Selling your veterinary practice may be one of the most important life decisions you make. You need to weigh all the factors, including why you want to sell, is it the right time to sell, and how to make sure you value the practice correctly. You want to plan far enough in advance so that you can be sure to get the best price for your practice and be happy with your future after the sale is finalized.

Questions to Consider When Contemplating Selling Your Veterinary Practice

You need to ask yourself some serious questions before putting your practice up for sale. The most important question to answer is, “Why do you want to sell your veterinary practice?” Some of the most common reasons veterinarians give are:

• They want to retire.
• They are making a career shift.
• They are frustrated with practice management. They are tired of hiring, firing, supervising, billing, debt collecting, and dealing with bad clients. They also are fed up with lawsuits and government regulations.
• They want to relocate, maybe move across town, to another city, or to another state.

What do you want to do and what goals do you want to achieve after the sale? Why are you choosing to sell now? Is the right time to sell? If you have made the tough decision to sell, how do you plan to go about it?

How to Plan for the Sale

If your plan is to sell your practice and retire, many experts advise you to plan years in advance. Whether you have planned that far ahead, or have only recently decided to sell, some things you need to do to make the most of the sale include:

Getting legal and tax advice. As far in advance of the sale as possible, you need to consult with legal and tax consultants. Attorneys and certified public accountants (CPAs) are your friends. They will evaluate your practice and help you make critical decisions along the way to protect you from future legal liability and to minimize tax consequences.

Making sure your business records are complete and updated. There are key documents you need to be sure are in order and up to date. This includes:

• Articles of incorporation if your practice is incorporated and the bylaws.
• All partnership agreements.
• Operating agreements.
• Licenses.
• Ownership records.
• Business registrations.
• All contracts, for example, with vendors, suppliers, advertising companies, equipment leases, lease agreements, and employment contracts.

Check to see if there are any liens. You may be surprised to see there is still a lien on the practice years after you have satisfied the debt for which the lien was placed. Run a Uniform Commercial Code (UCC) search to see if there are any liens remaining. Do this even if you believe a lien was never filed. You can then follow up with the lien holder and ask for a release to be filed with your state’s Secretary of State.

Protect intellectual property. This is not just for inventions but includes trade names and logos. Even copyrighted written material. You may want to assign these to the buyer, but you want to do this knowingly and intellectual property that is assigned may increase the value of the practice.

Consideration of employees. Since your employees won’t know about the sale until after it’s finalized, it is best to retain the status quo with your employees and not cut salaries or benefits.

Valuation of the Practice

Knowing the value of your practice is key to selling it. In short, the value of the practice is its profitability. Ideally, you will have done a practice valuation every three to five years of your practice.

The business value is your planning tool. It helps you with retirement planning, what happens if a partner dies or decides to leave, or how to place a value on the practice when you decide to sell. It also helps you learn about what you can do to improve the value in preparation for getting the best sale price.

In order to accurately value your practice, you need to have an experienced veterinary practice appraiser value it for you. Your veterinary practice attorney and CPA can help with the valuation and in obtaining the correct expert for conducting the professional appraisal.

You want to be as wary of over-valuing the practice as in under-valuing it. Over-valuing can reduce the chances of you even selling it.

Selling Options

Some veterinarians in rural areas may decide just to shut the door and walk away. This may work if there is no value to the practice because the facilities are out of date and for other reasons, there is no profit to be had. But there are other options.

Stay and work for a while and improve the sales potential. Identify the problems with the non-profitability of the practice and work to make necessary changes. This may be an option if you have time to make improvements. If you can increase the profitability, and show a growing, profitable, up-to-date practice, you can then sell the practice instead of just shutting the door and walking away. Keep in mind that increased profitably needs to be on the books for more than just a few months.

Sell to associates. If you have associates, one or all of them may want to buy out your interest in the practice. There may be dates along the way of the practice where an associate wants to buy into the practice. There are pros and cons to this.

If you plan to stay in the practice for years to come, this may work out. The associate who owns a percentage of the practice will have a greater incentive to make it successful. It also allows you, as the owner, to maintain your management philosophy.

On the other hand, if it does not work out, it may be difficult to disengage. If there is only a partial sale, the contract needs to be air-tight with a clear buy-sell provision in case one party wants out of the contract.

Merge the practice with another veterinarian or other veterinarians in the area. Small practices are discovering if they join together, they can maximize the use of the equipment and even the staff. This is more common in practices with only one or two veterinarians, but it generally increases the profitability of the practice. If you choose to do this, check with your CPA and attorney to make sure there are no tax problems for you and to make certain a valid contract is drafted that covers contingencies such as if one veterinarian wants to change the practice agreement.

Sell to a corporation. Selling to a corporation has benefits and drawbacks. The benefit is that the price is generally very good. Corporations are interested in purchasing practices that have:

• A high gross revenue.
• Profitability.
• A good location.

If you have all three, you will likely receive a premium price. If you have two out of three, expect a substantial offer. Corporations primarily look at the expected return on their investment which makes them more willing to pay a higher price than an individual buyer.

The premium price comes with some drawbacks. You will likely be required to stay with the practice for one to two years. It may be difficult to suddenly become an employee in a practice where you were previously the employer.

You may also be asked to sign a non-compete agreement for when you do decide to leave the practice. This may or may not be a problem for you, depending on what your plans are for when you leave your veterinary practice. Before you make the decision to sign such an agreement, educate yourself on the ramifications of such a non-compete agreement.

On the other hand, selling to a corporation can provide you an opportunity to get your equity out of the practice now while allowing you to still work for a few years. You no longer will be plagued with the day-to-day management drudgery which results in you having more free time to do other things that are also important to you. It can make for a slower transition to retirement if you have been working for a lot of years but are not ready to quit just yet.

Staying with the practice for a year or two or more enables a smooth transition to the new owner and maximizes the potential for clients to get used to and accept the ownership transfer. This exit strategy suits many veterinarians and may be exactly what you are looking for.

The best option for you is to have a 100 percent buy-out. No matter who the buyer is, even if an associate, the best result for you is a 100 percent buy-out. This means you get your money when escrow closes on the sale. It is generally also better for the buyer in that third-party lenders are often available to loan the buyer the money for the full purchase price.

Sell to a non-doctor of veterinary medicine. This is not an option in all states, so be sure to check to see if your state allows this before pursuing this. Your attorney will help you with obtaining this information.

To Sell or Not to Sell the Real Estate Housing the Veterinary Practice: That is the Question

If advisors tell you to sell your practice but to keep ownership of the building that houses the practice or veterinary hospital, ask them to explain carefully how this will be to your advantage. Ask to see the profit projection in writing. Although you may receive rental income from the property, it might be better for you to own other property that will provide a better return.

A veterinary hospital, which is a special-use building, will likely appreciate at a slower rate than a multi-use property. The tax professional who is advising you on other matters related to the sale of your veterinary practice will help you determine whether selling the real estate and reinvesting in another property will be to your advantage.

Key Takeaways

The key takeaways to consider when selling your veterinary practice or hospital are:

• Understand why you want to sell the practice and if the time is right for the sale.
• Do not do this by yourself. Get assistance from a professional veterinary practice attorney and CPA whom you feel comfortable with and with whom you trust.
• Make sure your practice is properly valued by a professional veterinary appraiser.
• Consider all sale options.

If you follow these guidelines, you will have a realistic idea of what to expect with your practice sale. For answers to your questions, or for assistance in selling your veterinary practice or hospital, contact us at Dental & Medical Counsel to schedule a complimentary consultation with attorney Ali Oromchian.