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.  ​

Buying a Veterinary practice is like getting a colonoscopy.  You know you should probably do it, but it can sometimes be a pain in the nether region.  But just like getting a colonoscopy, it can go very smooth if you follow the right steps and use the right professional.  Here are a few steps to consider which can make for happy times in the end.  No pun intended.

1. Have good clinical skills.  Be sure you have the clinical skills to produce the same or more production than the average veterinarian.  In other words, don’t buy a practice right out of veterinary school when it takes you four hours to do spay or neuter a dog.   It can take up to 5 years to learn the clinical and management skills to run a practice.
2. Buy existing or Startup new.  Decide if you want to start up a new practice, or buy an existing practice.  We recommend start by looking for an existing practice in the area you’d like to practice.  If after a period of time you cannot find a practice and the numbers make sense in your location of choice, analyze doing a startup.  Cash flow is king in veterinary practice financing and in paying your student loans, so look for an existing practice first and then look at doing a startup.
3. Veterinary Professional Team.  Get professional help from professionals that specialize in the veterinary field.  This includes your attorney, CPA, Banker and Broker.  Just like you don’t want your plumber doing your colonoscopy, you don’t want a bankruptcy attorney helping you with your veterinary practice purchase and sale agreement. 
4. Educate yourself on buying a practice.  Know how to read a financial statement, practice management reports, lease terms, etc.,  There is a lot of information online, in the Veterinary Forums and other areas where you can get this for free.  Your professionals that you will be working with can also help educate you.
5. Find your practice.  Use the brokers in the area as well as state and local association contacts to find a practice of your choice.  
6. Stop looking for the Unicorn!  Neither a unicorn nor a perfect practice exists.  Don’t cross a practice off a list because the carpet is green and you wanted brown.  Or, everything else in the practice looks good, but the staff is overpaid.  You can’t glue a pointy horn on a horse and call it a unicorn.  But, you can change the carpet, paint the walls, reduce staff pay, add endo to the practice, etc.  You will be in the practice for a long time, so don’t poo-poo the practice because of a change that the practice can handle.
7. Gather practice documents.  At a minimum, you want the following:
   1. 3 years tax returns
   2. 3 years profit and loss statement
   3. 3 years production by procedures and production by provider report
   4. Copy of the current lease and any amendments
   5. Practice statistics report showing patient demographics and other information
   6. Aging balance
   7. List of Staff salaries and benefits
   8. Any associate agreements
   9. List of any vendor contracts
   10. List of equipment
   11. Fee Schedule
8. Consider your offer.  So you like most everything about the practice and you want to make an offer.  You can work with your professional veterinary broker, or consultant and put together an offer.  You’ll want to analyze the purchase price.  If you’ve educated yourself, you can do this on your own.  If not, you can use a veterinary professional broker, CPA or consultant to help you put the offer together.  The offer is in the form of a Letter of Intent. 
9. Get a Loan.  Banks love veterinarians.  The failure rate is less than .0125%.  Being a successful veterinarian is like finding a coffee shop in Seattle.  It’s pretty hard to miss.  Ask your broker, attorney, consultant, etc., for a referral to a lender.   Use someone reputable who does veterinary practice financing.  Do not use Suzie Q or Jonny Public the local commercial banker.  She will treat it like any other commercial transaction and try to run it through the SBA ending poorly with high fees.
10. Completing Due Diligence.  After you have agreed to a purchase price and both parties have signed a letter of intent, you will want to schedule due diligence in the office.  Prepare ahead of time for due diligence.  Know which reports you want to run and what the plan is for the due diligence.  You’ll want to truly see what the active patient count is.  You will want to review charts.  You will want to take a closer look at the equipment.  I would also suggest seeing if the seller is available for lunch, or to at least come into the office after due diligence.  This will help you get all of your questions answered by the doctor himself/herself.
11. Preparing to Transition.  The real work begins here as far as the transition goes.  There are somewhere between 50 to 70 items to get done prior to the closing of the sale.   We have a checklist if you’d like to see it.  This includes everything from setting up a legal entity to getting insurance credentials to ordering a credit card terminal.
12. Staff.  All through the process, the staff is hopefully unaware there is a sale going on.  The meetings and due diligence have happened in the dark of night, or on weekends all while wearing camouflage.   Kidding about the camouflage.  The reason the staff is not informed of the sale is there is a potential they may leave.  Part of the goodwill of the practice is staff.  If they all leave, there may be a potential loss of goodwill.  We recommend the seller tell the staff when there is a 99% certainty the transaction will go through to closing.  Sometimes that may mean a month before closing and other times it may mean the day of closing.  Every transaction, every staff, and every veterinarian is different.  It’s a gut feeling we get from experience.  Consult with your professional.  
13. Closing the Sale.  Awe, the day is finally here.  It’s similar to any major purchase such as a house.  Some transactions require an escrow company or attorney to handle the closing.  Others can be done by a broker.  You will sign the purchase and sale agreement, bill of sale, closing certificate, loan documents and other agreements.  It’s a pretty painless process.
14. Notifying Patients.  As with staff, patients are not notified until the contracts are signed and the money is in the bank.  We don’t notify patients as they may leave the practice just as staff may leave.  There is a patient letter that is worked and agreed on between the seller and buyer.  The cost is typically split 50/50 between the buyer and seller. 
15. Post Sale.  If the practice is running well, do not make any major changes for 6 to 12 months.  The more changes make the staff and patients uncomfortable.  Go in keeping things business as usual.  Of course, if there is an ugly orange shag carpet with teal painted walls, by all means, bring the décor up to date.  Also, if the practice is on a downward trend, you may need to make major changes including letting a staff member or two go, adding procedures, etc.  You need to make sure it will be successful and again, your veterinary professional advisors can help you.

Following these steps will make your acquisition of a practice a smooth process and not be a pain in the end (get it?).  Because you want to step into your new practice with a smile on your face on your first day and not looking like you just had a colonoscopy.

Cash is king is an old adage used to describe one of the keys to success in business as well as personal finances.  Cash is essentially physical money or liquidity you have available.  While cash may be king when it comes to having cash on hand, another vitally important ingredient to the success of a practice is Cash Flow.  Cash Flow is the amount of money you have available in a given time period after you have paid all of your expenses (payroll, lab, supplies, debt, etc.). 

When analyzing a practice, how do you know how much true cash flow the practice has available? You cannot simply look at a practice’s tax return or a profit and loss statement and know how much cash flow the practice has.  There are a number of steps that someone evaluating a practice would take into consideration when determining the correct cash flow.  Those steps are as follows:

1. Start with the Net Income of the practice.  This is the total revenue or collections minus the total expenses.
2. Add back the owner’s salary and any taxes associated with the owner’s salary.
3. Go through the expenses and “add back” those items that are non-essential to the practice. These are expenses that are for extra-curricular or out of the ordinary expenses. These typically include travel, staff meetings, interest, depreciation, owner life insurance, etc.
4. Calculate what your debt service payments will be by using a mortgage amortization calculator.  You can use bankrate.com or another online calculator.  Use a conservative interest rate based on current market rates for practice loans and a 7-year term.  Subtract the debt service payments from the above 3 items.
5. The result will be the cash flow to the practice after debt service based on the current state of the practice. This will be how much is available to a potential buyer for his/her personal salary, upgrades, updates, etc.

​This Sample Cash Flow Analysis shows that without changing a thing, you will earn $92,041 from the practice after paying the note payment on the loan.  Note that you can’t stop here.  If the cash flow looks low, there may be a reason.  The current state of the practice may not be the best run practice.  Perhaps salaries are too high, the owner uses the most expensive vendors, or they employ a family member to clean the office at a high salary. There may also be procedures in the practice that the current doctor does not do, but you can.  If you keep looking at a low cash flow practice and know how to fix the problems, you may have stumbled upon an incredible opportunity.

If you need help analyzing the cash flow of a practice, or how you can improve a practice, you can call us anytime for a free consultation. We can be reached at (877) 866-6053 or email Jim at [email protected].

Correction: In a previous version of this post, Net Income was incorrectly labeled Gross Income in the calculation of Cash Flow.  We apologize for the error and any confusion.

​eople love benchmarks.  They want to know how many glasses of water we should drink each day.  How much we should work out every week.  Or, how many miles per gallon our cars can achieve.   There are benchmarks to look at when you are buying a practice.  They may not necessarily be deal breakers, but they help determine what you will need to do to right the ship if the benchmarks are a little out of whack.  Here are some of the benchmarks you should look at and calculate when buying a practice:
 

• Staff overhead as a percentage of collections - 20% to 25%.  If it's higher, the practice is overpaying staff, underperforming collections, or too many staff.
• Facilities Expense - 7% to 9% of collections - Too high and the practice is either paying a high rent, space is underutilized or production is too low.
• Supplies - 5% to 7% of collections - If this is too high, it could be that the practice is using high-end supplies, or the supplies inventory (or vendor) is not managed properly.
• Marketing expense - 3% to 5% depending on the growth stage.  A practice that is looking to grow will have a high percentage.  A static practice may not spend much on marketing at all.
• Collection Rate - Minimum of 98% for a well-run practice.  A low rate means the front desk is not keeping up or managing the accounts receivables very well.  
• Total Overhead (all expenses less owner and associate pay) - Ideally should be less than 65%.

These are just a few benchmarks to analyze when looking at a practice.  Again, these are benchmarks and if the practice you are analyzing does not meet or exceed these benchmarks, it does not mean it's a bad practice.  It simply means you have work to do in those specific areas. 
Contact me if you would like more information - [email protected].