The American Animal Hospital Association cordially invites you to attend this valuable seminar about planning your future.
RSVP​ by Sept 29 - email [email protected] or call 614-753-1603.

Here are 10 Things To Do To Prepare For A Transition
​By Rod Johnston, MBA, CMA and Jim Vander Mey, CPA, ABI

You have had a great career and now you are thinking about selling and transitioning out of your veterinary practice. You would like to get the best value for your practice. Do you just walk away?  Being prepared can not only help you get the best price, it will help ensure a smooth transition. 
 
Here are a few things you can do to help prepare for your veterinary practice transition:

1. Know your Financial Situation - Meet with your financial advisor, CPA, or whoever gives you financial advice to get a good picture of where you are with your savings and investments.
2. Get a Practice Valuation - A practice valuation will help you see how much equity you have in your practice.  Additionally, a CPA can help you figure out what the taxes and net proceeds from your sale will be.
3. Update Technology - Buyer’s like to see new technology in a practice.
4. Cosmetic Updates - Have you updated the interior with paint and carpet in the last 20 years?  If not, it’s time.  Buyers like a practice with a fresh feel to it.  A 1970’s feel was good in the 1970’s.
5. Review Accounts Receivable Aging - Collect any past due accounts, send to collections or write them off.  Also, review credits to either pay back to the patient or send unclaimed property to the State.
6. Review Staffing - Are you over or understaffed?  Adjust accordingly.
7. Clean Up your Financial Statements - Make sure the expenses you’re running through your veterinary practice are related to your practice, or at least identifiable as an adjustment. 
8. Consider Ramping Up Production - If you are not sure how then hire a veterinary consultant.  Ramping up your practice when you’re 3 or more years out will pay dividends on the sales price.
9. Review Your Fees - Do you have the lowest fees in the area?  Consider a fee increase to catch up.
10. Harvest your Equity - Maybe you are a few years away from retirement but tired of being an owner.  You should consider selling now, take the equity out of your veterinary practice and work back as a veterinary associate.

We’d be happy to answer your questions, give recommendations, and talk through the process of your transition. Contact us if you’d like to get together for a free consultation and a cup of coffee or lunch. Email [email protected] or call 877-866-6053.

​You have had a great career and now you are thinking about selling and transitioning out of your veterinary practice. You would like to get the best value for your practice. Do you just walk away?  Being prepared can not only help you get the best price, it will help ensure a smooth transition. 
 
Here are a few things you can do to help prepare for your veterinary practice transition:

1. Know your Financial Situation - Meet with your financial advisor, CPA, or whoever gives you financial advice to get a good picture of where you are with your savings and investments.
2. Get a Practice Valuation - A practice valuation will help you see how much equity you have in your practice.  Additionally, a CPA can help you figure out what the taxes and net proceeds from your sale will be.
3. Update Technology - Buyer’s like to see new technology in a practice.
4. Cosmetic Updates - Have you updated the interior with paint and carpet in the last 20 years?  If not, it’s time.  Buyers like a practice with a fresh feel to it.  A 1970’s feel was good in the 1970’s.
5. Review Accounts Receivable Aging - Collect any past due accounts, send to collections or write them off.  Also, review credits to either pay back to the patient or send unclaimed property to the State.
6. Review Staffing - Are you over or understaffed?  Adjust accordingly.
7. Clean Up your Financial Statements - Make sure the expenses you’re running through your veterinary practice are related to your practice, or at least identifiable as an adjustment. 
8. Consider Ramping Up Production - If you are not sure how then hire a veterinary consultant.  Ramping up your practice when you’re 3 or more years out will pay dividends on the sales price.
9. Review Your Fees - Do you have the lowest fees in the area?  Consider a fee increase to catch up.
10. Harvest your Equity - Maybe you are a few years away from retirement but tired of being an owner.  You should consider selling now, take the equity out of your veterinary practice and work back as a veterinary associate.

We’d be happy to answer your questions, give recommendations, and talk through the process of your transition. Contact us if you’d like to get together for a free consultation and a cup of coffee or lunch. Email [email protected] or call 877-866-6053.

Date: September 28, 2017
Welcome and Registration: 6:00 p.m. – 6:30 p.m.
Seminar: 6:30 p.m. – 8:30 p.m. (Dinner to be served)
Cost: Complimentary
Location: Pacific Grill Events, 1530 Pacific Avenue, Tacoma, Wa 98402​

The American Animal Hospital Association cordially invites you to attend this valuable seminar about planning your future. We have assembled a panel of experts that will give you a solid foundation of what you’ll need to do to prepare your hospital for transition. Don’t miss this opportunity to start planning your future. Contact us today to reserve your spot!
​
RSVP by September 25 - email [email protected] or call 614-753-1603.

​I meet hundreds of veterinarians each year who are looking to buy an existing veterinary practice.  Of those, I would estimate that 30% have done any research on what is involved in buying a practice. Of that 30%, none know the beginning to end process of buying a veterinary practice.  While all the steps cannot be covered in this article, here is some guidance on where to start and what steps to take before buying a practice.
 

1. Contact a bank that finances veterinary practice acquisitions and makes sure you can qualify for a good loan.  Banks can require decent credit scores, cash in the bank, that you are two years out of school, and show production from your current employer. Every situation is a little bit different.  Try to avoid SBA loans if you can, as they can be expensive with early payment penalties. However, if that is the only avenue to ownership, do not pass it up.
2. The next step is to understand a little bit about veterinary practice valuations.  You don’t want to go into a sale not knowing if the practice is worth the price listed or not.  If you are looking at a practice that a corporate entity is also looking at, the rule of thumb is that valuations are out the window.  Practices grossing 1 million or less could be worth between 65% and 75% of its’ last 12 months’ production.  Remember, that’s a rule of thumb - I’ve seen practices go for as high as 160% of production and as low as 30% of production. 
3. Think about where you want to practice.  You’re probably going to be there a while, so you might as well like the area.   Research demographics - there are excellent demographic services that sell great Veterinary demographic information for about $500.  It will tell you where the best locations to practice are located.  Also, do not ignore the smaller, older, and not-state-of-the-art-equipped practices. These can be the best opportunities allowing a higher return on your investment.
4. Put together a good team.  Get referrals for a good veterinary broker, attorney, banker, and accountant.  They’ll help you analyze the veterinary practice, do the legal work and help you find a practice.
5. Get an understanding of the true cash flow of the practice and if expenses are above industry averages. For example, is the staff expense greater than 25% of production? Is the reason because one employee is overpaid and will be retiring at the same time as the seller, or is there an overstaffing issue?  Be an informed buyer.
6. Be prepared for your due diligence.  You need to know what to look for when you do get to the point of buying a veterinary practice.  Is it an older veterinarian selling that outsources surgery and does very little dentals? Does the practice have a website?  As the practice should be valued on current performance, not future potential, there could be real opportunities for immediate growth. Know how to spot these things.
7. Finally, spend some time with a veterinary broker before you go look at the practice.  Understand what the practice you are looking at is all about.  Does the broker think it’s honestly a good practice?  Why?  Does the explanation make sense?  Once you’re comfortable with the numbers, then go take a look at the practice.

By being an informed buyer, you will avoid a lot of headaches and potential problems down the road.  There are practices that are hidden gold mines and practices that you should not touch.  Being educated and knowing the difference is critical in your veterinary practice acquisition success.

​Owning and growing a veterinary practice can be one of the most challenging things in the veterinary field.  Advertising for new clients can be hit and miss and expensive. That’s why one of our favorite strategies is to purchase another practice and merge it into your existing practice.

The reason you would consider doing a merger is because you get all of the revenue and current clients from the new practice, but you don’t get all of the expenses.  You don’t bring over the fixed expenses like rent, telephone, electricity, etc.  You already have those in your practice and don’t need to incur them again when you bring over the practice you just acquired.

As an example, say you own a practice that collects $600,000 per year.  You have overhead of $390,000 with 30% of the overhead in fixed expenses – rent, utilities, insurance, etc.,  Another practice comes on the market that collecting $500,000 with overhead of $325,000 with fixed expenses again at 30% or $150,000.  You purchase the practice for $350,000 giving you a debt service payment of $3,500 per month.  You work closely with the broker to ensure 100% of the clients transfer to your practice.  Your practice now goes from $600,000 up to $1.1 million in revenue.  You incur the variable expenses of the second practice, but you do not incur the 30% fixed expenses of $150,000 because you already have rent, utilities, insurance etc., at your current office.  In essence, you just gave yourself a $150,000 raise, less $42,000 in debt service and dropped your overhead to the neighborhood of 55%. It would take you much longer to do this if you just did marketing and advertising. By consolidating practices, you get instant growth and income. If you have a practice for sale near you, you should consider merging it into your practice in order to achieve quick growth.    

Buying a veterinary practice can be and is a daunting task. It’s much more involved than purchasing a car or even a house. You have to wear many hats including shopper, negotiator, accountant, finance, lawyer, practice management expert, equipment specialist and even human resources manager. One wrong step and you could set yourself back financially, legally and even personally if something goes wrong.  You have to know what to look for every step along the process. But, what is the process?  Here is an abbreviated version of what those steps are:

1. Find a practice.  Finding a practice isn’t hard. Finding a good one is. Get in touch with all of the brokers and get on their e-mail lists.
2. Begin speaking with banks that specialize in veterinary practices.
3. Review the documents the broker sent you. You should get a prospectus that gives a decent summary of the practice along with demographics. You should get at least 3 years tax returns, profit and loss statements, production by procedure report, production by provider report and an accounts receivable aging balance. And, that’s just the start.
4. Review financials with your accountant. Or, if you minored in accounting or understand numbers, you can review them yourself. 
5. Make your offer and negotiate. Don’t low-ball the offer unless you know they may accept any offer. A good practice will go quick, so wasting anytime will result in missing out on the practice. Add your contingencies in the letter of intent.  Review with an attorney.
6. Do your due diligence – review charts, x-rays, staff pay and benefits, equipment, UCC filings, the reputation of the veterinarian and practice, state licensing review on the seller, etc., Get in as deep as you can.
7. Review the lease. Make sure it’s not too high, no tear down clauses, lease expiring, etc.
8. Begin legal review of agreements. Get your attorney involved.  Choose a good veterinary attorney.
9. Complete the Omni 70 point checklist for closing the sale of a practice.
10. Hold staff meeting to be introduced as the buyer.
11. Work through escrow in closing the sale.
12. Begin your new life as a practice owner.

As you can see from this abbreviated  list, there’s a lot to do.  You can go it alone and swim with the sharks, or, you can have our Buyer’s Transition Consultant help you through the process. ​

​Taxes are a fact of life, and an extremely important consideration when considering a veterinary practice transition or sale. Let’s explore some potential tax mitigation strategies to consider.

Stock Sale. If you are incorporated, sale of the stock in your corporation to the veterinary practice buyer can potentially yield you the greatest tax savings, because the sale of stock is almost exclusively taxed at the lower fixed capital gains rate as compared to the higher, tiered ordinary income rates. However, and this is a BIG however, stock is a non-depreciable asset to the buyer. As such, the veterinary practice buyer is not able to write off the sales price and essentially ends up buying your practice with after-tax dollars. Consequently, a buyer is likely only to agree to buy your stock if you are willing to reduce your purchase price by 30 percent or more. For this reason (and many associated legal and liability complications), almost all veterinary practices are sold as “asset sales.” In other words, the seller retains his/her corporation and all of its stock and instead sells all of the tangible and intangible assets of the corporation (i.e., the veterinary practice). The buyer is then able to depreciate and amortize (write off) the entire purchase price.

Price Allocation. The IRS requires the total price of a veterinary practice for sale to be allocated to the various types of assets being sold and that the allocation be made according to the fair market value of the assets. As a general rule, the tangible assets are taxed as ordinary income above basis, and the intangible assets are taxed as capital gains. (Above basis means the difference between what you are selling the tangible assets for and your book value or depreciated value.) Any consideration for a covenant not to compete will also be taxed as ordinary income. Since fair market value is somewhat subjective, there is some room for negotiating the overall allocation of the purchase price. As a veterinary practice seller, you will save taxes if you can negotiate with a buyer for a lower allocation to tangible assets (equipment, furniture, fixtures, supplies, etc.) and a higher allocation to intangible assets (goodwill and patient records). (Unfortunately, it will benefit the veterinary practice buyer to have just the opposite allocation, so consideration must be given to making the allocation fair to both parties.)

Carry back a note. Sellers frequently ask us, “Won’t I save on taxes if I self-finance part or all of the sales price (i.e., carry back a promissory note from the buyer)?” The answer is, “No, but maybe . . .” As mentioned above, the portion of the price in an asset sale that will be taxed as ordinary income will be due in the year of the sale. That recapture will be taxed regardless of the receipt of any actual cash at closing, which means you owe the ordinary income tax associated with the recapture even if you do not receive a cent at closing. Consequently, if you do not want to have to pay to sell your practice, it would be prudent to ask for enough of a cash down payment to cover the tax liability you will incur from the recapture. Since most of the remainder of the sales price will be taxed as capital gains and since the capital gain tax rate is a fixed rate, the same tax will be applied and the same tax amount owed whether you receive that portion of the price now or paid to you over time; unless . . . there is a change in the capital gains tax rate before the note you are carrying is paid off. If the rates go up, you would be taxed at that higher rate on that income as it comes in. Otherwise, self-financing a portion of the price serves only to defer capital gains tax, but it will not lower the total tax. (Also note that the interest portion of any promissory note payments will be taxed as ordinary income to the holder, while the principal portion subject to capital gains will be taxed at the capital gains rate.)

Sale Timing. As discussed above, the tax associated with recapture over basis on the sale of tangible assets will be determined by your ordinary income tax bracket in the year of the sale. If you are planning to retire after the sale of your practice and, consequently, will have a drop in your ordinary income level, it may behoove you to strategically time the sale of your practice until after the start of the next tax year. Also, if you have owned your veterinary practice for less than one year, you should, if possible, wait at least one full year before selling it since the sale of goodwill within a year of ownership will result in the higher short-term capital gains rate being applied instead of the long-term capital gains rate.

“C” Corporation Consideration. If you are currently incorporated and being taxed as a regular “C” Corporation, the sale of goodwill by your corporation will likely be subject to double taxation, once as capital gains inside your corporation and then again as ordinary income when paid as a distribution to the shareholder(s). There is some case precedence that allows for the shareholder(s) of “C” Corporations in closely held and professional businesses to sell goodwill individually, outside of the corporation, thus avoiding that double taxation. If this applies to you, consult with your CPA and/or tax attorney regarding the details of such a tax strategy and its application to your particular situation.

1031 Exchanges. If you are selling a veterinary practice now and are planning to buy another practice within six months, a 1031 or “Like Kind” Exchange may be a tax deferral strategy to consider. It allows you to defer the taxes associated with recapture over basis you would otherwise incur with the sale of your tangible assets. A 1031 Exchange has very specific and rigid requirements. Consult with your CPA and/or tax attorney regarding the details of such a tax strategy.
​
Charitable Remainder Trusts. Charitable Remainder Trusts are not subject to capital gains tax. As such, a seller may potentially eliminate capital gains tax on the sale of his goodwill by donating it to a qualified charity. The downside, obviously, is that the seller must donate the goodwill proceeds to that charity. This is another strategy where you would want to receive guidance from your CPA and/or tax attorney.