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 email@example.com.Read More
Three Reasons to List your Veterinary Practice For Sale with Omni
At OMNI Veterinary Practice Group, maintaining seller confidentiality is one of their highest priorities. Deciding to list a Veterinary practice for sale a major career move, regardless of the reasons behind it. When confidentiality is breached, the practice risks losing valuable patients and employees who would otherwise have remained during and after the sale, which reduces the overall value of the practice. For this reason, the professional team at OMNI Veterinary Practice Group have dedicated themselves to becoming experts at maintaining complete confidentiality throughout the process, while ensuring high listing exposure.
Even the most profitable Veterinary practices for sale can sit on the listing pages indefinitely when marketing efforts are lacking. At OMNI Veterinary Practice Group, this is not an option. The OMNI team of professionals has extensive experience and formal training as marketing experts to ensure the highest exposure for the listing as possible without risking the seller’s confidentiality. Each practice is listed across the nation in over 30 locations, including:
- Social Media Platforms
- Online Marketing Efforts
- And More
To better expose Veterinary practices for sale, OMNI Veterinary Practice Group has built strong lasting relationships within the field. These relationships, which also help in speeding up Veterinary practice transitions, include:
When you are ready for a career move involving the selling of your current practice, you can trust the experts at OMNI Veterinary Practice Group to maintain your confidentiality, while marketing your practice to a large group of potential buyers. To better assist you in the transition, OMNI Veterinary Practice Group is a leading provider of a wide range of services to Veterinary professionals, which include:
- Practice Sales or Transitions
- Real Estate Service
- Buyer Representation
To learn more about listing your Veterinary practice, please contact the expert team at Omni Veterinary Practice Group. OMNI specializes in Veterinary practice sales, and are dedicated to ensuring your success throughout the entire process.
Broker Vs. No Broker
Thinking of selling your practice but don’t want to pay the broker’s commission? Think again. History shows that any time you sell your business and/or real estate yourself, the chance of failure of the transaction is over 50%. A commission will be much more digestible than the result if you try to do it yourself. We receive calls from senior veterinarians stating they sold their practices and took payments and it didn’t work out. After one year, they often must take the practice back and struggle to resurrect it to try and sell again. This is typically an experience that is new to both buyers and sellers. It takes time, marketing expertise, sales experience, buyer and advisor contacts, and lots of patience.
Your broker may spend hundreds of hours on your transition and your time is better spent at the clinic and planning your retirement agenda. Brokers do lots of specialized marketing which can be costly and time-consuming, and it includes many weekends and evenings meeting with potential buyers. When working with a broker, the average practice sells in about 6 months so selling it alone can be much longer. Your broker should have a list of qualified buyers and a commercial real estate license. If you own your space, it’s often critical to sell the building at the same time or get a solid agreement together for future purchase. Time and time again we see senior veterinarians sell the practice and lease the space with a loose agreement and lose their renter. The buyer decides they like a newer building down the street and leave you with an empty veterinary building.
A good broker will determine the value of your practice and there is much that goes into this process. It’s not just about collections. Everyone’s goal should be to sell at a fair price in a timely manner. If the price isn’t “right”, the banks won’t finance, and you certainly don’t want to carry the loan. If you get pressured to sell too low, which we often see, you can lose tens of thousands of dollars. Brokers spend a lot of time working with all the trusted advisors you need such as veterinary specific banks, CPAs, and attorneys to determine the value of your practice and facilitate a smooth and successful transition.
Why You Need a Transition Specialist On Your Side
The Seller May Not Receive Full Practice Value
A broker can help their client to achieve full value for the money they’ve placed into their business over the long-term. They can then work to obtain viable selling opportunities and to locate qualified buyers within the marketplace. Without this type of guidance, the seller may find their selling opportunities restricted. They may discover that they can only achieve a small proportion of their total Veterinary practice value in the sale. With corporate buyers in the mix, this can mean losing out on potentially a million dollars or more.
Sellers are unable to Handle the Legal Aspects Alone
The legal aspect of a practice transition is often a critical element within the Veterinary practice sale process. Buyers will have their lawyers review the business’s paperwork and any issues they find must be analyzed closely by experts in the legal field. Brokers often have significant legal experience or have a legal team on their side and can help handle any challenges that arise during the transition process, while keeping the seller’s needs as the foremost consideration. The broker will be available at any time via phone or email to answer the seller’s or buyer’s questions and move the transaction process along. This can help prevent the seller from making poor choices and becoming embroiled in legal challenges.
The Seller Doesn’t Have Marketing Experience
When bringing a Veterinary practice to the marketplace, the seller must be able to highlight the advantages of their business in a way that attracts qualified buyers. Brokers are often experts in this area. They can use their experience to craft compelling marketing materials for the seller and use their experience in the marketplace to build target buyer lists and send out high-value content to these buyer lists.
Sellers Cannot Handle Mediation with Buyers Alone
The buyer will likely have a lawyer driving their purchase process. The lawyer will be negotiating with the seller on all elements of the transaction, including the final price. Having a broker on-hand during this process ensures the broker can handle all mediation, negotiating on the seller’s behalf to get the right price and the ideal structure for the purchase.
Working with a qualified broker can help Veterinary practice sellers reduce their transaction challenges and secure a seamless sale. To learn more, speak with our team at OMNI Veterinary Practice Group at 877.866.6053 or visit our business website at www.omnipg-vet.com.
From the Horse’s Mouth
Each year one of the largest corporate veterinary practice owners holds a one-day conference exclusively for veterinary practice brokers. At the conference, they discuss, amongst many other things, how their company is different than other corporates, how they value veterinary practices, and trends in corporate buying. It’s an interesting meeting to get the “state of the union” from a corporate buyers’ perspective. I wanted to share with you some of the notes I took and give you my thoughts on a few of their points.
- Corporates are continuing to expand. Not only in the U.S. and Canada, but this corporate buyer has begun acquiring practices in Australia and New Zealand.
- Some corporates have begun to do de novo practices. They are filling the gaps where they don’t have ownership of a practice with a startup practice. If you can’t buy it, build it!
- The DVM retention rate for the industry is 62%. A particular corporate claimed to retain DVMs at a rate of 82.5%. They said it’s due to how they treat the DVM and staff leaving everything as close to the same as possible. They also give the owners a piece of the pie.
- There currently is a shortage of DVM associates. They are putting a heavy effort towards recruiting DVMs at Veterinary Schools as well as the general public.
- This corporate has three commitments – Wellness Plans, Dentistry, and Fear-Free Clinics.
- They expect the current acquisition trend to continue for the next three to five years.
- Valuations are different among the various corporate buyers. Their add-back for DVM salaries is 20%. Another corporate buyer uses 22%. That can make a big difference in the purchase price on a large practice. Another example is adding back an office manager salary. That can vary significantly amongst corporate buyers. These are just two of ten examples of the differences they provided.
- Valuations have gone up over the past 5 years. Five years ago, they were buying practices at 4x to 5x EBITDA. They are now acquiring practices at a broader range of 6x to 9x EBITDA.
- They believe valuations are currently at their high peak with the expectation that they will start tapering back down to the 4x to 5x EBITDA range they saw five years ago.
- General Veterinary Practices that are in the sights of corporate acquisition teams represent 50% of all General Veterinary Practices. Corporates currently own 30% of all of these practices. The expectation is that once total corporate ownership hits 50%, the acquisitions will taper off dramatically. Corporates then may turn to specialty clinics. Note, we’re already seeing this in the marketplace. They also may focus on de novo practices.
In summary, the presentation confirmed what our thoughts have been:
- Corporates are here to stay.
- Corporate ownership will continue to grow.
- There are some good corporate buyers who treat their staff and DVMs well and there are others that do not.
- Corporates will go the de novo route when they can’t find a practice in an area they want to have a concentration.
- Valuations will begin to trend down in the not too distant future.
The number of corporate buyers in the market and the supply of practices corporates want all play into this. Whether good or bad, the corporate veterinary practice is here for the long haul.
This is just meant as an educational document and we are not promoting this or any other corporate buyer.