HAPPY NEW AND IMPROVED NEW YEAR
Happy New Year! Is this the year you finally take the plunge and buy your own practice? Or are you content with being an associate working for someone else? Here are a few reasons why 2019 should be the year you become a practice owner:
- Interest rates are starting to move up. The past few years have rewarded buyers with interest rates in the 4% to 5% range and some with as low as 3.75%. Interest rates moving up means you may have higher payments on your practice loan.
- Bank financing is readily available. If you think you cannot get financed because of high student loan debt, personal debt, bad credit, etc., then think again. Banks view your diploma and the accompanying school debt as a positive thing. It’s an asset that can be used to generate a good income. Call us and we can hook you up with a bank to discuss your situation.
- Jump in, the water is warm. Studies have shown that those who are successful in both business and in their personal lives take calculated risks. Owning a practice is a well-calculated risk with the failure rate on practice ownership less than .25%. Yet, many doctors continue to be an associate as they deem practice ownership to be a risk.
- Pay off debt and retire sooner. By purchasing or building a new practice this year versus several years down the road, you can pay off your debt sooner, put more money in your pocket and retire sooner. I know of several examples of doctors who bought a practice two years out of school and five years later had their practice completely paid off and are putting that money towards retirement. Plus, practice owners make an average of 25% more per year than typical veterinarians who are associate employees in someone else’s practice.
- Become independent. Owning your own practice allows you to do the procedures you want to do and work on the patients you want to work on. It also allows you to choose your staff, location and everything else for that matter. You get to work when you want to work and go on vacation when you want to go on vacation. It is all up to you as you are the boss!
Whether you decide to purchase or start a practice in 2019 or continue to work as an associate, Omni Veterinary Practice Group would like to wish you a Happy and Prosperous New Year!
5 Things to Consider When Purchasing a Practice
Congratulations! You’ve finished 2018, another year as a veterinarian. You’ve gained more experience as both a veterinarian with clinical skills as well as observing a practice in operation. We hear general rules of thumb about how many years you should have under your belt before you own a practice. Typically, the number is five years. We’ve seen in practice that the number really depends on the doctor. We’ve had doctors who were able to purchase a practice after three years and do quite well. A lot depends on your comfort level, skill set, and experience. Here are some things to consider for you to buy a practice in the coming year:
- Are you comfortable with your clinical skills? If you have been out of veterinary school 3 to 5 years, you should have a feel for where you are with your skills. A lot depends on the clinic(s) or hospital(s) you’ve been working. Some may limit what you’re doing and others just may not be busy. If you’re in a location that’s given you a variety and volume of experience, you should be getting a good amount of experience.
- Have you seen a good practice in operation? Sure, you’ve been working in one or more clinics, but are they well-run? Or, if they’re not, you know the difference? If you are in a well-run practice, you should be observing how the doctor and/or office manager treat the staff. Whether a veterinary assistant, office manager, or veterinary technician, they should all be treated well. How about the patients and clients? They should be given good, Nordstrom-like treatment. They pay your rent and you want them coming back.
- Do you know how to read financial statements? Most veterinarians in the early stages of their career don’t know what a financial statement is, let alone, how to read one. There are online courses such as accounting for non-accountants and other courses on financial statements and bookkeeping that can fairly quickly teach you what the financial statements are and how to read them. Understanding them is imperative in running any business.
- Now that you know how to read a financial statement, do you know what the numbers should be? What percentage of collections should your payroll numbers be? What about rent, etc.? If you don’t know, there are resources online. Watch all of the White-Board Wednesday online videos from Joel Parker, DVM. They are great at teaching you numbers as well as other aspects.
- Practice Management – Learn as much as you can with the free stuff online. From the White-Board Wednesday videos to other online courses, you can learn a lot for no cost to minimal cost. This will quickly help you grasp the key concepts of managing a practice.
These are just a few things you can do to prepare you to own a practice. And remember, practice owners typically make 20% to 25% more than an associate veterinarian. In addition, the equity you build in a practice is a great source of retirement. So, congratulations on completing another year as a Veterinarian and cheers to a New Year which may bring you Happiness, Joy, and Practice Ownership.
My First Practice
Owning a practice should be on nearly every veterinarian’s list of things to accomplish. Pride of ownership, directing your own clinic or hospital, and treating those types of animals you want to treat are just a few reasons why you should want to be an owner. In addition, veterinary practice owners typically make 22% more in annual salaries than an average associate veterinarian. On top of that, the equity you build in your practice will contribute towards your retirement nest egg.
The process of owning a veterinary practice can be simple if done right. Simple, but it does require work. Having a good team on your side keeps the workload down and alleviates road bumps. One of the first decisions is should you buy an existing or build a new practice? That decision comes down to whether you want to buy an existing practice with potentially good cash flow, but also potential problems? Is there a practice available to your liking and in the area you want to practice? Do you want something that truly has your stamp on it that you have built from the ground up? A self-evaluation and talking about it with a few experts will enlighten you into knowing which route is best for you.
The other question is whether or not you have what it takes to be a practice owner? The simple answer is “yes, you do”. Even if you don’t want to manage staff, do bookkeeping, or handle other management tasks, you can still outsource all of that and enjoy being a practice owner. Proper guidance and education are key if you have not ever done any of those things before. A consultant, accountant, broker, and others can help guide you in practice ownership.
Corporate practice owners are here to stay. I would not be afraid of a corporate practice as a competitor. You can open a clinic across the street and out personalize their services. Some corporates are just in it for the money. Not all of them mind you, but quite a few of them. They don’t provide the personal touch and sense of community that you can in your practice. Many also have an associate turnstile where they change associate veterinarians every six to twelve months. I don’t know about you, but if I’m taking my beloved dog Fi-Fi, who is a part of my family, I’m going to get to know my vet and make sure Fi-Fi sees that same vet every time. I don’t want someone whom I’ve never met and don’t know anything about them. I think the majority of the pet-owning public feels the same way.
Fears are a product of the unknown. You fear there’s a monster under your bed because you cannot see under the bed in the dark and you don’t know what’s under there. You fear broccoli as a kid because you don’t know what it’s going to taste like. Fear of practice ownership is similar. If you educate yourself, you can squash those fears.
To help facilitate this, we are offering a seminar called “Build or Buy – Your Pathway to Practice Ownership”. This seminar will help you begin the process of educating you on what you need to do to be a practice owner. There will be experts from various fields of buying or building a practice. You’ll learn everything from finding the right practice or location to analyzing the value of a practice. You will receive continuing education credits while you learn about the process of owning a practice. It will be an evening full of information with dinner provided as well. For dates, locations, and registration information, visit our calendar.
From the Horse’s Mouth
Each year one of the largest corporate veterinary practice owners holds a one-day conference exclusively for veterinary practice brokers. At the conference, they discuss, amongst many other things, how their company is different than other corporates, how they value veterinary practices, and trends in corporate buying. It’s an interesting meeting to get the “state of the union” from a corporate buyers’ perspective. I wanted to share with you some of the notes I took and give you my thoughts on a few of their points.
- Corporates are continuing to expand. Not only in the U.S. and Canada, but this corporate buyer has begun acquiring practices in Australia and New Zealand.
- Some corporates have begun to do de novo practices. They are filling the gaps where they don’t have ownership of a practice with a startup practice. If you can’t buy it, build it!
- The DVM retention rate for the industry is 62%. A particular corporate claimed to retain DVMs at a rate of 82.5%. They said it’s due to how they treat the DVM and staff leaving everything as close to the same as possible. They also give the owners a piece of the pie.
- There currently is a shortage of DVM associates. They are putting a heavy effort towards recruiting DVMs at Veterinary Schools as well as the general public.
- This corporate has three commitments – Wellness Plans, Dentistry, and Fear-Free Clinics.
- They expect the current acquisition trend to continue for the next three to five years.
- Valuations are different among the various corporate buyers. Their add-back for DVM salaries is 20%. Another corporate buyer uses 22%. That can make a big difference in the purchase price on a large practice. Another example is adding back an office manager salary. That can vary significantly amongst corporate buyers. These are just two of ten examples of the differences they provided.
- Valuations have gone up over the past 5 years. Five years ago, they were buying practices at 4x to 5x EBITDA. They are now acquiring practices at a broader range of 6x to 9x EBITDA.
- They believe valuations are currently at their high peak with the expectation that they will start tapering back down to the 4x to 5x EBITDA range they saw five years ago.
- General Veterinary Practices that are in the sights of corporate acquisition teams represent 50% of all General Veterinary Practices. Corporates currently own 30% of all of these practices. The expectation is that once total corporate ownership hits 50%, the acquisitions will taper off dramatically. Corporates then may turn to specialty clinics. Note, we’re already seeing this in the marketplace. They also may focus on de novo practices.
In summary, the presentation confirmed what our thoughts have been:
- Corporates are here to stay.
- Corporate ownership will continue to grow.
- There are some good corporate buyers who treat their staff and DVMs well and there are others that do not.
- Corporates will go the de novo route when they can’t find a practice in an area they want to have a concentration.
- Valuations will begin to trend down in the not too distant future.
The number of corporate buyers in the market and the supply of practices corporates want all play into this. Whether good or bad, the corporate veterinary practice is here for the long haul.
This is just meant as an educational document and we are not promoting this or any other corporate buyer.
Analyzing a Lease in a Practice Aquisition
When you get a copy of the lease, you or your advisor should contact the landlord or property manager. Be sure the seller has informed the landlord that they are selling the practice first. If there is a short time left on the lease, the landlord may be willing to do an extension on the lease. You can put conditions on the extension that can include getting a tenant improvement credit to cover new paint, carpet, etc., free rent for a few months, lower rent, etc., I’ve even had a situation where the landlord loaned money to the tenant to completely remodel the practice.
Remember that everything is negotiable. Don’t automatically assume the lease is set and you cannot change anything. At the same time, know how to negotiate. If you go for a home run right off the bat, you may turn off the landlord and they won’t be willing to negotiate. If you’re working with a broker, it’s best to let them handle the negotiating. They’re the experts and can save you thousands if done right.
