead of staying in your current role as an Associate Veterinarian. Brokers are there to guide you through the complexity of purchasing your own practice. They can also act as a consultant on how to build your business and succeed. Our brokers at Omni Practice Group want you to be successful and that continues after the purchase of your practice with consulting services that we offer.
And yes, life will throw things your way that nobody is prepared to deal with. But having a plan in place gives you peace of mind to help you focus on building your business instead of worrying about what the future holds. Nobody wants to reminisce with classmates at a class reunion with regret about what your life could have been like. The should-have, would-have, could-have scenarios tease all of us with decisions that we wish we made earlier in our careers.
If you are ready to take the first step and start the learning process on how to begin your next journey, reach out to one of our experts and we can schedule a one-on-one meeting with you.
Read MoreSteps to Purchasing a Practice
Most veterinarians dream of eventually owning their own veterinary practice. But veterinarians tend to put off ownership for a variety of reasons. A couple of big reasons are that you have never done it before, you are not familiar with the process, or you’re just completely afraid of the unknown.
A great philosopher once said, “If you can dodge a wrench, you can dodge a ball”. What does that have to do with buying a practice? A lot, actually. What the philosopher is referring to is that if you can dodge an object, a wrench, for example, you can dodge another object, such as a ball. Applying this theorem to the practice buying world, if you have ever completed a major purchase, or made a major decision, the process and steps are the same.
We know you have made major decisions in your life, otherwise, you wouldn’t have a DVM behind your name. You decided which veterinary school to go to. In doing so, you did research. You looked at the pros and cons of each veterinary school and weighed them. You may have talked with some friends or mentors who went to those schools. You analyzed other factors like the location, cost, and how good of veterinarians the schools have turned out. You also may look at socio-economic considerations. Then, you made the decision and lived with it. And here you are facing another major decision in your life. Purchasing a veterinary practice.
Buying a veterinary practice is similar. The first step is figuring out the variables of what type of practice you want. Where do you want to practice? How many rooms do you want to have? Do you want to own the real estate? Do you want a practice with high production or one that you can build? Once you’ve come up with your criteria, the next step is to locate potential practices that may be on the market. You may also consider doing a startup. You analyze the practices that are on the market. You may see one or two you like. You contact the broker to get information on the practice. This is typically called a practice prospectus or practice offering memorandum. Some brokers will send tax returns, profit, and loss statements, and practice management reports up-front. You get all this information, and it looks like it is written in Latin. You may not have any clue how to read the reports. The broker can go over the numbers with you, or you can also hire an independent broker, phone a friend who understands business, or possibly a CPA. After you have looked at the numbers and that passes your and your advisor’s scrutiny, the next step is to go see the practice.
You contact the broker and set up a showing of a couple of practices. Looking at a practice is like looking at a house for sale. You may see things you like and things you do not like. But know that things can be changed. We have had doctors decide they don’t want a practice because the carpet is outdated, or the paint is ugly. There are people who can paint and change out the carpet. They do it for a living. They’re called painters and carpet layers. So, don’t exclude a practice because it is ugly. Have a little vision and think about how you may make it your own style.
Another one that throws potential buyers off is equipment. The exam tables may be dated and worn, the x-ray machine may be old, etc. Prices of equipment have come down. Remember, you may be in this practice for 20+ years. Spreading out the cost of new equipment, even if it’s $50,000 or $100,000, can be as little as $2,000 per year.
After you have looked at the practice, you like the location, but there may be one or two things that do not fit your criteria. Remember that the cash flow of the practice is always the number one consideration. I have been selling practices for 15 years and I have seen some ugly, small, outdated practices collecting $1,000,000 and taking home $500,000. I have seen ugly practices collecting $400,000 and taking home $250,000 on 3 days of work per week. Don’t judge the book by its cover. It is what’s inside, or the cash flow inside that really counts.
After you have decided that this is a good practice and you would like to purchase the practice, you make an offer through a letter of intent. It is a non-binding agreement where the broker typically provides a template. You can either come up with your own offer or work with your advisor to come up with the offer. If it’s a good practice and the broker has reasonably priced the practice, make a good offer close to or at the asking price. DO NOT LOW BALL THE PURCHASE PRICE IF YOU ARE SERIOUS ABOUT PURCHASING THE PRACTICE! You will just upset the seller and they won’t even want to work with you after receiving a low-ball offer.
You will want to begin contacting bankers who specialize in veterinary practice financing. Brokers know almost all of them and which ones are lending at the moment. Ask the broker for a name or two. The banker will ask for your personal financials. They love to see you have some cash in the bank and not much credit card debt. Bankers will be more interested in how the practice is doing. They love to see a practice with great cash flow.
You next jump into due diligence on the practice after the offer has been accepted. You go into the practice on the weekend and go through the charts, x-rays, equipment, etc. There are checklists you can use to do the due diligence or bring along an advisor. However, be careful with advisors as some will just want to look for the bad things in the practice. Don’t throw out the baby with the bathwater if they point out vaccine appointments are not what they should be. Remember, almost everything can be fixed. Just note it and continue on.
If everything goes well on the due diligence, you let the broker know you are moving forward. The seller’s attorney will draft up agreements. You will then hire your own attorney. Ask your advisor or broker for a veterinary-specific attorney. Using a non-veterinary attorney will cost you additional money. We have seen non-veterinary attorneys charge double, triple, and more to put agreements together. After the agreements have been “agreed” upon, the next and final step is closing. At closing, you sign the agreements and take over the practice.
There are some additional steps in the process that your broker can help you with, but these are the basic steps in purchasing a practice. So, just like purchasing anything else or making any major decisions, you just need to go through the steps, rely on your advisors, and dodge those wrenches! As always, we are here for you for a free consultation, just give one of our experienced brokers a call.
Read MoreMerging an Existing Veterinary Practice
If you already own a veterinary practice, have you ever considered buying an existing veterinary practice located close to your first practice and merging the two together? If you ask most doctors, they will say the best way to build a practice is through taking care of your patients and bringing in new patients via word of mouth and marketing. And, they would be correct. However, acquiring a second practice and merging the two together makes sense in many ways.
First off, have you ever calculated the cost of acquiring a patient via old-fashioned word of mouth? It requires a lot of work if you include everything from building your brand, training your staff, maintaining a spotless, high-tech practice, etc., the cost could easily be hundreds of dollars or more per patient. The cost of acquiring a patient via marketing is even more. Acquiring a veterinary practice with existing patients can typically run from several hundred dollars per active patient to $1,000 per active patient. Slightly less to maybe equal to acquiring a patient through a normal channel. However, you get a high volume of patients very quickly in addition to adding income to your pocket.
Secondly, you acquire a stream of revenue at a near dollar-to-dollar relationship. If the selling practice is producing $500,000 per year, you should be able to repeat the $500,000 in revenue by merging the practices together, or worst case, slightly below the $500,000. The good news is you don’t bring over all of the expenses of the selling practice. You typically can save in a number of ways including reducing the staff of the selling practice, utilities are not double as the practices merge to one location, there is only one rent payment (more on that in a minute), only one set of books, so only one payroll service and one bookkeeper and accountant and several other services can be eliminated. So, while getting most of the revenue to increase your practice collections, you only get a portion of the expenses. This increases the income of the practice owner – you!
Thirdly, by acquiring another veterinarian’s office, you reduce the number of practices in your area by one. Less competition equals more new patients for you. You can hire the selling doctor as an employee to help with the veterinary transition as well as perform some other things that will help with patient retention.
Contact us today for a free consultation!
Did You Achieve Your Goal in 2021?
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.
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