Top 10 Mistakes When Selling Your Practice
By Rod Johnston, MBA, CMA
Omni has sold over 500 practices since we started selling over 20 years ago. The majority of our transactions go pretty smooth, but in nearly every transaction there are road bumps, hurdles, or just some things that need to be ironed out or discussed. Here are ten of the most common mistakes that sellers make when selling their practice:
- Waiting Too Long to Sell
Every business or practice owner thinks they can continue working until one day they decide to sell. They believe they can just put it on the market, and it will sell in a month or two for a high price. But timing is everything. If you decide to sell when your numbers are declining, you may lose hundreds of thousands of dollars. Selling when rates are high also reduces value, as banks assess the cash flow after debt service of your practice. Higher interest rates lower cash flow and, consequently, the value of your practice. Similarly, if you choose to sell during an economic downturn when there are fewer buyers, you may again lose value, and your practice could sit on the market for months—or even years.
- Not Watching Your Payroll
What is your annual payroll as a percentage of last year’s collections? It should be somewhere between 25% and 30%. If you get to a point when it’s time to sell and your payroll is high, a buyer will not look favorably at your practice. Keep your numbers up, and make sure your payroll is where it should be.
- Managing Patient Credits
Typically, you sell your accounts receivable less patient credits when you sell your practice. However, did you know that every state has a law requiring you to refund a patient’s credit if they have not been active in your practice for a certain period, typically around three years? If you cannot locate that patient, you need to send the patient credit to the state where your practice is located. This is known as the unclaimed property or escheatment law. Look it up and manage your patient credits accordingly.
- Lingering Liens
Have you ever borrowed money against your practice? You may want to run a lien search to check if any liens are still against your practice. Even though you may have paid off the debt, banks are notorious for not releasing the lien once the debt is paid off. You can perform a lien search, also called a UCC search, on your state website, or contact an attorney or a service that conducts lien searches to examine your practice for any liens.
- Renewing Your Lease
If you are renewing your lease, now is the time to discuss assignability with your landlord, real estate broker, or attorney. Try to include assignability language in the lease. Many times, landlords will require you to stay on as a responsible party for the life of the lease, even after you have sold the practice. Having assignability language can help you be released from personal liability on the lease sooner rather than later.
- Not Giving Enough Time to Find a Buyer
On average, it takes about nine months to sell a practice. If you have a great practice in a desirable area, the time will probably be less. However, if your practice has low production, under $350,000, it will take longer to sell. Practices in remote areas, which are less desirable than metro or affluent areas, also tend to take longer to sell. Small practices with only 2 or 3 operatories will generally require more time as well. When we say longer, it could mean twelve months, or it can be up to five years.
If you’re in a remote area like the San Juan Islands, consider starting the sale process five years before your ideal selling date, as fewer doctors may be looking to practice there. If you find a buyer years before you’re ready to sell, congratulations! You have a bird in the hand—take it! You can then consider working for someone else, teaching, or work back in the office. It is a good problem to have if you sell before you really want to in a remote area.
- Not Weighing All Your Options
There are numerous ways to sell and various types of buyers. You can sell to an individual, a corporate-owned group, a small local group, or even to an associate. Working with a broker can help you explore and discuss your options. Perhaps you want to sell and then work back, or maybe selling to a larger group is a better fit. Brokers know the market and can help design an optimal transition plan for you.
- Failing to Plan
This is more than just failing to plan; it’s failing to put the plan into action if you have one. Banks and brokers look at the last two or three years of tax returns to determine the value of your practice. If you want to maximize the sale of your practice, your best years need to be your last two or three years. If necessary, hire a consultant to help you streamline your practice, increase production, and reduce overhead. Most importantly, keep your foot on the gas!
- Selling On Your Own
I have spoken to doctors who sold their practices themselves. One doctor, who was collecting $1.5 million, sold his practice in a nice metro area for $500,000. I did not have the heart to tell him that he undervalued his practice and could have gotten another $500,000 to $700,000. We have listed practices where the seller tried for two years to sell on their own, thinking just placing an ad in the state association would be enough. We sold these in four months. In other cases, sellers were difficult to work with, scaring away every buyer interested in the practice. Hire an expert to take the emotions out of the transaction. You may not always get a higher price, but you’ll likely save on stress and avoid costly mistakes.
- Not Hiring an Attorney to Prepare Documents
We have had buyers and sellers who wanted to save a few thousand dollars by simply reviewing the agreements themselves. They would ask for changes to the document and send them to the buyer. The buyer would then send the changes to their attorney, who would reject them, leaving the sellers unaware of the legal reasons for the rejections. A transaction that should have taken two months to complete ended up extending to six months and then ultimately fell apart. Hire an attorney and get it done right. It’s one of the biggest transactions you will make, so ensure it is handled correctly.
Being on top of these ten items will help ensure a smooth practice transition. Contact us for a free consultant and help you get started on planning for your transition.
Read MoreThe Newby, The Young Gun, The Rockstar & The Legend…Which One Are You?
By Jon Rutty, Practice Transition Specialist
Have you ever wondered what it will be like to transition your practice? No doubt you have heard stories from mentors or colleagues about the process and perhaps that is the reason you haven’t even thought about it or had the thought “I’ll cross that bridge when I get there.” But here’s a question, what if you’re on the bridge right now and you don’t even know it?
For over a decade I have helped doctors across the nation improve their practices. I have traveled to 41 states and met doctors with all sorts of ambitions, but in my humble opinion, the majority of them fell into one of two buckets.
- The doctors who waited too long to start thinking about their practice transition and who are now desperately trying to make something happen before they get too tired to continue, or worse lose their health; or
- The doctors who have not even begun to think about their practice transition but soon begin to realize, “If I don’t sell when I’m at a high, I may not be able to make the return on my investment like I want to”.
So how do you know when you should start to look. Here are some key factors that assisted my most successful clients in transitioning well.
- They started the process of inviting another provider in before they even thought of a transition. And because they did, they got to find the right person for the job. They weren’t desperate for someone to take over quickly or to fit a specific mold. They had agility because they had time on their side.
- They saved for their retirement early. While many of the doctors I worked with were running out of steam and low on money to support their retirement, the wisest doctors had been saving for years and were working with a professional to assure that they would not be solely dependent on their practice sale to fund their dreams.
- They had a clear vision for what they wanted. Some doctors I know don’t have a vision for their next steps and because of this they wait too long to begin the process of finding a suitable doctor to join them in transitioning. But when you have a vision behind your eyes, you can see how the work you put in now to make the practice desirable to potential buyers will pay off and you operate with clarity and on purpose instead of “one day.”
So where do you stand? Where are you on your transition timeline?
The Newby – I just bought a practice. I’m beginning to dream about my career and will dedicate time to building out my ideal retirement throughout the process.
The Young Gun – I’ve been practicing for 5-10 years now and have a nice sized practice. It may be time to start inviting another doctor in to have flexibility and perhaps find a future business partner.
The Rockstar – I’m at what could be the peak of my career. My use-before date is closer than my born-on date. I have thought a lot about when and how, but I’ve never taken any steps to discover more.
The Legend – I was booming just a few years ago, but I’m seeing some decline in my office and I’m tired of trying to find new ways to market myself. Add to that, a lot of my colleagues are retiring. It’s just a matter of time now.
No matter who you are in this scenario I can tell you that as a business owner, if you don’t seek out a highly skilled transition consultant, then you are either spending too much time trying to figure out what works, or you are likely depending on the experience of staff to help you grow your business. Omni has a long history of helping doctors with successful practice transitions. Newby, don’t wait too long to find one. Young Guns, same to you, but you are likely in a place where you need to start looking for a doctor to join your practice. Rockstars and Legends, it’s past time to talk with someone about your transition. Even if you are still 5-8 years away from taking the plunge, you owe it to yourself to talk with an experienced transition expert to discover the best options for you moving forward.
At Omni, we specialize in helping owners transition their practices into the hands of capable and competent private owners. We can arm you with a practice valuation so that you can see what your next step could be and for those of you reading this newsletter, we are happy to do that absolutely FREE. That’s a cost savings to you of about $3,500. Click the link below for more information on how to begin the process.
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The Fastest Cure for Cancellations and No Shows
By Jon Rutty, Practice Transition Specialist
This has got to be one of my favorite topics. While I also love goal setting and making a good plan, I love to see major problems turn around with a good strategy. Many times, Cancellations and No Shows seem to be some sort of blue whale that is swallowing you up, but it doesn’t have to be that way, and following this simple plan will help you to regain control of your schedule and accommodate the people who actually show up to their appointments.
If you are like most offices, you have a 20% or higher Cancellation and No Show rate. That means in an office that sees 40 patients a day, on average 8 people are moving their appointments or abandoning them for one reason or another. Sound shocking? What’s worse is that what many offices are doing is not only failing to keep people on the schedule, it is frustrating some of their best patients so much that they want to leave.
Blink if you do one of these things.
1) When someone cancels or no-shows you charge a small fee to their account. You tell patients about this hoping this will deter them from being absent, but you likely hear something like, “Well if that’s what you have to do, I guess you have to do it,” as they roll their eyes on the other side of the phone. Fast forward 6 months to a year, and they have the same balance on their account and you are thinking to yourself, “They are never going to pay this.” Then at some point when you are cleaning up your AR you decide, “let’s just write off all of the no-show balances and put a note in their account that they have to pay it to reschedule,” or worse, you decide to send them the dreaded dismissal letter. How’s that working for you?
2) You schedule patients three columns across because you have such a bad problem in your office, you just don’t know when someone is going to show up. So by having three people scheduled you hedge your bets and salvage the day. That is until all three decide to show up at the same time and someone has to wait because there is not enough space to see them all, or if there is, a 30- minute appointment now takes an hour because you can’t be in three places at once, therefore putting the rest of your patients behind. How am I doing?
The reality is that I’ve seen no shortage of ways that aren’t working for practices. Would you like to know how to fix this problem for good? Good! I’m going to give you some specific action steps that, when used will work to keep good people in your schedule and weed out those who are just not able to show up to their appointments.
Step 1 – You Don’t Have “Cancellations”
We don’t say the “C” word, especially in the company of patients. I can’t tell you how many times I have heard a professional tell a patient, “Oh we have cancellations all the time. If we can move you up we will.” THUD! That’s the sound of me falling over and dying in the background. Why don’t you just tell them that they are free to cancel anytime because we always have a backup plan. Stop it! What you say to patients will forge the type of relationship you want to have with them. They don’t need to know we have cancellations all the time. Just tell them, “If we can make time for you sooner, we will.” So what do we do instead? It’s not uncommon that offices tell patients that they need to call 24 hours ahead of time if they can’t make the appointment. However, the reason why patients aren’t good at this is because you are telling them, and they often forget what you say, don’t they? Instead, ask them, “Ms. Jones, will you please call me 24 hours ahead of time if you can’t make this appointment?” And then wait for a response. By doing this, you engage their brain. They have to say “yes” and people don’t like to be liars. They will remember, “Shoot, I told the office manager that if I couldn’t make it to the appointment I would call 24 hours ahead of time.” And then they will call. If they call with notice, then reschedule them like normal.
Step 2 – How to Respond to Someone Wanting to Cancel Same-Day
There is only so much we can do in the way of giving someone a consequence for not showing up to their appointment, but can we agree that what we do needs to accomplish two things: 1) the patient either stays on the schedule or never cancels again, and 2) make sure we don’t create more unnecessary work for us on the backend (i.e. culling through AR reports for small balances that need to be written off, or collected). What I am about to show you has helped hundreds of offices all over the nation for the past 30 years to reduce their cancellations and no-shows to an average of 10% or less.
When a person calls to cancel, ask them this question. “Ms. Jones, I’m sorry to hear you’re having trouble today, what can I do to help you keep this appointment?” And then stop talking. Don’t talk. They are thinking. What you have told them without telling them is, “Ms. Jones this isn’t okay. How can we fix this?” You will be surprised how many people come up with a creative solution to their own problem. You might be asking, “What in the world can we do to help them keep their appointment?” That’s a great question. They may ask you the same thing. If you have time to move them up or down on the schedule for that day, then do that. Ultimately, you want to discover what is going on. Can they come late? Can they come for some of it, but not all of it? What can they do? As much as you can, use the time that you already have scheduled to do something productive with them. If they have multiple quads of work, perhaps just do one quad. If they have a cleaning and an exam, maybe do one or the other. Holes in your schedule are never a good option, especially last minute, so work with them as much as you can to keep them on the schedule without running anyone else behind.
Step 3 – What If They Say They Can’t Make It After All?
Great question. Tell the patient, “I’m sorry you can’t make it to your reserved appointment time today. I don’t have another appointment time for three weeks. I know the doctor would hate for you to wait that long for your appointment. Are you sure there is nothing you we can do to keep this appointment?” This is crucial. Telling a patient they have to wait three weeks could be the reason they cancel their other plans instead. You want to make it inconvenient for a patient to call without notice and get right back onto the schedule. “But what if I have an open day tomorrow,” you ask. Move them out three weeks. At the very least, this amount of inconvenience could be the reason they never do it again. But if it isn’t, the next step is sure to be.
Step 4 – When They Definitely Can’t Show Up
If you have exhausted steps 1, 2, and 3 and they are still going MIA, then tell them this. “Ms. Jones, I’m sorry you can’t make it today. I have rescheduled you for (three weeks out). I know this will never happen, but in the unlikely event that it does, I just need to let you know that you will have to prepay for all of your future appointments.” This is GOLD! What are we doing here? We are telling the patient that this is not okay, but we are not slapping them in the face with a no-show fee. We are setting boundaries for our office, but we are not insulting the character of our patients, nor are we excusing it like it’s okay. If it happens again, collect the patients fee upfront before scheduling. In our offices, anyone who prepays, and I mean anyone, gets a 5% discount and I would extend it to them as well. If you do this, you will see your Cancellations and No Shows drop dramatically, because people who pay upfront, show up.
As with anything, fixing your schedule is a process. It takes time and practice. When using this strategy, you want to use your brain too. You’re a smart person. If someone is calling late notice because of a death in the family, it is obviously not the time to go down this road, but that is the exception, not the rule. I promise if you begin to use this strategy today, you will begin to see more patients showing up to appointments and experience less disturbance in your production in the weeks and months to come.
Read MoreWhy Practices Don’t Sell
By Rod Johnston and Jim Vander Mey
Your practice has successfully worked for you for many years so why isn’t it selling? It could be the transition consultant (broker) you are using, or it could be your practice.
Working with an experienced transition consultant is important. We know where and how to advertise. It doesn’t work to simply advertise on a website. You will want marketing and advertising in schools across the country, veterinary journals, and county/state societies. An experienced consultant already has a list of potential buyers for your area or type and may have other creative grassroots ideas to find the right buyer.
The right consultant cares about you, your team, practice, and goals. It shouldn’t be just about the commission money. Your consultant should be responsive and professional to potential buyers and you.
A comprehensive valuation and prospectus are important. If you or your consultant price your practice too high, it can be offensive to potential buyers, and they won’t feel comfortable offering a lower price. Even if you find a buyer willing to overpay for your practice, the bank will not finance 100%, which means you have to become a bank for a specific amount of the purchase price.
Sometimes even when you have the right consultant your practice may have other reasons for not selling. Sometimes it’s simply not finding the right veterinarian at the right time. Often it is because your location is not desirable to new buyers and their families. Sometimes it’s the size of the practice. We all know practices with two exam rooms can be very efficient and profitable, but many buyers want 3 rooms or more.
Declining collections the last 3 years or simply low collections can be a deterrent to potential buyers and banks. They understand reasons such as more time off due to vacation or health issues.
Most buyers understand they may need to update style or equipment and technology, but if it’s a lot of cost and effort, they may keep looking for a better practice.
If your practice falls into any of these areas of concern, it will take more time than the average to sell. Lowering the price may help, but if there is no interest, it’s not the price that’s the problem. Don’t give up or get mad, just understand that while your practice may have been perfect for you, it can be a while to find the right buyer.
Read MoreCorporate Buyers: A Long-Term Commitment
By: Steve Kikikis, Vice President, Broker
As you know, in recent years, corporate buyers have emerged as prominent players in the veterinary practice acquisition landscape. In 2024, there are still many corporates buying good practices. While selling to a corporate entity offers certain advantages, such as financial security and access to resources, it comes with specific expectations. Corporate buyers typically seek a long-term commitment from the selling veterinarian, often requiring them to stay on for two to three years post-sale.
This requirement serves multiple purposes, including ensuring a smooth transition of ownership, maintaining continuity of care for patients, and facilitating the transfer of knowledge and expertise to the new owners. There will also be financial expectations outlined in the work agreement for the outgoing doctor and even their associates. For veterinarians considering retirement, committing to an extended post-sale tenure will push your retirement plans out at least two to three years, underscoring the importance of early planning.
At Omni Practice Group we are experts in selling veterinary practices. This is no regular sale, this is a multifaceted process that demands careful consideration, strategic planning, and plenty of time. By initiating the sale process at least three years before retirement, we can help you navigate the complexities of the market with greater ease and confidence; giving you time to find the right buyer for your practice and facilitating the smoothest possible transaction.
Your plan of action – Contact me today, and I will help evaluate your practice. By doing this we can determine the value of the practice, who would be considering buying your office, and how much time it will take to find that individual buyer or whether a corporate buyer may be a better match. Call Steve Kikikis at 425-905-6920 or email at steve@omni-pg.com
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