Buying a Practice

Who can help me? 
This is a very important decision and time for you and your family, so it’s critical to build your team of trusted advisors, such as veterinary specific broker (with a commercial real estate license), lender, CPA, attorney. These professionals have done many unique transitions, and often with each other, so they work well together and know how to provide you with a successful transition. You can use your relative or friend in these professions, but they can’t know the things veterinary specific advisors know. Experience and knowledge in a select niche are worth its weight in gold.

Can I afford a practice and associated real estate?
Veterinarian-specific lenders understand the veterinary industry and understand that you may have student loan debt in excess of $150,000. If the practice cash flows and provides you with the money to pay your practice and student debt, plus living expenses, you may be good to go. If you are thinking about a start-up, you will most likely need to work part-time somewhere else as you grow your new practice. Your trusted advisors can provide you with ideas to assist with your startup as well as potentially referring to a veterinary-specific marketing company. So, the answer is, typically, yes, you can afford a practice and associated real estate.
Sometimes, depending on the seller and your finances, you may rent a few years. The things to consider here are that if you rent, you may still have the seller “visiting” when they want and still act as though it’s their building and try to deter you from making your own decisions. It’s hard to make changes and you will someday understand this! If you rent, you will want your attorney to ensure there are solid details surrounding future purchases.
Some veterinarians prefer to own their own real estate and that can be beneficial for those with property ownership goals. Leasing in a commercial space or strip mall can be worth the potentially high rent if you have the opportunity to gain increased collections.

What do I need to know when looking at potential practices?
Where do you want to live and work? Once you determine the general location, look for a practice with a good and visible location and parking.
Work with your broker or buyer-representative to assist you to review the formal valuation or the following statistics.
Last 3 years financials to see collections and expenses. Some expenses may be backed out that would not pertain to the new veterinarian, such as “large” continuing education, cars, 401K, and family members on the payroll that may not have an active/necessary function in the practice.

I want multiple offices.
Having multiple offices can be profitable if done correctly. Ensure you have solid processes in place that can be replicated. Consider doing a demographic study to determine where you want your locations. If clients may be going to more than 1 location, ensure your veterinary software is capable of being accessed by all locations.

What do I need to know/do before starting my first day in my new practice?
Work with your CPA to set up your entity, accounting system, payroll, and tax payments. Plan to have a confident first conversation with your new team. They will be anxious about the transition so you will want to put your arms around them and help them understand you want to continue the quality care and any small changes will only be for the better for clients and team. Be prepared for difficult questions such as asking for a wage increase, change in schedule, or complaints about other team members. Guide the team on how you want them to discuss you to the clients and how your goal is to retain clients.
Become familiar with your veterinary software. Most veterinarians and teams do not maximize the reports and statistics available to you. Remember, your veterinary software and accounting system are the 2 biggest tools you have to run your practice.

Purchasing a practice, with your team of trusted advisors, should be a pleasant process that leads to a profitable and enjoyable career!

By Jim Vander Mey

​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 – jim@omnipg-vet.com.

With so few practices on the market, I often get the question “Should I just start a new veterinary practice?”  Since I am a commercial real estate broker specializing in helping veterinarians find new locations, as well as being a Veterinary practice broker, I can give you an educated answer.  That answer is “it depends”.

Here are 10 questions to ask yourself to see if you are a candidate to do a scratch start practice:

1. Do the demographics support another veterinarian in the area?  (1,500 people per 1 veterinarian)
2. Do you have the patience to do a startup?  (It may take up to 24 to 36 months to break even.)
3. Do you have another income, or 12 months cash reserves, to support yourself while you get your new practice going?
4. Are you good at project management – managing contractors, designers, vendors, etc. – to get things going?
5. Have you hired staff before?
6. Are you good at self-promoting and marketing? You may need to go door-to-door to get recognition and to get patients coming in.
7. Have you set up insurances, bank accounts, patient financing, etc., before?
8. Do you have good credit and some cash reserves in the bank to obtain a loan?
9. Do you have enough experience (minimum of 2 years) to jump in and get things going?
10. Do you have the fortitude to succeed? There will be down times when you want to throw in the towel. You need to fight through those down times to achieve success.

I have helped many Veterinary practices get started in their new practices, from finding locations to consulting on the entire set up. Each practice has achieved break-even in less than 18 months.  If you are on the fence on whether to do a startup, give me a call and I can help with analyzing your situation.

Today we address a question we hear frequently from veterinarians: If you are at a point in your career where you have paid off your school and initial practice loans, and are tired of paying your landlord’s mortgage payments for him or her, then now is one of the best times to purchase real estate as an owner-user.

As everyone knows, we are in the midst of a good economy.  Commercial real estate interest rates are still very low compared to prior years.  We are seeing interest rates in the 4.25% to 5.25% range.  In year’s past, we typically see them at 5.5% to 7%.  The low-interest rates oftentimes make your potential mortgage note payment lower than what you’re currently paying for your lease.  Also, the Small Business Administration (SBA) has loans where if you occupy more than 50% of the building, they have lower down payments and other requirements on the loans.

The real estate market is also at an interesting point in time.  Baby boomer building owners (try saying that three times fast) are divesting their real estate portfolios in order to get their equity out to fund their retirement.  This makes it an opportune time to acquire a building – the building where your practice is located or another one in your neighborhood.  Or, possibly an investment property.

In times like these, there are winners and losers in the investment and real estate world. If you are sitting on real estate and need to move it, you are at quite an advantage. If you are in the market for buying real estate, however, now is also a golden opportunity. Veterinarians looking to purchase their own buildings have three options. One is to look for an existing building that can be converted over to veterinary use.  The second option is to find vacant land on which a veterinary office can be built. The third option is to approach the landlord who owns the building you currently occupy and see if they would be willing to sell.  There are advantages and disadvantages to each.  Of course, if you are currently in a nice building, purchasing the building you are already in, makes the most sense.  The main advantage of buying an existing building and converting it is time. It takes considerably less time to convert an existing building into a veterinary office than to start from the ground up. The largest disadvantage is the commitment to the basic structure of the building and the existing lot. The main advantage of starting from the ground up is that the building can be designed and built to exactly meet the veterinarian’s needs. The disadvantage is that it takes much more time to find the land, to have the building designed and permitted, and to construct the building.

As commercial real estate brokers, we can help you with the process of purchasing an existing building or land on which to build your ideal veterinary building. We can also assist in speaking with your current building owner to see if they would be willing to sell their building.  The biggest mistake a veterinarian can make is to start the process with time running out on his/her lease. The process should be started at least 18 to 24 months before the end of your lease. It can take up to 6 months or more to find the ideal building or land and then an additional 1 to 2 years to convert an existing building or build from the ground up. It is also important to assemble a team that can support you throughout the entire process. We can act as a resource in helping you assemble your team. Your team should include people experienced in the veterinary field, who are familiar with the veterinarian’s wants and needs. Your team should include a general contractor, and may or may not include an architect, depending on the scale of the project. Your team should also include an attorney and a lender. The key to any successful venture is planning. Picking an experienced team of experts and working closely with them is critical to making a successful transition to owning your own office building.

If you think this might be the time for you to start looking for that ideal veterinary building, you can begin by calling the best veterinary real estate broker in the Northwest – Omni’s own, Steve Kikikis.  Steve can sit down with you to start the process and layout a plan for owning your own building.  Steve can be reached at steve@omni-pg.com, or you can call him at 425-905-6920.

By Jim Vander Mey, CPA, ABI and Rod Johnston, MBA, CMA

​Every potential practice owner comes to a crossroad where they ask themselves, “Should I buy an existing practice, or should I just go start up a new practice at a new location?”  We typically suggest you find a good existing practice to purchase, but if you cannot find one that fits your needs and desires, then the alternative is to start one from scratch.  There are pros and cons to both and a lot depends on your vision.  Here are some things to consider before making a decision:

1.  Cash Flow – Buying an established practice typically gives you instant cash flow.  That’s if it’s a decent practice and if it already cash flows.  Cash flow is the money left over after paying all of the practice bills and your debt service on the loan for the practice.   If you can find a practice in your desired area that has good cash flow, or you believe you can get it to cash flow, then, by all means, you should buy it.
   With a startup practice, it can take 18 to 24 months before you break even.  Cash flow would happen shortly thereafter.  If you spend some time and do some good research, you can cash flow much sooner.  We’ve assisted with demographics for doctors and helped them find locations which cash flowed in 6 to 9 months.
2. Practice Philosophy – Do you have a certain practice philosophy on managing your practice?  Do you want to do certain procedures, treat clients a certain way, and manage the staff in a certain manner?  Then, buying an existing practice where patients and staff are set in their ways may be a challenge.  Clients may be used to making payments.  Staff may be used to leaving early, using their cell phone during work hours, or having their kids hang out in the staff room during work.  Changing patient protocol or staff habits may result in losing some patients and staff.  At a minimum, you will have disgruntled staff.
   If you start up your own practice, you can mold your patients and staff in your philosophy and style.  Clients can be treated and trained to pay upfront, accept your treatment plans, and trust you.  Staff can learn from the beginning how you want them to work and what you expect.
3. Cost – A good practice in a good location is going to be valued at 70% up to 100% of the last 12 months’ collections in the current market.  Great practices that are high producing with low margins in metropolitan areas are going to sell for between 90% and 100% of collections.  There is a high demand for these practices, and they sell quickly.  In rural areas, these practices may reach 80% and possibly 85%.  Low performing practices in these areas will be priced between 70% and up to 80%.
   Construction costs in the Northwest are currently on the high side reach up to $200/sq. ft.  They are traditionally $135/sq. ft.  That is before any equipment is purchased.  This puts a typical startup practice at around $500,000 to $600,000.  This is a negative for currently doing a startup.  The cost to build it out due to the current market is high.
4. Systems – With an existing practice, the systems are already in place.  Patient flow, collections, insurances, staff salaries, and benefits, etc., are for the most part all set up.  You just need to buy the practice and copy what the current owner is doing.  As long as they are good systems, then you’re in the money.  If the systems are bad and going to potentially cost you more money, then you’re in for a headache.  Changing systems can create problems with staff and clients.
   With a startup practice, you need to create your own systems.   You hire your staff and establish benefits and pay.  If you have experience in doing this, or at least know what type of systems, benefits, etc., you want to put in place, then you’re okay.  If not, you may be learning on the job which will end up in mistakes and cost you money.
5. Finances – In certain situations, lenders may ask you to keep your associate position on a part-time basis.  This is just in case the practice doesn’t cash flow enough to support you or the debt.  Or, you may need to have some cash in the bank in order to have something to fall back on if there is a cash shortage during any one month.
   For a startup, they most likely will suggest you keep your associate job one or two days a week until your practice gets going.  If your practice picks up quick, you can quit your associate job and focus on your practice.

Over 65% of doctors want to eventually own their own practice.  Whether it be via purchasing an existing practice or doing a startup is up to you.  Following a few guidelines, getting good demographics, and seeking wise and experienced advice will help you make a good decision.