3 Reasons to Sell your Practice While the Tides are High
Timing is everything. If you would have invested $1,000 in Nike stock at its initial public offering in 1980, your investment would be worth over $190,000 today. The same can be said for many other stocks or investments. You see, the tides of the economy ebb and flow. But how does that relate to your veterinary practice?
We have been experiencing a perfect storm of sorts over the past several years. The economy has been doing well, interest rates are at all-time lows, buyers are plentiful with both corporate and individual buyers and capital gains and income tax rates are relatively stable. We’ve been on the “flow” end of ebbing and flowing with practice values at an all-time high. But when do the tides start to recede?
We can’t predict the future. But there are several things we know with relative certainty. Corporates have been paying incredible prices for practices. How long will this last? According to an article in Entrepreneur magazine, corporates expect to own 25% of all veterinary practices by 2023. After that, they will slow down their purchasing of practices as fewer practices will generate enough revenue to peak their interest. Practice values will in turn go down.
We also know with a high level of certainty that both capital gains and income tax will be going up. President Joe Biden explicitly stated this during his campaign and is currently proposing this as we speak. This will affect practice sales as it’s not uncommon for a practice purchased by a corporate to sell for $2 million and higher. The proposed capital gains will be on amounts over $1 million. This will reduce the amount of funds that you take home after taxes. It could be by as much as 20% or more.
As I stated, we can’t predict the future, but we do know the present. If you are even considering selling your practice in the next 3 years, we believe it would be well worth a phone call to us for a free consultation. Selling in 2021 instead of waiting a year or two could earn you a significant amount of extra money. The cost of a phone call = $0. The cost of waiting = potentially $100,000+.
Call us at 877-866-6053 or email info@omnipg-vet.com.
PS: If you have an offer from a corporate, call us anyways. We’ve helped a number of veterinarians get a much higher offer than their initial corporate offer.
Read MoreWhen You Should Think About Selling Your Practice
There are many reasons why veterinary practices are put up for sale. Some of the more common reasons actually have little to do with the practice’s general performance. For example, many veterinarians discover that they need to sell for health reasons or personal concerns, such as divorce or partnership issues. While a business downturn might prompt many veterinarians to sell, economic drivers are not the only issue. Owners may want and need to sell, but often it isn’t always that simple.
Many veterinarians are looking to retire but are unpleasantly surprised to learn that they simply can’t afford to do so. Still yet, many veterinarians don’t truly want to retire or sell, but instead, they just want more freedom in their lives. The day-to-day responsibilities of owning and operating a practice can take their toll. Many veterinarians are looking to make a change and would love to be free of this burden. This class of owner has already “checked out” mentally, and this can have profound negative consequences for their businesses.
When a veterinarian wants out but discovers that he or she simply can’t afford to sell or retire, it will come as no surprise that there is usually an accompanying drop off in enthusiasm. Ultimately, the vast majority of practice owners will start to lose focus. Often, we find that they stop investing the capital necessary to continue the growth of the business, which can trigger other events, such as the loss of key staff members and/or customers. The failure of the practice to maintain its footing and competitive advantage can lead to a more aggressive posture by existing competitors or even encourage a new competitor to move into the market.
In time, the practice owner may come face-to-face with the harsh realization that they have no choice but to sell if they are to salvage any of the practice’s value. The best way for a practice owner to safeguard against this situation is to sell when his or her practice is doing well, as this helps to ensure an optimal price.
Working with a practice broker, even years before one is interested in selling, is one of the single smartest moves any business owner can make. The time to think about selling your practice is now, as no veterinarian knows what life or the market will bring.
To help figure out where to start, contact us today – phone: 877-866-6053 or email: info@omnipg-vet.com.
Read MoreTransition Announcement and Patient and Team Retention
By Rod Johnston, MBA, CMA and Jim Vander Mey, CPA, ABI
In my experience, sellers get concerned with the “correct” time to tell their team about the transition. We recommend informing them when all documents or some are signed and there is no doubt the sale will go through. It may be 2 weeks or 2 days before closing, it depends, and your transition advisor will assist you.
If you tell your team too early, they may become stressed, confused, and unsure of their future, so they may panic and find another job and possibly tell clients or other veterinarians. None of this is good! Your team and clients are important to the goodwill of your practice.
When you do announce the new buyer, remind the team that they love their teammates and patients and that isn’t changing. Explain a bit about the new veterinarian and schedule time for them to meet. Help them feel confident that the transition will be great, and the new veterinarian will need their assistance for everyone to be successful. If you are going to continue to work for a period of time in the practice, let them know that and say, “I’ll be here to assist in the transition to make sure it goes smoothly”.
A letter to clients is typically sent from the seller with the buyer’s approval. Depending on both the buyer and seller and the unique area, a newspaper ad can be placed, and an open house can be scheduled. The letter should emphasize your appreciation of serving them as their veterinarian over the years and also tell clients how happy you are that you found a great veterinarian, or group if it’s a corporate buyer, to take as good of care of the clients and patients as you did. Your transition advisor will provide ideas and examples to help you choose the best method for announcing the transition.
Clients may be unsure of the new buyer, so if you are in the office “brag” him or her up a bit. Post the letter at the front desk and have copies on tables so the clients can read about the new buyer while they wait. It’s important that the buyer of your practice not make any large changes in the practice and mirror you and your philosophy as much as possible. This will help make the transition seamless.
The new team will be concerned about the new buyer’s expectations so consider not changing much in the practice for a while, so they have a chance to transition and become comfortable. Provide information they won’t know such as how to schedule and what instruments you need for each procedure. Help everyone to be successful in their position.
Remember to remind your team often that everything is ok. Consider having one-on-one meetings with each new team member and ask specific questions. “What keeps you coming here every day? What’s one thing you would change in the practice if you could? Can I count on you to bring questions and concerns to me rather than involve the entire team?”
Transitions can be stressful. Work with your transition advisor that has many experiences and ideas to share to help everyone be successful.
Read MoreThe Importance of Owner Flexibility
You shouldn’t expect to sell your practice overnight. For every practice that sells quickly, there are a hundred that take many months or even years to sell. Having the correct mindset and understanding of what you must do ahead of time to prepare for the sale of your practice will help you avoid a range of headaches and dramatically increase your overall chances of success.
First, and arguably most importantly, you must have the right frame of mind. Flexibility is a key attribute for any veterinarian looking to sell his or her practice. There are many variables involved in selling a practice and that means much can go wrong. An inflexible owner can even irritate prospective buyers and inadvertently sabotage what could have otherwise been a workable deal.
Be Flexible on Price
A key part of being flexible is to be ready and willing to accept a lower price. There are many reasons why practice owners may fail to achieve the price they want for their practice. These factors range from lack of management depth and lack of geographical distribution to an overreliance on a handful of customers or key clients. Of course, one way to address this problem is to work with a practice broker in advance, so that such price issues are minimized or eliminated altogether.
Be Prepared to Compromise
In the process of selling your practice, you may want to achieve confidentiality and sell your practice quickly and for the price you want. However, the fact is that most sellers find that it is possible to have confidentiality, speed, and the price you want, but not all three. Ultimately, you’ll have to pick two of the three variables that are most important to you.
Be Patient
A third way in which practice owner flexibility can boost the chances of success is to embrace the virtue of patience. By accepting the fact that practices can “sit on the shelf” for a considerable period of time, you are shifting your expectations. This realization can help reduce your stress level. The fact is that stressed-out owners are far more likely to make mistakes.
Sometimes Losing is Really Winning
A fourth way in which practice owners should be flexible is realizing that you and your lawyer will not win every single fight. There will be many points of contention, and a smart deal maker realizes that it is often better to have a good deal than a perfect deal. You may have to make sacrifices in order to sell your practice. Simply stated, you shouldn’t expect the other side to lose every point.
At the end of the day, a savvy practice owner is one that never loses sight of the final goal. Your goal is to sell your practice. Seeing the situation from the buyer’s perspective will help you make better decisions on how you present your practice and interact with prospective buyers. Maintaining a flexible attitude with prospective buyers helps to position you as a reasonable person who wants to make a deal. Goodwill can go a long way when obstacles do arise.
Read MorePractice Owners Can’t Always Sell When They Wish
A recent and insightful Forbes article, “Study Shows Why Many Business Owners Can’t Sell When They Want To” penned by Mary Ellen Biery, generates some thought-provoking ideas. The article discusses an Exit Planning Institute (EPI) study that outlined the reality that many business owners can’t control when they are able to sell. Many business owners expect to be able to sell whenever they like. However, the reality, as outlined by the EPI study, revealed that the truth is that for business owners, selling is often easier said than done.
In the article, Christopher Snider, President and CEO of EPI, noted that a large percentage of business owners have no exit planning in place. This fact is made all the more striking by the revelation that most owners have up to 90% of their assets tied up in their businesses. Snider’s view is that most business owners will have to sell within the next 10 to 15 years, and yet, are unprepared to do so. According to the EPI only 20% to 30% of businesses that go on the market will actually sell. Snider believes that at the heart of the problem is there are not enough good businesses available for sell. In short, the problem is one of quality.
As of 2016, Baby Boomer business owners, who were expected to begin selling in record numbers, are waiting to sell. As Snider stated in Biery’s Fortune article, “Baby Boomers don’t really want to leave their businesses, and they’re not going to move the business until they have to, which is probably when they are in their early 70s.”
The EPI survey of 200+ San Diego business owners found that 53% had given little or no attention to their transition plan, 88% had no written transition to transition to the next owner, and a whopping 80% had never even sought professional advice regarding their transition. Further, a mere 58% currently had handled any form of estate planning.
Adding to the concern was the fact that most surveyed business owners don’t know the value of their business. Summed up another way, a large percentage of the business owners who will be selling their businesses are Baby Boomers who plan on holding onto their businesses until they are older. They have not charted out an exit strategy or transition plan and have no tangible idea as to the true worth of their respective businesses.
In Snider’s view, the survey indicates that many business owners are not “maximizing the transferable value of their business,” and added that they are not “in a position to transfer successfully so that they can harvest the wealth locked in their business.”
All practice owners should be thinking about the day when they will have to sell their practice. Now is the time to begin working with a broker to formulate your strategy so as to maximize your business’s value.
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