Frequently 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 MoreSeller Preparation Checklist
The best time to start preparing for your practice transition is three to five years from the date you plan on selling your practice. Since you may not really know that date, the best time to prepare is NOW! Here is a checklist of things you should do as you get closer to deciding to sell your practice:
___ Meet with your Financial Advisor – Discuss with your financial advisor that you are thinking of selling your practice. If the intention is to retire, let them know that is your plan. Ask them how much you may need to retire at the income level you desire.
___ Discuss Taxes with your Accountant – This is especially important in the current environment. There have been discussions at the government level to increase both capital gains and income tax rates significantly. Both affect the proceeds you will receive from the sale of your practice.
___ Obtain a Practice Valuation – It’s best to get a full valuation. You can provide this to your financial planner which will help determine when you will be able to retire if you get the desired amount from the sale of your practice. If you can’t yet retire now, most practice valuation companies or brokers will update the valuation for a minimal charge.
___ Keep your foot on the gas – Don’t slow down in your production. In fact, if possible, ramp up production to get the maximum value from your practice sale. Banks and buyers like practices that are trending up in production instead of going down.
___ Assess the condition of your practice – Do you have 20-year-old flooring that is faded, stained or torn. Replace it. Do you have mustard-colored countertops from 1970? Update the countertops. Paint will do wonders as well. Don’t spend a mint, but spend a reasonable amount – $10,000 to $20,000, to make the practice look and feel fresh and updated.
___ Clean up your Accounts Receivable – If you have credit balances on patient accounts, you’re required to send those back to the patient after a certain number of years. Each state has its own Unclaimed Property or Escheatment law. You can find it on the internet. If you cannot find the patient, you are required to submit the balance to the state. Note that you can charge a nominal processing fee to the patient.
___ Self-assess your practice numbers – Is your staff payroll and benefits expense above 25% of your total collections? Is your production down, but you have the same staffing level? Is your veterinary supply fee over 7% of collections? Know what your ratios should be and manage to your numbers. Contact a consultant if you’re not sure what to do.
___ Know the market – Are practices in your area selling quickly? Are interest rates super high? If it takes two or three years to sell a practice in your area, then you may want to list it soon rather than later.
___ Do a self-assessment – Think you’re five years away, but your back, neck, or hands are telling you – SELL NOW! Burned out on managing staff and insurance companies? Just tired of living where you live and are ready for a change? All these may lead to selling sooner than your retirement date. Just because you sell your practice does not mean you have to retire. You can still practice either in your or someone else’s practice. Or, maybe you’ve always wanted to do something different. Maybe it’s time to test the waters. You can always go back to being a veterinarian. I know several veterinarians who are semi-retired and work as a veterinarian two days per week and drive Uber or LYFT two days per week for fun.
___ Contact a broker – Some of the best transitions we have done began several years before the sale occurred. We built relationships with the seller. In several cases, we found a buyer asking for a specific area. We made the call to one of the veterinarians we had a relationship with and they said “it’s time”. Brokers can also be advisors over the final two, three, or five years of your practice ownership. Should you buy the new x-ray equipment? Should you hire an associate? We can help answer those questions.
Selling your practice is a major life event right up there with buying your first practice. Be sure and prepare, have a plan and get the right advisors. We’re always here for you and phone calls are always free. Give us a call – 877-866-6053.
Download your own checklist here: Seller Preparation Checklist
Read MorePreparing your practice for sale
by Jim Vander Mey
Practice Transition Advisor
- Assess your equipment. Upgraded practices sell faster. If you are more than five years away from retirement, I recommend a few upgrades such as recover your chairs if needed and freshen up the paint. If you want to sell in less than five years, stick to the paint and carpet because you will not get the tax benefit of major upgrades.
- Clean up your accounts receivable. Reimburse patient credits, collect old accounts and keep the A/R current.
- If you have an associate, make sure you have an associate agreement with a non-compete.
- If you have an employment agreement with your corporation and you are a C-Corporation, you may need to terminate yourself a few years before retiring. Consult your tax accountant.
- Consult your financial advisor and tax accountant. How much do you need to retire? How much do you have? What are the tax consequences?
- Get a practice valuation to see what proceeds you will get from the sale.
- Be realistic in the time it takes to sell. In remote areas, it can take a year or two. Metro areas, much less.
- Keep your production up as you near retirement. I see veterinarians slow down all the time in their last few years. Work the same number of days.
- Assess your staff. Do you have too many staff? Do you have one that should have been let go seven years ago?
- Have a practice assessment performed by a qualified consultant. Many will do it for free or a small fee. This may help show you some areas to improve over the next few years.
By focusing on these items in the coming years as you near retirement, you will avoid having your practice production and the price of your practice go down in your later years. Call me for a free consultation. I would be happy to take a look at your practice and give you my thoughts. Or, if you are thinking about transition right now, I have a database of buyers looking in your area. 877-866-6053 ext. 2.
