Settling Credits Before Listing Your Practice
You’ve made the decision to sell your practice, and with that comes the to-do list of tasks that can often feel daunting. One important task that is often overlooked is settling patient credit balances.
What are credit balances and where do they come from?
In many cases, a patient will have a credit on their account when their insurance pays more toward their treatment than anticipated or you estimated a patient portion to be higher than was necessary and collected accordingly. In these instances, patients paid more out of pocket than necessary; therefore, the difference will show as a credit on their account and on your accounts receivable report or unassigned credit report. Credit balances can also result from patients mailing in a payment or making an online payment on a balance that they have already paid. These are duplicate payments typically made in error. When this happens, we recommend contacting the patients and advising them of the duplicate payment before posting it to their accounts. Many patients will request that you return their duplicate payment to them and some will elect to leave the credit on their account if they have upcoming treatment planned. If they have upcoming treatment planned, this can be an effective way to get them on the schedule. It can be difficult to reverse an online payment and, in those instances, you may have to post it to the patient’s account. In other cases, patients may pay upfront for larger treatment plans and due to unanticipated circumstances, they were not able to complete their full treatment, or perhaps less treatment became necessary. If you have a practice where patients with insurance are required to pay their patient portion due at the time of scheduling their appointment for treatment, then credit balances will appear on the patient account until the procedures are posted and until insurance has paid their portion, this is just the normal course of collecting patient portions upfront. The same applies to patients without insurance if you collect the patient portion upfront.
How should I be handling credit balances?
To keep your credit balances at a minimum I would suggest you come up with an efficient protocol with whoever is in charge of your accounts receivable, whether it be your office manager, bookkeeper, or yourself. Credit balances are typically handled by an office manager. It is our recommendation that your accounts receivable report or unassigned credit report be reviewed monthly. If there are outstanding claims on an account, no refund is due yet. If there is a credit balance and there are no outstanding claims, we recommend contacting each patient and advising them of the credit balance. And again, if they have been treatment planned for procedures ask each patient if they would like to keep the credit balance on their account and get them on the schedule for treatment. If they have no upcoming treatment, it is typically best practice to refund the patient as soon as possible to keep your accounts clean. Make sure to document these conversations about credit balances in patient notes. This will serve you well in the long run when reviewing your reports each month for credit balances. Some practices choose to monitor patient credit balances quarterly; however, if you are preparing to sell your practice, we recommend that you do this monthly. You’d be surprised how quickly credit balances add up and how often they are overlooked.
One important note of caution! When reviewing the credit balances on patient accounts, do not assume that the refund always goes to the patient! You want to look back to the last zero balance on each account and look at patient payments made and insurance payments made. Insurance companies make mistakes and sometimes they overpay and sometimes they make a duplicate payment on a claim. In these instances, the refund is due to the insurance company and not to the patient. Some insurance companies catch these errors quickly and request a refund in writing. Others do not catch them so quickly and they have up to a year to claim their refund (this may vary from state to state). Pay attention to this detail when reviewing accounts. Remember to make notes in patient account notes so you don’t have to repeat your efforts every month.
I have not been settling patient credits on a regular basis, I have thousands of dollars in credits now what?
Follow the detailed recommendations above and get your accounts with credit balances cleaned up. It is essential to do this leg work prior to the sale of your practice. Make every effort to contact your patients to refund any monies due to them. If the refunds are due to insurance company overpayments, contact them and ask that they send a request for refund letter. If you are unable to reach patients with credit balances due to them, these credit balances in many states must be reported to the state in which your practice is located. For example, in the state of Washington, credit balances over a certain dollar amount must be documented on an “Unclaimed Property Report” and filed with the state before November 1st each year. Do some research and find out what your state’s unclaimed property reporting requirements are.
*Disclaimer: The information above is not legal advice. Each state has its own rules and regulations. Be sure to review all rules and regulations as circumstances may vary.
Read MoreWhat To Do with Your Practice If You Are Sick Or Dying?
Most of us have a vague notion of what retirement might look like but that’s where our planning usually stops. Getting sick or receiving a terminal diagnosis isn’t something that is easy to think about and is even more difficult to talk about. Nobody wants to contemplate their last moments in this world.
Sadly, we have all witnessed peers who have been thrown a curve ball and had an illness or untimely death. The aftermath of these events places a huge strain on our families. However, these stresses can be lessened with some discussion and at the very least, taking the steps now to get the right people in place when you need them.
An unexpected sickness can occur at the height of our professional careers. Depending on the prognosis, it’s critical to get our affairs in order as quickly as possible. Staff might suspect that something is amiss, and you can ask them to keep health issues confidential.
If you haven’t assembled a team already, start searching for a reputable estate-planning attorney and CPA. Also include the often-overlooked professional; a practice transition broker who can assist with the transition of your practice and can begin the process with you as soon as possible. Most widows/widowers are not thinking that the responsibility of selling the practice will fall on their shoulders. We recommend starting these delicate conversations with your spouse now, so they are not left to deal with this in addition to emotional stress.
If you are still able to work at your practice, we can begin to market the practice heavily but discretely so we can find a buyer as quickly as possible. The best medicine for you is to heal and take care of your family. Selling might seem short-sighted if you expect to make a full recovery, but there are many other options available if you still want to continue to work after you heal.
However, for those doctors who pass unexpectantly, word of mouth tends to get ahead of any marketing and the reality is that your practice will be marketed without a doctor and thus the practice value can decrease substantially. Some of the most difficult challenges that we have encountered are in serving spouses who are left to deal with quickly selling a practice when the doctor is sick or has passed away. The value of the practice drops sharply and is often valued at 30-40% less even after just one month without a doctor.
Prepare for the unexpected. Assemble your professional team and get your estate planning documents in order. Most importantly, make this information accessible and communicate your wishes with your spouse.
Life is short, spend your days doing what you enjoy and take care of your health.
Read MoreBenefits of Hiring a Broker
Why use a Veterinary Broker to Sell your Practice?
After many years of the hard work, long hours, and substantial investment that go into building a veterinary practice, you’re now thinking about selling the practice. It’s easy to assume that the practice will sell quickly and for a great price when you are ready to sell. Feedback from doctors who have recently sold their practices shows that the process is more complicated and stressful than anticipated. This is why it is essential to hire a veterinary broker to help guide you through the process.
Potential individual buyers and corporates will have experts who can help them navigate the sale. You will also need someone to advocate for you and help you understand the process from start to finish. In most cases, the last time you were involved in a practice sale was when you bought the practice, which means you need someone to help you navigate the process.
Benefits of Hiring a Broker
Here are just a few reasons why hiring a veterinary broker to assist with planning and selling your practice would be a sound investment.
Determining Fair Market Price
At Omni Practice Group, we have certified practice appraisers that put together a valuation to maximize a fair market sales price for the practice and real estate (if applicable).
Develop a Marketing Plan for the Practice while Maintaining Confidentiality
Omni provides confidential marketing and advertising services for your practice that do not identify you or your practice until a buyer is screened and signs a confidential Non-Disclosure Agreement. Omni also provides the financial prospectus for your practice along with confidential personal showings of the practice to potential buyers. Finding the right buyer that you will want to take over your practice can take some time. Good practices can sell quickly, but some can take months or even a year to sell.
Letter of Intent
Omni brokers negotiate on your behalf, a Letter of Intent with your approval for the purchase price of the Practice and the Accounts Receivable. Your broker will also guide you through the due diligence conditions for bank financing, help negotiate a new lease agreement, non-compete agreements, and other conditions that both the seller and the buyer will agree on. If real estate is included, your Omni broker will determine the value of the real estate with a “Broker’s Real Estate Opinion” that is used to market the real estate with the practice.
Finalizing the Sale
Your Omni broker works with you to determine a possible closing date based on whether your practice has real estate to sell or a lease that will be negotiated with the new owner. Omni’s brokers work with attorneys to finalize the Asset Purchase Agreement for both the seller and the buyer.
Omni’s 70-point-plus checklist helps guide both the seller and the buyer through the process of items to be completed prior to the sale closing.
A banker at one of the major banks recently said, “A high percentage of deals that fall apart is due to the seller not using a veterinary broker.” Using a broker typically saves sellers a lot of time, money, and headaches in selling their practices.
Omni Practice Group has been helping veterinarians for over 15 years with the planning and transitioning of their practices. If you’re thinking about selling now or in the next few years, give us a call for a “free consultation” to help you determine a plan that works for you and how we can assist with a smooth and profitable transition.
Read MoreBuyer Trends in the Veterinary Industry
By Happy Holidays and congratulations on making it through another year! And what a year it’s been. Covid is still rearing its ugly self in new forms. Wearing masks went away, then came back again. Some veterinary conventions were canceled, some held virtually and others allowed in-person attendance. Corporate veterinary practice buyers are still around. Individual buyers are also acquiring practices albeit hesitantly. Banks started financing practices again. So what’s going to happen in 2022?
We hope that we can get back to some form of normalcy. Wouldn’t it be great to go out to dinner and not have to get carded as if we’re a 21-year-old buying our first beer? Having to show your vaccine card and wear masks is getting to be a pain. Covid is probably going to be around in some form or another for a very long time and will be similar to the flu as time wears on.
Corporate buyers will also be around for a long time. I’ve heard that corporates currently hold between 12% and 22% of all veterinary practices. Depending on who you ask and how you calculate what constitutes a corporate buyer. I would guess the real number is probably around 17%. There has been some consolidation of corporate buyers that is occurring. Getting acquired by a larger corporate buyer is the goal of the smaller corporate buyers. As they get gobbled up, there will be fewer and fewer buyers to drive up the value of practices.
Individuals are still buying practices and will continue to do so forever. It’s our job as practice brokers as well as the job of others in the veterinary industry to educate and assure veterinarians that they can be successful owning a veterinary practice and do very well. Many buyers worry about competing against the corporate owners thinking that they cannot get the same pricing on supplies and services that the big guys receive. Most supply companies have told me that they will in fact give the same pricing on supplies that the corporate owners get.
We wanted to keep you informed and know what’s going on in the veterinary practice buyer world. We wish you a happy and healthy 2022!
Read MoreTop 5 Fears Veterinarians Have About Practice Ownership (And How to Overcome Them)
By Rod Johnston MBA, CMA, and Jim Vander Mey, CPA, ABI
There are many advantages to owning a veterinary practice over being an associate veterinarian and not owning a practice. For one, the average veterinary practice owner makes approximately 20% more in income than an associate veterinarian working for someone else. A veterinary practice owner also gets to choose what procedures he wants to perform and what type of animals he or she wants to work on. Heck, they even get to choose which animals they want to work on. They can also choose their own hours, pick the days they want to work, and how much vacation they want to take. So, why aren’t veterinary associates owning practices? What are they afraid of? Here are a few fears we have encountered and how to overcome those fears:
- Fear of the unknown – Associates feel they don’t have the experience in owning a practice. They haven’t managed staff. They haven’t kept financial records. They don’t know what marketing to put in place. They don’t know what benefits to give employees, how to hire or fire employees, or even how to balance a checkbook.
Fear not, you don’t have to know everything at once. You know how to do veterinary medicine. That’s the first step in owning a practice. You have a few years of experience working as an associate in a veterinary practice. You’ve observed the owner working with and managing staff. You may have experience leading a team in school, playing sports, etc. These are all examples of good experience in handling staff. You don’t have to know how to keep books right away. We suggest getting a veterinary bookkeeper and then getting educated on reading financial statements. This can happen over time. Bottom line is if you are good at what you do and willing to learn the other parts of practice ownership, you’ll be just fine. - Fear of taking on more Debt – Read Robert Kiyosaki’s book, “Rich Dad, Poor Dad”. Not all debt is created equal. There is good debt such as student loans and practice debt that helps generate an income and there is bad debt such as credit card debt where you just borrowed money because you wanted something. Practice debt used to buy a practice that will help you make more money and build equity in an asset (the practice) is a positive thing. As long as it’s a good practice with good cash flow, you’ll be money ahead in the long run.
- Fear of the Corporate Giants – Don’t fear the corporate giants. They have their own niche targeting bargain shoppers and lemmings who follow the crowd. They also have a high turnover in their staff and doctors. You will provide excellent service with the same staff and veterinarian that the clients will see every time they come to your office. In a corporate environment, they’re not sure who they’re going to get.
- Fear of not knowing what to look for – This is a valid concern. You can educate yourself in a number of ways. There are great resources via podcasts, YouTube, etc., that can help you know what to look for. Quite simply, you start by looking at your desired location, then look at the cash flow of the practice and after that, you can get into the details. There are consultants and brokers who can also help you with reviewing practices. Identify your team that will help you overcome this fear.
- Fear of a recession – Recessions happen, typically every 8 to 10 years and last 10 to 12 months. You cannot avoid recessions or downturns in the economy, it’s part of life. But, during recessions, employees typically get laid off from work. If you own your own practice, you’re probably not going to fire yourself. You’ll probably keep yourself employed and busy. Owning a practice is a deterrent from getting laid off during a recession.
These are a few of the fears that we’ve seen over the years, and there are others as well. But, the best thing you can do is educate yourself and talk to practice owners, brokers and bankers. Seek advice and counsel from everyone you can. This will help you make a wise decision in moving forward with practice ownership.
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