Looking 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!
Read MoreBuyer Trends in the Veterinary Industry
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.
Read MoreSeller Carrybacks and Veterinary Practice Transitions Today
You’ve heard the term “Seller Carryback,” but what does it mean?
Seller carryback financing is when the seller of a given property, or in this case, a seller of a veterinary practice and assets, acts as a lender for the buyer if a conventional bank will not offer the full amount that the buyer needs to close the sale.
Years ago, it was commonplace for a retiring veterinarian to act as the lender for someone to purchase a veterinary practice. Seller financing was driven largely by the fact that banks and financial institutions had yet to embrace the industry like they do today. Therefore, there was a wide variety of structures, interest rates, terms, etc. that were built into those transitions and the exchange of funds between the buyer and seller.
Much like the rest of the veterinary world, the industry and the financing supporting transitions have evolved. In most transactions, it is quite common for the seller to receive all the cash at the time of closing, which is ideal. However, certain circumstances still exist where seller participation in financing is a requirement. In these cases, the buyer’s lender will require the seller to carry a certain portion of the purchase price. Usually, that amount is 10-25% of the total purchase price. Why would a bank need that, you might ask? Some common scenarios include: a declining revenue trend, uncertainty around the buyer’s production capability, and tight cash flow, to name a few.
Every lender has different standards around seller participation, but here are some common features of that path in the current environment:
- Term: Most carrybacks are amortized similar to the buyer’s bank loan. Payments based on a 10-year repayment are common.
- Rate: Since these loans are typically junior to the bank loan it is not unusual to see a seller note 0-2% higher than the banknote. Right now, around 5% is reasonable.
- Prepayment Penalty: Sellers typically want to receive the funds over a shorter timeline of 10 years. Most carrybacks do not have prepayment penalties so that the loan can be paid off or refinanced within 24 months of the transition.
With talks of increasing capital gains taxes in the near future only time will tell how prevalent carrybacks will become.
For more information, please contact us today.
Read More5 Practice Transition Pitfalls and How to Avoid Them
A successful transition involves preparation and knowledge. There are numerous things you should do to get your practice ready to sell and making even one mistake can cost you. Here are five transition pitfalls and how to avoid them.
Letting your production and profitability go down prior to selling. We have seen many practices that were producing $300k to $500k a few years prior to contacting us, but collections and profit tanked when the veterinarians cut back on their hours and their associates didn’t make up the difference. This can result in hundreds of thousands in lost practice value. As you head closer to a transition, keep your production numbers, and your profit, up.
Counting on selling your practice to your associate. This always sounds like a great plan. But statistics show that over 70% of associate-to-own opportunities do not make it to a sale. What happens if your associate decides they want to practice in another town? Or your associate finds an opportunity in another practice? Protect yourself by getting everything in writing and using an intermediary if possible. In addition, consider having your associate put away money in a non-refundable escrow account.
Not evaluating all options. When we ask veterinarians if they are okay with selling to a corporate buyer, we often hear, “No way.” Here’s why you should keep an open mind. While an individual buyer may be limited to paying 2 to 4 times earnings before interest, tax, depreciation, and amortization (EBITDA), some corporations are willing to pay 5 to 10 times EBITDA, and sometimes even more. We have negotiated sales to corporate buyers that got the sellers $1M more than originally expected. That’s a million dollars to help pay for grandchildren’s education, give bonuses to hardworking staff and enjoy retirement.
Telling your staff too early. A common question we get asked is, “When should I tell my staff about the sale of the practice?” We suggest waiting until the agreements are signed. Telling staff too early may result in them leaving for another opportunity. For those who stay, it creates a fear of the unknown. Who’s the new buyer? Will my job stay intact? Will my pay be the same? What about my benefits and hours? Waiting may not seem like the right thing to do, but it really is.
Going it alone. Corporate buyers are throwing out offers to potential practice sellers left and right. Some are even hiring DVMs to tell you that you do not need representation, that they will handle everything. But is their offer the best one you can get? Without representation, how would you even know? A good practice transition broker knows all the different buyer types and what kind of terms and pricing they typically offer. If you try to sell your practice on your own, you could sell to the wrong buyer for the wrong price.
These are just a few of the many pitfalls you might encounter when selling your veterinary practice. With experts on your side, you can avoid them – and other costly mistakes.
Want to make your transition as smooth as possible? We can help. Contact us for a free consultation.
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