COVID-19

By Corey Young, DDS, MBA, ABI

Are you ready to transition?
Is your practice ready to transition?
What is the market like?

These are all key questions to ask yourself. When is a good time to start thinking about all of this? The real answer is as soon as you buy or start your practice, but the more practical answer is dependent on you. If there any chance you will want to transition in the next five years, you should start working on your transition today.Personal readiness and practice readiness are both more important than current market conditions; however, considering the COVID crisis, I am going to focus on market timing.

If any of the following sounds even slightly familiar, raise your hand:
I was ready personally, and my practice was ready in August 2019. I choose to wait because (pick one or more):

• I have a kid with one year left in college
• I have one year until I can draw Medicare
• There is one more room in the house I would like to finish
• My spouse retires in a year
• I pay off my house in a year
• I turn (insert round number like 60 or 70) next year and I would like to wait until then
• Etc.…

Now, for those of you that raised your hand, consider the reality of August 2020. How does that August 2019 decision to wait look? Questionable at best.

My intent is not to beat up on those of you that this struck a chord. Rather, I want to emphasize the need for starting early and getting help.
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Transitioning is a difficult process. Do not go it alone. Contact an experienced, qualified transition specialist and get the ball rolling. We are here to help.

I know. Running a business seems daunting. You just want to be a doctor and not have to worry about the rest. I understand. That said, it is wise to consider what is left on the table by being a career employee, or by waiting for that perfect practice to show up.
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Let us consider a fictitious practice:

• Overhead: 60%
• Gross: $550,000
• Net: $220,000
• Acquisition price today, due to COVID environment: $300,000
• Interest rate: 4%
• Loan of $330,000 (acquisition price plus one month of working capital) over ten years: $3,341 monthly payment/$40,000 annually/$400,930 over life of loan

Let us assume 10% growth in the first two years and 5% growth in the next eight, all while maintaining overhead percentages.

• Total income over those ten years $2,600,000
• Estimate of practice value in ten years $700,000

Sum of income and asset value $3,300,000
As an associate, how does this compare your compensation package over the next decade?

By Rod Johnston, MBA, CMA
OMNI Practice Group

A lot of “experts” have been giving their own predictions on the Covid-19 Pandemic.  The truth of the matter is, no one has a crystal ball and knows what tomorrow will bring.  So far, most experts have been off on their predictions.  What we do know is that there will be a “post-Covid” and life will get back to some form of normal in the relatively near future.

We as a society have historically been through pandemics such as the Spanish Flu, HIV/Aids, Hong Kong Flu, and others.  Pandemics are definitely game changers and force us to look at how we live, work, educate, etc., This pandemic will be no different.  Some states are beginning to open up as I write this article.  Some veterinary clinics and hospitals have already made some changes.  Dropping off animals outside the office, taking patients directly into exam rooms, using telemedicine, etc. are just a few examples of changes made in some practices.  Some of those changes will be short lived but some will be permanent.  But the truth is there will be changes.

One thing that I promise you will not change is that animals will continue to exist and people will still have pets.  I’m 100% certain of that.  As such, animals will continue to need care.  Unless plumbers start doing veterinary work, that means they will need to see a veterinarian in a veterinary hospital!  It will just be a matter of how the new game of veterinary practice will play out with new rules in place.  In sports, rules change all the time.  Players and coaches just adapt to those rules and adjust to playing under those new rules.

Another rule that may change is valuations on practices in the near term.  I have heard a gamut of theories from brokers, bankers, veterinarians and the grocery store clerk.  But they are just that… theories.  My advice would be to stop listening to your friends, relatives and others who don’t have any more knowledge than you do about the future of practice valuation.  Here’s what I know for sure, good practices with good margins pre-Covid will be good practices with good margins post-Covid.  They will sell for a normal value, even post-Covid.  I also know patients will come back to the veterinary hospitals.  This will be true for most all offices.  I’ve spoken to several veterinarians who have told me they have full schedules already in the immediate future.  For those practices that are below average to average practices, there may be some adjustments to values in the near term.  Banks have told us that they may adjust their valuations as well.  I don’t expect huge discounts, but perhaps a discount to account for some of the new expenses or reduction in production.

As a potential buyer of a veterinary practice, you should look at the practice as if it was pre-Covid.  In the long-run, that practice will get back to “normal”.  If you find a practice that has been what you’re looking for, you need to do your due diligence and be confident that normal will happen again.  Those who do will be ahead of the game. ​

By Corey Young, DDS, MBA, CVA, ABI

What a crazy time we are in. At least to me, this is a sober reminder that major disruptors are almost impossible to predict. I am reassured that our nation seems to be taking the situation seriously and I do firmly believe we can weather this storm. Most of you reading this have had your professional world rocked. You’ve probably had your hours cut. Some of you may even have been laid off. Fortunately, there is a strong support system in this industry ready to help. Don’t hesitate to reach out. I think you will find all of us willing to go the extra mile right now to help you keep your ship afloat.

Most of you have thought about buying a practice at some point, some of you have been seriously pursuing ownership. There is going to be a lot of advice out there right now saying that it is far too risky to buy a practice and it is better to get/keep a nice safe, secure job. I am going to give you four reasons why you should do exactly the opposite.

One, financing. Interest rates are at an all-time low. Most banks are willing to defer principal payments or even the entire payment for months. Some have even said a year. I’m not going out on much of a limb to say these are the best lending conditions you will see in your career. Historically, there have been periods of higher interest rates. When I was a kid in the early eighties, they were fourteen percent. There have been many times when banks weren’t as generous on the amounts they would lend. One hundred percent financing is not a given.

Two, taxes. The government is going to spend a fortune to deal with this crisis, we have an aging population, new social safety nets will probably be put in place, etc… It is hard to imagine a scenario where taxes don’t go up, maybe way up. Nobody gets hit in a tax hike as hard as a non-business owning high wage earner. As a professional, this is you.

Three, working for a corporation in a down economy. Corporations aren’t inherently bad entities. Many are fabulous. That said, unless they are a non-profit, they aren’t set up to be a charity. The shareholders and private equity backers are going to demand performance once this crisis is over. If clients hold off on elective treatment, keeping revenue up will require a high volume. You could be expected to see many more patients, in less time, than you currently do. It happened to physicians, it happened to pharmacists, it could happen to you.

Four, time. Odds are you have more free time than normal. No one, especially the bank, is going to expect you to complete a practice purchase before this crisis is over. That said, doing the work now could put you in a position to complete the purchase when the restrictions are lifted and capitalize on the built-up demand, which inevitably will occur.

In the words of Rahm Emanuel, “Never let a serious crisis go to waste. And what I mean by that it’s an opportunity to do things you think you could not do before.”