The excitement of completing all the educational requirements for your career as a veterinarian and starting out on your own can be tempered with the uncertainty of what to do next. Do you start your own veterinary practice from the ground up, or do you purchase an already up and running practice from an established practitioner? There is a lot to consider no matter which path you choose to follow.
On the other hand, you might be a veterinarian with an established practice, and you may be considering purchasing another clinic, or even a veterinary hospital. The same purchase principles apply. You need to do the same goal assessments and due diligence you would do prior to purchasing any veterinarian practice.
This guide is provided in a two-part blog.
Part I presented here covers:
Part II covers:
The importance of choosing an advisory team. Including:
The goal is for this guide to help you make the purchase exactly what you need it to be and to help you avoid pitfalls along the way.
The location of your practice is probably the most important decision you will make. You need to brainstorm and ask yourself some questions: Do you want to work in a large city? In the suburbs? In a rural environment? Your location choice as a veterinarian will likely be influenced by the type of veterinary practice you want. For example:
Do you want to treat small animals, large animals, or both?
Do you want to specialize in one type of animal, like treating exotic birds?
Do you want to provide extra services like grooming and boarding?
Once you make these decisions, you can begin focusing on other factors about the areas you have chosen so you can narrow it down to just one. For example, you need to think about your ideal location and the opportunities to purchase a practice in these locations. Check your veterinary association journals for practices that are for sale and research the locations to see if they interest you.
When you have decided on a location where you want to work, and have found a practice you are considering purchasing, you begin your evaluation by exercising due diligence so you can uncover all the information you need to make an informed decision.
Due diligence is the process of evaluating the practice, so you know what you are purchasing. That way, there are no surprises down the road. Some of those steps include checking the following.
The seller’s license. See if there have been complaints in the past. If you find just one complaint, you may want to discuss it with the veterinarian who is selling the practice. If there are a stream of complaints, “buyer beware.”
Check the demographics. Be sure the location you have chosen supports the type of practice you want. Review the practice billing documents and files to be sure that the treatment provided are consistent with how you want your veterinary practice to be.
Analyze the physical space. Are the number of examining rooms adequate? Does the waiting room appear conductive to the types of animals you plan on treating? Is the parking space adequate for the number of customers being seen daily?
Ask the seller serious questions about the internal workings of the practice like:
How many years has he or she been in practice in this specific location?
What is the employee turnover? Is there an employee handbook? What are the employee benefits currently being offered?
How many established and regular customers? How many new customers monthly? What does the daily and weekly appointment load look like?
Review the schedule for the past few months and look at the customer files. This will confirm the practice includes the type of animals you want to include in your practice and that the treatment provided is in keeping with your own standards.
Review all financial documents. Evaluate all financial documents to determine whether this is really the purchase for you. Those documents should include:
The practice’s tax returns for the previous three to five years.
Profit and loss statements.
A list of the business assets and clarify exactly what is included in the sale.
All lease agreements. This includes leases agreements for the land, the building, and the equipment.
Check for liens or other outstanding debts such as for back taxes.
Are there any employee payment issues, like unpaid workers’ compensation benefits or for unpaid vacation time?
Are there any pending lawsuits?
Is there growth potential? Will you want to bring in associates in the future? Add services like grooming and boarding? Is there space to add examining rooms? What does the lease say about possible growth and leasing additional space?
The seller will most likely quote the asking price, so before you enter into a purchase agreement, or negotiate for a lower price, you must find out the value of the practice to be sure you are not paying too much. There are many factors to consider on this issue alone.
What assets are included in the purchase price? Assets are both tangible and intangible. Tangible is everything you see. For example, get details about the facility where the practice is located. Is it leased office space, or are you purchasing the real estate? The equipment, and the inventory should be included. Ask the seller to provide a complete list of assets that are included in the sale. The seller must also provide you, for your review, copies of all lease agreements and vendor contracts.
Assets also include intangible assets, such as the goodwill of the practice which includes the reputation of the practice in the community and the likelihood that current customers will stay with you after the seller leaves the practice. It also includes determining the chances of continuing to get referrals from current referral sources.
Evaluate the cash flow. You need to be sure there is enough cash flow to provide you the income you need to pay the overhead of the practice and give yourself a sufficient salary to pay your personal bills, including the loan you will likely take out to purchase the practice.
What is the fair market value? This compares the recent purchase prices of similar veterinary practices in the same geographical area. Depending on the location you chose, this may not be an option. If there are no other nearby veterinary practices that have recently sold, there will be nothing with which to compare the market value.
Is the practice in compliance with federal regulations? Veterinary practices are governed by federal and state regulations that cover how medical waste is disposed of and how hazardous chemicals are stored, among other things. Substantial fines are imposed on those who fail to comply with the rules. If the practice is not in compliance, the value of the practice will be reduced.
Use a health care practice appraiser. General appraisers or business appraisers may be unfamiliar with veterinary practices that bill patients and pet insurance companies. A professional health care practice appraiser will understand this and include the billing and collections in the appraisal of the practice.
To continue reading about the veterinary practice purchase process, read Part II as we discuss in detail who you need to have on your advisory team and what each professional can do for you.
At Dental & Medical Counsel, we have helped healthcare practitioners, including veterinarians, around the country with their practice purchases. Contact us to schedule a free consultation with Ali Oromchian where we can discuss your needs and explain what we can do to assist you with your transition.
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