May 10, 2023 by omniadmin Practice Sales, Practice Transtions, Seller Articles, Selling a Practice 0 comments
Questions Frequently Asked by Veterinarians Who Are Thinking About Selling Their Practice
By Rod Johnston & Jim Vander Mey
- When should I start thinking about and preparing to sell my practice?
The earlier the better, but no later than 3 years prior to selling your practice in order to optimize your sales price and find a good buyer match. Practice values are typically based on 3 to 5 years of financial information with the numbers weighted heavier towards the most recent years. If you focus your last 3 years in your practice on maximizing collections, overhead and updating your practice, you will come out money and time ahead.
- Will I get a higher price if I ramp up production for another year?
Typically, no. Since values are based on up to 5 years of production and net income, simply ramping up numbers for one year will not increase the value a whole lot. In fact, if it goes up too much in one year, a potential buyer and banks may even question why the production all of a sudden went up in one year.
- Should I buy new equipment or remodel before I sell my practice?
If you are 5 to 10 years away from selling your practice and your practice is looking dated, then you should update the practice. That can range from simply painting the practice and installing new carpet, up to replacing tables, adding new x-rays and other technology. If you spend a lot of money too close to the sale, you will not get the depreciation write-off that you would get if you had done it much earlier. The exception to this rule (there’s always an exception, isn’t there?) would be digital x-rays and computers. If you are not digital, don’t have computers, or your computers are 10 years old, you should consider adding those before selling.
- What are buyers looking for in a practice?
Individual buyers like to see a well-run practice with a decent amount of production, typically over $500,000 per year, average to low overhead (below 75% is good), somewhat up to date look and feel to the practice and a good location.Corporate buyers like to see similar things, but also want the seller to stay on and work in the practice for another 1 to 3 years (depends on which corporate buyer). They also want the seller to carry-back approximately 20% or more of the purchase price of the practice. This means you get 80% of the purchase price upfront and then you receive the rest of it – 20% after you’ve completed your 1 to 3-years work requirement and have met established production, and other targets in the practice. If you don’t reach those targets, you may not receive the final 20%.
- I have an offer from several corporate buyers, why do I need a broker?
It’s been said that “the man who represents himself has a fool for a client”. A broker wears many hats in a transition. Finding a buyer is only one small role they play. The broker also takes a look at the offer and looks out for the clients’ best interest. Corporate offers are all not alike, so brokers also play the role of analyst by looking at each offer. They have to understand accounting, finance, the law, contracts, and even human resources. If you try to do this all yourself, you will end up costing yourself, your family, your staff and patients more time, money and grief than if you just hired a broker in the beginning. We have case studies where we have caught things in the offer that would have cost clients hundreds of thousands of dollars. We have helped negotiate and solicit more offers that have put hundreds of thousands and even one million dollars more than what the clients first offer was.
- The person representing a corporate buyer told us they prefer us (seller) to not work with a broker. Why is that?
They don’t want you to use a broker because it weighs the negotiations in their favor and gives them an upper hand. They have powerful attorneys, CPAs, and professional negotiators to pit against you. They may first knock on your door with a friendly neighborhood veterinarian as their representative, but behind that friendly veterinarian lurks the professionals hoping you don’t have anyone helping you out. They’re able to get lower prices, better terms and corporate favored contracts if the seller doesn’t have a broker.
- I own my building, should I keep it as a rental for future retirement income?
In the current real estate market, the short answer is “no”, especially if you’re considering a corporate buyer. We have pictures and case studies of sellers who kept their building only to have the veterinary corporate buyer move out of the building two years later to a new building they built down the street. The seller is left with an empty building that was a veterinary practice and will be difficult to find a tenant. The exception could be if you have an extraordinary building in a fantastic location on a busy street with great visibility and the building is in pristine condition – these practices make up less than 10% of all veterinary buildings.
- I want to do an associate to own transition. Can you help me with that?
Absolutely. We can help with pretty much any type of sale. Whether you want to do an associate to own transition, a straight sale to an individual, a corporate sale, or anything in between, we can help. We will show you all the options and scenarios to help you make the right decision. Often times, doctors think they want an associate to own transition and not sell to a corporate. But, when we show them that they can make $500,000, $1,000,000, or more by selling to a corporate, they change their mind. We’ll help walk you through each scenario to do what’s best for you and your family.
- I want to continue working in the practice after I sell, is that possible?
It depends. If you sell to an individual and your practice isn’t large enough to support multiple doctors, then the answer is probably not. But we can help identify the right buyer for you who will allow you to do what you want to do. In fact, one of the questions we ask is “What is your dream transition scenario?” We then go from there and do our best to make your dreams come true.
- I want to make sure my staff and clients are taken care of. How do we make sure that happens?
We like to call ourselves matchmakers. We spend time getting to know you as a veterinarian, practice owner, family person, etc. We ask a lot of questions to find out what your needs, wants, and dreams are in a transition. We then go out and find a perfect match — whether it’s an associate, individual buyer, or a corporate. Even corporate buyers have their own unique personality, culture, philosophy, and terms. We make sure that the buyers who will want to buy your practice are a good match for both you and your practice.
Do you have more questions? Attend one of our upcoming Practice Transition Seminars this fall, where we will go into all of the above in more detail, and you’ll get a chance to discuss your situation with a panel of experts – broker, banker, attorney, CPA, etc. – all in one place.