Should I Pay Down My Student Debt Before Purchasing a Practice?
By Nothing resonates more with recent college graduates than the talk of possibly wiping away student debt. Even though this might be a talking point of our current administration, it does bring up a question that newly graduated veterinarians worry about if they want to own their own veterinary practice. Should I pay down my student debt first? Or should I purchase a practice and then have two debts?
Your own gut reflex will say, “Uh, no way…more debt is crazy when I’m already so far underwater.” However, it is usually advantageous in the long run. If the dream of owning your own business is on your vision board, then it makes financial sense to move ahead with securing a business loan early in your career, even with a large amount of student debt.
Each person’s financial position will be unique. However, here are some items to consider:
Will it be harder to get a bank loan with a lot of student debt? Although not necessarily harder, the amount you can borrow will be determined by the amount of your student debt and your history of making regular and timely payments. Consistent payments and not skipping any repayments on your student loan will show the bank that you are reliable in your financial commitments. Although it’s tempting to splurge on extravagant items, keep your finances in check during this time and keep making regular payments. Banks like to see that you have a stable financial history and are not high-risk.
Which has the higher interest rate, the student loan or business loan? Whichever loan has the higher interest rate, is the loan you will want to pay down first. This might seem obvious but check with your lender for your student loan because they often don’t have harsh penalties if you lower your payment. Go back and recalculate what the minimum student loan payment is and take the difference you had been paying and use that towards your new business loan, hence paying the more expensive loan sooner.
Buying a turn-key practice or one that needs some work. Look for a veterinary practice that is undervalued, has potential, and is located in a good area. Most buyers want a turn-key solution when purchasing a practice. But there are a few diamonds in the ruff. The advantage is you will secure a loan for less money on an underperforming practice and with some work, you can turn it into a polished gem which is a great investment.
Building equity. You will earn equity in your business if you purchase a practice, rather than remaining an associate. As an owner, your earning potential is far greater, often outpacing the associate salary from the day you purchase a veterinary practice. If you purchase a practice where you own the real estate, then you would also increase your bottom line when you are ready to retire and transition.
You haven’t missed the boat of owning your own veterinary practice when you have a large amount of student debt, but you will want to be business savvy on how you should proceed.
Read MoreWhat You Need to Know Before Signing a Covenant Not to Compete
You’ve graduated from veterinary school so naturally, you’re ready to get your feet wet and start practicing. Nearly every veterinarian will be an associate at the beginning of their career and with that comes the dreaded associate contract. You found a great associate opportunity and you’re eager to start collecting paychecks. But before signing that contract, particularly the noncompete clause, be aware of the details that could prevent your opportunity to start your own practice in the areas/neighborhoods you desire.
A covenant not to compete, otherwise known as a non-compete agreement, or restrictive covenant, is a clause in the contract that prohibits the restricted party from engaging in services similar to those of a non-restricted party. Non-compete agreements may restrict a veterinarian’s actions by time, location, and clients.
Here are some valuable tips before signing a non-compete agreement for veterinarians who plan on owning their own practice in the near future.
Be sure you understand every detail: Associate contracts are designed to protect the owner more so than the associate. OMNI Practice Group highly recommends you have an attorney who specializes in veterinary Associates contracts review all legal documents before signing. If you don’t already have an attorney, we will be more than happy to recommend one.
Advocate for the minimal non-compete radius: A standard non-compete radius should be between 3 to 5 miles. Keep in mind the radius is “as the crow flies.” In more rural areas, we have seen up to 15 to 20 miles, but of course try to negotiate for less, especially if you plan to stay in the area.
The shorter the better: We’ve seen unfavorable terms of up to five years. Typically, your non-compete clause should only be enforceable for 1 to 2 years. Try to negotiate to a shorter period, that will work in your favor when you’re ready to own your own practice.
Be sure your non-compete only covers the location in which you are employed: If your employer owns multiple locations, but you’re only seeing patients at one specific office, make sure your non-compete only applies to that location.
Notice of resignation: Keep in mind that when you’ve found the ideal practice to purchase or if you decide to do a start-up, the process can move rather quickly. We’ve seen contracts that require the associate to give up to 6 months’ notice before leaving their position – a fair amount of notice is typically 30 days. Be sure to negotiate the least amount.
My rule of thumb when it comes to associate contracts is “Less is Best” …well, with the exception of wages!
When you’re ready to purchase a practice or just want to discuss the process in preparation please feel free to give us a call at 877-866-6053 for a free, no-obligation consultation. We’re here to help you!
Read More