What 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 MoreFrequently Asked Questions for Veterinarian Sellers
Do I have to pay out my staff vacation and sick time at closing?
Yes, after the sale has closed, you will write a check for accrued vacation time to your staff members. The staff will then start accruing vacation and sick time under the new clinic owner.
Paying out sick time depends on your individual state laws. Some states have recently implemented mandatory sick time. Some of the new state laws may require the employer to pay out accrued sick time to terminated employees. Selling doctors may feel generous and go ahead and pay their staff accrued sick time at closing even though the law doesn’t require it. That is the personal preference of the seller.
Be sure to check your employee handbook and if it states that an employee is paid out for accrued vacation or sick time, then you must pay it out no matter what the law says. Employees can file a court action against you to get their accrued and earned time paid.
When should I tell my staff and patients about selling my clinic?
In general, you do not want to tell your staff about selling your clinic until the documents are signed. People are averse to change and if you have staff members that are already thinking about another job opportunity, then you may lose them if you tell them that you are selling your clinic.
However, that being said, if you’ve had the same staff for 30 years and they are like family to you and would be upset if you didn’t tell them, then it is really up to you if you’d like to tell them or not. If you trust they will be loyal and stay on, then it may make sense to tell them.
When to tell also applies to your patients. About the same time as you tell your team, a letter approved by the buyer should be ready to go out to your patients. We have examples of these letters for your use. Patients want to know a little bit about the new veterinarian and that you and your team all trust and respect the new veterinarian. Depending on what you desire, you may want to host an open house at the clinic, invite your staff and patients, and as additional marketing, invite local residents or businesses.
If my family member also works in the clinic and wants to retire at the same time, will that be a problem?
It’s not a major problem but expect the potential buyer to ask your family member to at least stay on for a transition to a new employee. For example, if your wife is the front desk person, the buyer may want your wife to help train a front desk person for three to six months to ensure the success of the new person.
Will I be required to stay on and work on patients as part of the transition process?
Every transition and every buyer are different. Larger transitioning clinics with higher volume production may ask you to stay on and work in the clinic. Especially if there is enough production for another part or full-time doctor. For smaller transitions under $800,000 or so, the buyer may ask you to stay on for a couple of months, or at least to be available via phone or e-mail to answer questions about patients, staff, etc. We have found that after a couple of weeks, buyers typically realize they have things under control and will then let sellers know that they are free to fully leave and enjoy whatever their next chapter brings.
Do I shut down my corporation at closing?
There will be some bills to pay after closing and some other “clean up” of the books, so we recommend you leave your corporation open for six months to make sure everything is taken care of. If you have an accountant, let them take care of closing out your corporation.
What are the taxes owed at closing?
It depends on the state, but there will be a final personal property tax bill that you will need to pay. If you are using escrow, they will take care of that. If not, you can contact your tax authority or accountant and they can help you calculate what is owed. There may also be a proration where you pay part of the personal property tax and the buyer pays the balance.
For income tax, there is a final income tax bill to pay. It’s due on April 15 and paid as normal. Your accountant will fill out a “Final” tax return and inform the IRS that you are dissolving your corporation. The state you live in will also need to be notified that you have sold your assets and dissolved your corporation.
Can I slow down the production the last few months before the sale?
Argh No! Keep your production up and going — business as usual. One of the worst things you can do is to have production go way down the last few months and have the lender come back and ask for current reports. They’ll see the drop in production and question if the clinic is now worth what they valued it at. They may ask you to lower the price. You can relax after the sale closes.
What is included in the sale – Equipment, Goodwill, Accounts Receivable, Cash in the bank, all my personal possessions in the clinic?
What you are selling is the goodwill of the clinic and the equipment used to produce the services you have provided over the years. Standard protocol is 75% to 80% of the purchase price is allocated to goodwill, $5,000 to $10,000 towards the non-compete, and the remaining to equipment. Accounts Receivable are typically sold in addition to the clinic assets as a separate sale. Personal possessions are excluded from the sale, as long as they are listed in the exhibit in the Purchase Agreement.
Should I sell my Accounts Receivable to the Purchaser, or keep it? At what discount is the Accounts Receivable sold?
The majority of the time, we recommend that you sell the accounts receivable. The sales price for the accounts receivable, which is in addition to the clinic sales price, is 85% of the accounts receivable balance less insurance and other discounts and less any credit balances on accounts. Another method is 90% of the accounts less than 30 days old, 75% in the 30 to 60-day-old bucket, 50% for the amount that is 60 to 90 days old, and 5% for anything over 90 days old. If there are patients on payment plans, then those may be excluded from the sale or may be included depending on what is negotiated.
If for some reason you decide to keep the accounts receivable and collect the balances yourself, you will pay a collection fee to the purchaser of 5% to 10% depending on what you have negotiated.
Note: Attorneys state that accounts receivable disputes when the A/R is not sold is the number one cause for potential litigation. It’s simply cleaner and easier if the seller sells their A/R.
How long does the sale of my clinic take?
The amount of time it takes to sell your clinic is dependent on a number of factors. The first factor is how much you are producing. Higher producing clinics tend to sell faster than lower producing clinics. The second factor is whether you are in a small rural location or an urban setting. Clinics located in small, remote towns tend to take a while to sell. They can take anywhere from one to two years to sell. If production is low, they may not sell at all. The more urban the clinic, the higher the likelihood of the clinic selling quickly. Lately, we have seen that clinics within 30 minutes of a metropolitan area are selling better than clinics directly in a metropolitan area. The final factor is how many rooms you have. A three-room clinic will take longer to sell than a four-room clinic. For some reason, young buyers seem to think they need six to eight rooms to run a clinic. We try to educate them that four is plenty, but they listen to people on VetQuest, consultants, or other forums that make blanket statements that you need six to eight rooms. They don’t realize that the more rooms you have, the more rent you will be paying. Three and four rooms are just fine.
With those factors in mind, here are some general “rules of thumb” time frames. A clinic in a metropolitan area, or within 30 minutes of a metropolitan area will sell in approximately six to nine months. Some sell faster, some sell slower. Again, the size of the clinic matters. A rural clinic will take between twelve months to twenty-four months to sell.
Should I sell my building?
Do you want to be a landlord? Can you get a better return on the proceeds somewhere else? Is the current real estate market hot? Can the buyer afford to buy the building now? These are the questions to ask yourself. In the current market, we have been getting higher than market prices on real estate because a building is worth more to an owner-user than to an investor. Owner-users would rather pay themselves rent than pay rent to someone else. Thus, they would pay a premium to purchase the building they will be occupying. The final thought is do you want to take the risk of tenants leaving the building to go buy their own building and rendering your building vacant?
Selling empty veterinary buildings can be nearly impossible and it is worth more to the buying veterinarian. Perhaps if your space is right on the coast or downtown you may have options, but potentially still difficult and you may be offered less because any other business will need to do considerable remodeling. It can take up to twelve months or longer to lease a commercial building. If you have a specialized building like a veterinary clinic, you more than likely need to find a veterinarian to fill the space again. That might be a challenge. In a nutshell, if it’s a good market, I would suggest selling the building.
What if I want to stay on and work a day or two a week?
This may be possible if there is enough production/collection for both of you. The buyer and the lender will need the buyer to get the production in order to pay the loan and everyday life expenses. You may be able to stay on if you perform procedures that the buyer does not perform. You can talk about and make a plan for ways to increase collections. If you work back you will need to have a compensation and employment agreement negotiated and in place.
How is the sale price determined to market my clinic (and real estate)?
We work with you to gather the last three years’ clinic financial information and then have our certified CVA’s put together a valuation of the clinic using three different methods, which are weighted and averaged to determine the market value of your clinic. The valuation is then reviewed with you to gain a final agreement on a listing price.
The real estate price is determined somewhat like a home or any commercial real estate by reviewing comparable real estate in your area. Once we determine the potential listing prices for your clinic and real estate, we consult with you and set a final price.
What if I run personal expenses through my clinic and pay my kids who don’t hold a position?
The cleaner your books are the easier they are to understand and if they are too convoluted, some banks won’t trust the numbers and won’t lend the money. We expect some “adjustments” to expenses and income, you just need to let us know what these are.
Should I remodel or get new equipment before selling?
If your clinic looks like 1975, consider updated paint, flooring, and décor, but nothing over the top that is expensive or makes it unsettling to the average person. If your equipment is really old, talk with us and we can help you determine if anything needs to be updated or replaced.
What do I do with all of the proceeds from the sale of my clinic and building?
Please remember that anything you owe on either the clinic or the building will have to be paid at closing. Talk with your CPA and financial planner to help you determine the best investment options. You may have a retirement plan in place that allows you to sock away a lot of money and is tax-free. If you have another business or like being a landlord, you can discuss a 1031 exchange with your CPA. You will have to pay taxes, but perhaps you can reduce them by strategizing with your advisors.
How can I increase the value of my clinic?
If you are thinking about selling your clinic in the next three to five years, you can review and make strategic decisions to increase the bottom line to increase the value. Some basic improvements would be to increase the number of new clients/patients and production, and hold off on any major purchases unless necessary to maintain the current day-to-day operations. Enhance the appearance of the clinic and clean out any old clutter. If you are ready to sell within the next twelve months, it is hard to increase the value of the clinic because the value is based on the last three years of clinic financials. The most important thing if you’re ready to sell now or in the next twelve months is to maintain or increase the clinic’s production. New buyers and banks will be reviewing the clinic reports to verify if the clinic is holding steady or if the numbers are declining.
Are non-compete clauses in a purchase and sale agreement enforceable?
Yes, when written correctly they are. Always consult with your legal professional on any enforceable non-compete questions.
Should the Seller and Buyer have an attorney or an accountant/CPA involved?
We strongly recommend that seller and buyer each have their own professional attorney and accountant/CPA for advice on legal, financial, and taxation matters. Typically, the broker involved can make a recommendation of a veterinary professional if you don’t have one.
Should I use a Veterinary Broker?
After many years of hard work and investment into building a veterinary clinic, you’re now thinking about selling the clinic. It is easy to assume that the clinic will sell quickly and for a great price when you are ready to sell. Selling a veterinary clinic is not like selling a home, it is a complicated process. Determining the market value of the clinic, showing the clinic, finding the right buyer, negotiating the purchase price, drafting the asset purchase agreement, formulating the transition plan, negotiating the lease assignment, and obtaining clinic financing are just a few of the key areas where a potential clinic sale could become derailed. The expertise, experience, and guidance of the Omni Practice Group brokers can prove to be invaluable. Using a broker will typically save you a lot of time and money in selling your clinic.
Read MoreWho Should be on Your Exit-Planning Team?
By Corey Young, MBA, CVA
Let’s discuss the best approach:
- Financial Planner. A financial planner helps clients meet their current money needs and long-term financial goals. They use a structured process to guide clients toward prudent financial decisions to maximize their potential for attaining life goals. Using their knowledge of personal finance, taxes, budgeting, and investments—combined with analytical tools and data that can illustrate potential outcomes—financial planners make recommendations, which help clients make informed decisions.
- CPA. Almost everyone reading this article has a CPA. While they are an invaluable resource, over-relying on them on a consultant basis can put them in a conflicting role when it comes time to exit your business. Per Investopedia, “Although some CPA firms serve as business consultants, the consulting role has been under scrutiny following the Enron scandal where Arthur Andersen simultaneously provided audit and consulting services which affected its ability to maintain independence in its audit duties If the CPA firm is auditing the same company that the firm also does consulting work for, then there is a conflict of interest. This conflict voids the CPA firm’s independence for multiple reasons, including: (1) the CPA firm would be auditing its own work or the work the firm suggested, and (2) the CPA firm may be pressured into unduly giving a positive (unmodified) audit opinion so as not to jeopardize the consulting revenue the firm receives from the client.”
- Transition Consultant. A business transition consultant helps a business owner assess the current asset value of the business and establish its attractiveness to various buyers. A transition consultant also helps owners assess where they’re at motivationally, as professionals and business owners in their readiness to sell. The consultant then works together with practice owners to develop exit strategies that could begin in the immediate future or develop over a couple of decades. Frequently, transition consultants also serve as the broker of practice sales. This is a real plus because their work in the open market makes their recommendations much more meaningful. A widely accepted recommendation is to engage a transition consultant long before you are ready to sell. Analogous to this recommendation is diagnosis and prevention. Waiting to contact a broker when you are ready to sell is considered emergency care.
- Attorney(s). Two different types of attorneys need to be engaged at some point during a well-developed exit strategy. First, an estate planning attorney to help set up wills and trusts. Second, an experienced transition attorney when the time comes to exit the business.
- Banker. Developing a solid relationship with a banker can open doors of possibility both currently and into the future. Because of banks’ (mostly outdated IMO) hiring and retention policies, bankers tend to move around quite a bit. My recommendation is to focus on the banker more than the bank.
Who do you currently have on your team?
Read MoreLooking at Veterinary Practice Ownership in 2022
By Happy New Year! We want to wish you a happy and healthy 2022. As the new year gets underway, we have to look at some trends that will continue into the new year, some events that may be slowing down, and other news happening in the veterinary industry. Here are a few things to think about:
Veterinary Employee Shortage – This has been going on for several years now and there doesn’t appear to be an end in sight. There’s nothing that can happen overnight to help put an end to the shortage. Veterinary schools can’t graduate students fast enough and there are not any new veterinary schools that are starting up. Corporates are offering large bonuses for veterinary associates to join their practices. It’s tough for individual practice owners to compete for associates.
Burnout and Compassion Fatigue – This is one of the causes of labor shortage amongst veterinarians. Long work hours and days have been magnified with Covid. People are working from home and pay more attention to their animals. When they see their pet acting strangely, they immediately make an appointment with their veterinarian. Even before Covid, veterinarians typically face burnout after 5 to 10 years with some of them leaving the profession.
Veterinary Telemedicine – Telemedicine has become prominent in human medicine. Some health plans are even built around not going into the doctor’s office. There are companies offering telemedicine in the veterinary space. Will this become as prominent as it is in human medicine? Time will tell.
Corporate Buyer Consolidation – There are hundreds of groups buying veterinary practices paying exorbitant prices. Some of these groups have been purchased by larger groups. This buyer consolidation will continue for the next several years. What that may mean is less buyer competition for practices which may mean corporate buyers paying less for practices in the coming years.
Resurgence of Individual Practice Owners – This is a prediction more than based on fact. But, I believe individual veterinarians will get tired of working for corporate owners and will thus look to go out on their own either opening their own new practice or purchasing an existing practice. It will be a good and healthy thing for the veterinary industry as well as for the pet-owning public.
Inflation and its Impact on Veterinary Practices – I would say that inflation is coming, but we’re already seeing an increase in prices at the grocery store, gas stations, and other places. What this historically has meant for pet owners is that they think twice before they go in for what may be deemed by the general public as elective appointments such as canine checkups, consultations, and elective procedures. They will still have the non-elective procedures done when they are required.
These are just a few points to ponder going into the new year. We wish you a happy and healthy new year!
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