Dental and Medical Counsel Blog

Pitfalls to Avoid When Purchasing a Veterinary Practice

May 24, 2023
Veterinary Practice

Before pursuing a practice purchase, have a clear vision of your business and life goals. You should have a clear idea of your quality of life including how you want your work days to look, where you want to live, and what demographics you want to serve. Ensure that you purchase a practice not only where you want to practice but where you want to live. The location should also not have too many direct competitors. When purchasing a practice it is imperative that you establish clear restrictive covenants. You wouldn’t want anyone to be able to open a competing practice right next door and it is a good idea to ask your landlords not to open similar practices in your area.   

Due Diligence

Due diligence could be the difference between a positive purchase experience and a negative one. Due diligence is the process of evaluating a practice including its finances, reputation, client retention, and its internal workings. When purchasing a practice make sure you determine the value of the practice and pay a fair price. You’ll have to remember that your practice purchase is an investment. You are not just paying for what it’s worth today but also for its potential and its future. Consider whether the practice just needs minor adjustments to improve its earnings and how you can upgrade it to help it reach its full potential.  

Finding your ideal practice can feel like a one-in-a-million opportunity and you might feel the need to rush into things to prevent yourself from losing the deal. But it’s important that you slow down and consider every aspect of the contact. Offer a letter of intent to the seller. This communicates what you both hope to gain from this interaction and your interest in the practice.  

Having the Right Team Around You

Buying a veterinary practice will be one of your career's most important business decisions. It is also full of intricate details and should be handled delicately to ensure you receive the best practice at the best deal. An experienced advisory team can help you avoid any mistakes during the process. Your advisory team should consist of an attorney and an accountant. 

Another reason you should have an advisory team is they can help you spot any unreasonable demands or scare tactics from the other party. One of the biggest tactics is one where they try to convince you that you need to act quickly because there are other offers on the table. Any seller that adds pressure to hastily make big decisions is one you should be extra careful with. Make sure you are doing your due diligence.  

Making the Purchase

When you purchase a practice, you also purchase all of its assets, including patient records and furnishings. Some things that people often forget are smaller items like charts or examining tables. The list of assets should include everything that is part of the sale and should be considered when negotiating a price. Do not trust the list on its own. Make sure you tour the facilities and see the inventory for yourself.  

You should always be thinking about the future when purchasing a practice. If your goal is to purchase a small practice because of financial constrictions, consider ways for growth. Are there ways to expand the space? Can you add associates later? Are these ideas restricted in the lease in any way? It’s important to recognize that any negotiation of the terms of buying the practice is not the same as negotiations done with the current landlord. You should avoid assuming the current lease terms are desirable and acceptable. It is a good idea to request a copy of the current lease and review it with your attorney. Key questions to answer about the current lease are: is the lease transferable to you or will you have to negotiate a new one and does it allow you to add things like examining rooms?  

 An experienced attorney can help you avoid these potential pitfalls before you sign your lease. Commercial lease transactions can be intricate and important elements are often overlooked if not handled properly. Negotiating a commercial lease without the help of an attorney can be very costly and put your practice at risk. The best way to protect your practice is to consult an experienced attorney to assist you with negotiating a commercial lease. 

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Frequently Asked Questions

1. Why is it important to have a clear vision of my business and life goals before pursuing a practice purchase? Having a clear vision of your business and life goals is crucial because it helps you align your practice purchase with your long-term objectives. It ensures that the practice you choose supports the quality of life you desire, such as work-life balance, location preferences, and target demographics.

2. Why is the location of the practice important when making a purchase? The location of the practice plays a significant role in its success. It's essential to choose a location where you not only want to practice but also want to live. Additionally, consider selecting a location with fewer direct competitors to increase your chances of attracting clients.

3. What are restrictive covenants, and why are they important in practice purchases? Restrictive covenants are agreements that prevent others from opening competing practices nearby. Establishing clear restrictive covenants safeguards your practice from immediate competition and can protect your client base. It's also advisable to request that your landlords refrain from opening similar practices in your area.

4. What is due diligence, and why is it important in a practice purchase? Due diligence is the process of evaluating a practice thoroughly before making a purchase. It involves assessing various aspects such as finances, reputation, client retention, and internal operations. Conducting due diligence helps you make an informed decision and ensures a positive purchasing experience.

5. How should I determine the value of a practice and negotiate a fair price? When assessing the value of a practice, consider not only its present worth but also its potential for growth. Paying a fair price involves considering the practice's future prospects and any necessary improvements or adjustments that could enhance its earnings. Consulting professionals, such as accountants, can help with valuation and negotiation.

6. What should be included in an offer letter when purchasing a practice? An offer letter, or letter of intent, communicates your interest in the practice and outlines what both parties hope to achieve. It serves as a starting point for negotiations and expresses your commitment to the transaction.

7. Why should I have an advisory team during a practice purchase? An advisory team consisting of an attorney and an accountant is essential during a practice purchase. They provide expertise and guidance, helping you avoid mistakes and navigate complex legal and financial aspects involved in the transaction. They can also help you identify unreasonable demands or tactics from the other party.

8. What assets should I consider when purchasing a practice? When purchasing a practice, it's important to consider all assets included in the sale, such as patient records, furnishings, equipment, and inventory. Don't solely rely on the provided list; visit the facilities and inspect the inventory personally to ensure everything is accounted for.

9. How should I approach negotiations regarding the lease agreement? When negotiating the terms of the practice purchase, separate it from negotiations with the current landlord. Review the current lease with your attorney to determine if it's transferable or if a new lease needs to be negotiated. Consider factors like the ability to expand the space or add examining rooms and ensure the lease terms align with your long-term goals.

10. Why is it important to consult an attorney for lease negotiations? Negotiating a commercial lease can be complex, and overlooking crucial elements can be costly and put your practice at risk. Consulting an experienced attorney is crucial to protect your interests, ensure favorable lease terms, and navigating potential pitfalls.

Remember, it's always recommended to consult professionals and seek personalized advice based on your specific circumstances.

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