Where to Own a Practice
If you’re in it because you love being a veterinarian and love helping patients and not necessarily in it to make the big bucks, you can really practice almost anywhere. A lot of buyers seem to want the downtown metropolitan practice thinking it’s a great place to practice since there are so many potential patients and you can live the urban lifestyle. We’ve helped doctors who absolutely wanted to be in a metropolitan area, even though the demographics made no sense whatsoever, who then started a practice and did quite well. One doctor that we helped always dreamed of owning a practice in a particular city. He went for it and is successful. And we have seen others want a practice in a certain area, and although the numbers didn’t make sense, they did it anyway and were successful.
Some of you are buying a practice because you want to make a lot of money, in which case, further analysis and discussion is needed. The failure rate for veterinarians is somewhere around .015%. If you’re buying an existing practice and the practice already has good cash flow that you’ve identified, you can purchase the practice and have success almost no matter where it is. If it’s a poor performing practice, you would need to examine if the poor performance is because of the location, the management, or something else. If you want to buy an existing practice and are looking for an opportunity to grow and have lower overhead, I would suggest looking outside of the metropolitan areas. Those areas have less competition, wages and rent are lower and it’s easier to grow those practices. And if you are considering doing a startup practice, the same rules apply. Look for a location with good demographics outside of metropolitan areas. Of course, if you absolutely want to be in a metropolitan area, don’t be afraid to go for it. Just look closely at the numbers and hire a good veterinarian practice or real estate broker to help you out.
One of the advantages of working with Omni is we have both practice brokers and real estate brokers to help you traverse the ownership trail in any way we can. Just give us a call at 877-866-6053 or email info@omnipg-vet.com and we’ll be happy to help get you started.
Why Now is the Time to Buy a Practice
The same goes for buying a practice. The practice you buy does not have to be perfect and the last practice you buy. You buy a practice that fits your needs at your current time in your life. You put sweat equity and hard work into the practice to make it profitable. You do a bit of remodeling to make it fit your personality and style. You work in the practice building equity and you hone your skills as a practice owner and a business manager. In the end, timing is not as important as you think. I know many doctors who bought their first practice when interest rates were 15%. Also, keep in mind that practice owners earn 20% more than associates who are employees. (Read Rich Dad, Poor Dad if you want to understand why you should own and not be an employee).
The moral of the story is if you feel you might be ready but are not quite sure, you’re ready. Interest rates continue to be low. The economy is doing well. There are great resources that can help you own and run a practice. If you would like to discuss whether or not you are ready to own, feel free to reach out to any of us at Omni to discuss your individual situation. Send Jim an email or give us a call at 877-866-6053 today!
INFLUX OF SELLERS HITTING THE MARKET
1.Interest rates are rising. Buyers have had the luxury of living through ultra-low interest rates over the past five years. Historically, interest rates on practice acquisitions have been around 7% to 8%. The last five years, we’ve seen them dip down to an average of 3.8% and one bank offering loans at 1.89%! Crazy rates! Buyers are now seeing the rates creep back up. Current rates are around 5% to 5.5%. This is scaring some buyers into acting on their desire to own a practice. They feel if they wait, interest rates will be back to the 7 to 8% rate soon.
2. Baby boomers are reaching their peak. Baby boomers doctors make up the largest portion of the veterinarian population. Approximately 50% of veterinarians are now over the age of 55. The largest portion of the baby boomer population is now hitting their mid-60’s. These doctors are now selling and retiring. Along with this, as we age life events, such as health issues, or even death happens. We are seeing sellers with health challenges where they cannot work at the same pace as they were before, or they cannot work at all.
3. Veterinarians tired of being practice owners. Several of our current listings are from doctors in their 40’s or 50’s who are just tired of being owners. Managing staff and managing expenses such as rent, employee benefits,
etc., have caused owners to rethink their dream of owning a practice.4. Equity harvesting. Veterinarians at the peak of their production in their practice are deciding to sell their practices and get the equity out before production goes down. Many are selling to either small groups or investor veterinarians who allow the seller to not only harvest their equity but also to work back in the practice. A perfect storm in most situations.
Whether you fit into any of these categories or even if you are in the middle of your career, you owe it to yourself and your family to have a transition plan in place. Life events happen. We meet with veterinarians of all ages to discuss their career plan and look at different options of how to sail into retirement, or even sell and work back. We put customized plans in place and offer solutions in the event the doctor needs to sell quickly. If you would like to meet for a free consultation and a free cup of coffee, feel free to give us a call. We’ll even throw in a doughnut!
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.
WHY BUYING AND MERGING ANOTHER PRACTICE INTO AN EXISTING PRACTICE MAKES SENSE
The reason you would consider doing a merger is that you get all of the revenue and current clients from the new practice, but you don’t get all of the expenses. You don’t bring over the fixed expenses like rent, telephone, electricity, etc. You already have those in your practice and don’t need to incur them again when you bring over the practice you just acquired.
As an example, say you own a practice that collects $600,000 per year. You have overhead of $390,000 with 30% of the overhead in fixed expenses – rent, utilities, insurance, etc., Another practice comes on the market that collecting $500,000 with overhead of $325,000 with fixed expenses again at 30% or $150,000. You purchase the practice for $350,000 giving you a debt service payment of $3,500 per month. You work closely with the broker to ensure 100% of the clients transfer to your practice. Your practice now goes from $600,000 up to $1.1 million in revenue. You incur the variable expenses of the second practice, but you do not incur the 30% fixed expenses of $150,000 because you already have rent, utilities, insurance etc., at your current office. In essence, you just gave yourself a $150,000 raise, less $42,000 in debt service, and dropped your overhead to the neighborhood of 55%. It would take you much longer to do this if you just did marketing and advertising. By consolidating practices, you get instant growth and income. If you have a practice for sale near you, you should consider merging it into your practice in order to achieve quick growth.