Selling a Practice

When 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.

Transition 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.

Practice 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.

Selling Your Practice Yourself – Penny Smart and Dollar Foolish

By Rod Johnston, MBA, CMA, Practice Transition Advisor, and Jim Vander Mey, CPA, ABI, Practice Transition Advisor

You’ve heard the stories of people doing their own electrical work on their house only to be electrocuted when they try fixing the bathroom light while standing in the bathtub full of water. Or the person who decides to fix his brakes on his car only to accidentally cut his brake line and end up driving off a cliff. They have awards for some of these mishaps. They’re called the Darwin Awards.

Deciding to sell your own practice may not give you a fate as extreme as the Darwin Awards, but it could cost you money, your staff, lose patients for the buyer, or end up in a lawsuit. That’s if the sale even makes it all the way to the closing table. I have been selling practices for 15 years. I keep thinking I have seen it all, but then something out of the blue pops up. For example, I was called as an expert witness to review agreements in a prior sale where the buyers were suing the seller. The buyers thought they were buying a practice and a building. They wanted to save money and not use a broker, or an attorney. The buyers showed up at the practice after closing only to find an empty space. It turned out, they just bought the building and not the practice. The agreement used was a real estate purchase and sale agreement and was not for a practice sale – a big and costly mistake on both sides.

Lenders and attorneys report that practices that are sold without a broker have a 50% chance of failing before the practice closes. I believe the failure rate to be higher than that. Reasons they fail include buyers losing interest, seller and buyer can’t negotiate a disputed item or clause, seller and buyer don’t know the steps to the transaction, and confidentiality is breached by one of the parties. A failed sale can disrupt a practice if the staff leaves knowing the practice is on the market.

When selling a practice, you need to wear a lot of hats and possess expertise in a wide variety of areas. Transition consultants need to be knowledgeable in law, accounting, tax, real estate, valuations, psychology, negotiations, design, equipment, technology, software, project management, sales, analysis, practice management, human resources, and mediation. In addition, you need to have a lot of extra time. On average it takes 200 hours to sell a practice a lot more if the sale is to a corporate buyer. That time includes gathering data to do the valuation. Putting the valuation together. Developing a prospectus or offering. Creating advertising, placing the ad, taking phone calls, meeting prospective buyers, doing background checks on buyers, talking with lenders, assisting buyers in due diligence, working with attorneys, negotiating bumps in the road, reviewing agreements, and more.

You also run a financial risk. You could undervalue your practice or get taken by a buyer who is good at talking and negotiating a good deal for themselves. If there is a corporate buyer involved, you need a broker even more. Brokers can assist in negotiating amongst several corporate buyers to ensure you get not only the best value for your practice but also the best terms. Corporate transactions require a lot more scrutiny, due diligence, negotiating, and time. Done right and with patience and you also can reap the reward.

Selling your practice on your own may not get you a Darwin Award. But, doing so comes with a lot of risks and requires a lot of time and expertise. Why risk the equity you have built up over the years to save money? Pennywise and dollar foolish could cost you thousands, if not hundreds of thousands of dollars as well as non-monetary losses.

Give Omni a call today for a free consultation and learn how we can help. Call 877-866-6053 or email us at info@omnipg-vet.com.

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