Selling a Practice

By Corey Young, DDS, MBA, ABI

Are you ready to transition?
Is your practice ready to transition?
What is the market like?

These are all key questions to ask yourself. When is a good time to start thinking about all of this? The real answer is as soon as you buy or start your practice, but the more practical answer is dependent on you. If there any chance you will want to transition in the next five years, you should start working on your transition today.Personal readiness and practice readiness are both more important than current market conditions; however, considering the COVID crisis, I am going to focus on market timing.

If any of the following sounds even slightly familiar, raise your hand:
I was ready personally, and my practice was ready in August 2019. I choose to wait because (pick one or more):

• I have a kid with one year left in college
• I have one year until I can draw Medicare
• There is one more room in the house I would like to finish
• My spouse retires in a year
• I pay off my house in a year
• I turn (insert round number like 60 or 70) next year and I would like to wait until then
• Etc.…

Now, for those of you that raised your hand, consider the reality of August 2020. How does that August 2019 decision to wait look? Questionable at best.

My intent is not to beat up on those of you that this struck a chord. Rather, I want to emphasize the need for starting early and getting help.
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Transitioning is a difficult process. Do not go it alone. Contact an experienced, qualified transition specialist and get the ball rolling. We are here to help.

​Veterinarians typically sell their practice when a life event happens.  That life event may be health related, financial reason, or you have just reached the age where it’s time to retire and spend some quality time enjoying your family and life.  Whatever the reason may be there are several things you can work on that will make your practice more appealing and will help you and your family prepare for a practice sale.  Here are a few items to focus on:

Freshen up your practice – Buyers like to see a fresh, clean and somewhat updated practice.  That does not mean you need to do a complete remodel and spend a $100,000.  It does mean you need to take a look at your flooring and your walls.  If you have large holes in your wall or your flooring was leftover linoleum from World War II, you should fix the holes and put in new flooring.  Talk to your landlord, sometimes they will help with the cost.  If you have equipment that is held together by the “fix everything” duct tape, contact your local equipment rep and have it fixed.

Update your technology – We run into an occasional practice owner that considers indoor plumbing as new technology.  If you are in that category, or if you have not done any technology updates since Richard Nixon was president, you should look into digital x-rays and other technology that will not only appeal to buyers but will help you increase your production in the practice.  Contact your equipment rep for the latest and great technology.

Financial Review – Have a meeting with your financial planner or advisor to see where you currently stand with your retirement portfolio.  This will help determine how soon you can possibly retire, how much more you may need to put away to retire and/or how much you need to get out of your practice sale in order to retire.

Practice Valuation – You should get a valuation done on your practice.  This will help your financial planner and you see where you stand with your entire portfolio.  Some doctors rely heavily on their practice sale to be a piece of their retirement nest-egg, so if you don’t know what your practice may be worth, you don’t know what size of nest-egg you have.  Call Omni for a free snapshot valuation.

Clean up your books – If you have been aggressive in running expenses and other items through payroll, you should work on making sure the books are clean.   If you have multiple practices but run all of your income and expenses through one tax id number, you should ensure you can separate the income and expenses of both practices.   Meet with your CPA to analyze your numbers and see if you are in line with industry averages.

Grow your practice – One of the worst things you can do is take your foot off of the gas pedal.  If you want to maximize the value of your practice, keep production at least level with prior years.  A growing practice sells quicker and easier than a dying practice.   If you don’t know how to grow your practice and make it more sellable, contact a consultant, or have a practice assessment done.

These are just a few items that you can do to help prepare your practice for a sale.  If you work on these items now and over the next 3 years, you will maximize your practice value, enlarge your pool of potential buyers and be able to sell your practice quicker.  For a free consultation or an expanded list of things to work on, give us a call at 877-866-6053.

By Corey Young, DDS, MBA, CVA

What a crazy time we are in. At least to me, this is a sober reminder that major disruptors are almost impossible to predict. I am reassured that our nation seems to be taking the situation seriously and I do firmly believe we can weather this storm. Most of you reading this are making difficult decisions about staffing, how to deal with emergencies, and how you are going to pay the rent for the next few months. I don’t envy any of you right now. There is a strong support system in this industry ready to help. Don’t hesitate to reach out. I think you will find all of us willing to go the extra mile right now to help you keep the ship afloat.

Many of you reading this are very close to transitioning your practice, some of you being on the fence. It is human nature to want to put off transitioning until after this crisis is over. You may even be getting that advice from your CPA or financial adviser. I am going to give you three reasons why you should do exactly the opposite.

One, value. We have been in a booming economy. Many of your numbers have been at all time highs over the last couple of years. Now COVID-19 hits. How long will we be shut down? How will the economy look on the other side? Will the clients pull way back on elective treatments for a couple of years like they have done in other recessions? In the present, buyers and bankers will mostly be willing to look past these next couple of months as an anomaly. Practice values will hold. For a while. That said, as someone who does Valuations and sells practices, I can assure you that in two years no one will care what your 2018 and 2019 numbers look like. In two years, what happens in 2020 and 2021 will be the new reality.

Two, market. There is a backlog of practices that are nearing the market. The people who work the transition market have been wondering when that bubble will burst for a few years now. I for one believe this crisis will do the job. Most doctors are going to ignore me and wait two, three, even five years, watch the market flood, the economy falls off its current pace, and wonder why their practices are down in value and are hard to sell. The early bird gets the worm.

Three, time. Many of your potential buyers had their hours cut, some by 100%. They have unprecedented time right now to look at practices. Odds are you also have more free time than normal. Realistically, practice sales won’t close until this crisis is over. That said, there are months of work between deciding to put a practice on the market and a practice changing hands. When life gives you lemons…

​By Rod Johnston, MBA, CMA

A few years ago, I decided to sell my house in Kirkland, WA.  I wasn’t planning on moving anywhere.  I still planned on living for quite a while longer.  I didn’t have any health issues, nor was I downsizing from my 1,100 square foot house to a smaller house.  I purchased the house almost 20 years prior and it was nearly paid off, so I had quite a bit of equity built up into it.  I had just decided it was time to harvest the equity I had built up in the house and use part of the equity to buy something else, part of it to put towards retirement, and part of it to have as a safety cushion for a rainy day.  I’m glad I sold the house as it was over 1/3 of an acre and had a lot of flower beds and landscaping.  It was also getting older and required quite a bit of maintenance.
I’m telling you this story because you can do the same thing with your practice.  You have put in many years of hard work in your practice.  It may need maintenance every year that you may be tired of taking care of.  After 20 years of staff issues, they may be getting to you.  Maybe you just had a new corporate move in down the street, and you’re worried about competing against them.  It could be that you just want to be a veterinarian and just want to see patients – not manage staff, clean the office, pay the bills, deal with the leaking roof, post to the office Facebook or Twitter pages, come up with new ads to get clients in the door or any of the other 100 items that are required of a veterinary practice owner.  I know, as I’m also a business owner – and who do you think cleans our toilets on the weekends?
No laws say you must own a practice to be a veterinarian.  You can Harvest your Equity from your practice and continue to be a veterinarian.  Imagine getting hundreds of thousands, if not millions, out of your practice, continue to work in your own practice, or go to work in a different practice if you choose and no longer have to manage a practice.  You can put the money you receive to work for you in a retirement or investment account.   You can free up some of your time to enjoy your family.  You can buy a vacation home that you’ve always dreamed of, or just simply put the money away for a rainy day and continue to work.
So, what are the steps to Harvesting Your Practice Equity?

1. Set up a free consultation with one of our advisors.
2. Have a practice valuation done on your practice.
3. Meet with your financial advisor to discuss your plan and the valuation.
4. Meet again with an Omni Advisor to discuss possible options in selling your practice and the feasibility of working back in the practice.
5. Let Omni take over the selling process and find a buyer that matches your needs.  The “your” is vitally important as we are matchmakers and want to find a buyer who will be a near-perfect fit for you, your practice staff, clients, and the community.
6. Close on the sale of your practice and plan your new, less stressful life.

That’s all there is to it to take back control of your life.  Of course, there will be some work between steps such as running reports, meeting with a potential buyer(s), and discussing options with your advisors.  But if you rely on Omni and other experts, the process can be simple.

We have helped numerous veterinarians who sold their practice and are working back in their practice or are working for someone else and appreciating their newfound joy again being a veterinarian and helping animals get better.  The first step is the easiest.  Just give us a call at 360-941-2341.

By Rod Johnston, MBA, CMA & Jim Vander Mey, CPA, ABI
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Everything has a cost.  If I hit the snooze button on the alarm one time, my cost could be that I potentially get to work late.  If I get up early and don’t hit the snooze button, the cost is not being able to sleep an additional 10 or 15 minutes. I’ve been around the block long enough to know timing is everything.  If I would have bought $10,000 worth of Microsoft stock in 1985, I would have stock worth $3,000,000 today.  On the flip side, how many near-death experiences can I account for where if I would have stepped off the curb a split second earlier, I would have ended up in the hospital?

And what is the cost of holding onto your practice for a few more years and not selling?  You get the opportunity to work more and make more money, right?

Right now, practice values are at an all-time high.  Corporate buyers are paying up to 10 times your earnings before interest, taxes, and depreciation (EBITDA).  The historical figure is 1.5 to 2 times EBITDA.  They have been lowering their threshold on annual revenue requirements and have been looking at practices with values as low as $650,000.  But, we have recently seen a small shift in their tone.  The corporate buyers have been scrutinizing practices a bit more.  Their offers on practices have been a bit less than they have in the past.  Few groups are looking at smaller practices.  It seems their buying frenzy has slowed just a little bit. What does this matter to you if you’re holding onto your practice?  Well, if you currently have an EBITDA of $300,000, your offer today may be 8x EBITDA, or $2.4 million.  If the trend continues and corporates lower their offers, your offer may go down to 5X EBITDA, or $1.5 million.  You just cost yourself $900,000 by waiting a few more years.  Sure, you made $400,000 in income over those few years, but you could have still made an income had you sold the practice and continued to work for the corporate acquirer.Granted, we don’t have a crystal ball.  We don’t know how quickly the corporates are going to reduce their offers and by how much.  However, we do have economic history, a bit of analysis, and common sense.  Corporates want the bigger practices making over $1 million.  Approximately 33% of practices collect over $1 million per year.  The corporates and small groups already own a large portion of the practices that are high-producing practices.  They make the highest margins on these types of practices.  As they use up capital and run out of large practices to buy, their focus will then be on making their practices as profitable as possible, thus, lowering their offers on practices as this happens.

So, just like choosing to hit your snooze button versus continuing to sleep in, there is a cost in holding onto your practice.  The smart thing to do would be to sit down with your trusted advisor.  Whether it be your accountant, financial planner, or your friendly neighborhood broker, someone can help you analyze how much it may cost you to hold onto your practice.  We can always be reached, at no charge at info@omnipg-vet.com.