Hiring Transaction-Related Expert Professionals.
It is almost always the case that a selling practice owner has never sold a practice before. It’s a totally new experience. When its time to sell, most want a trusted guide, but at least expert professional support, for such a process. This is where expert professionals come in.
Transaction costs for veterinary practice owners who sell to a corporation can exceed 10% of the transaction value. Where does that money go? It goes to various professionals who perform services that reduce risk and/or increase value for the selling practice owner.
Typically less than 1% of the transaction value goes to the accountants and lawyers that primarily help reduce risk. These services also save you, the practice owner, time and energy, because they help you produce what you need to provide to any potential buyers.
Accountants make sure that the numbers you provide are accurate representations of your practice, so you don’t later get sued for material misrepresentations.
Lawyers make sure that all of the transaction documents accurately reflect the intent of the transaction and do not leave you with covenant, warranty or indemnification risks that would likely cost you money in the future. They also help you understand certain legal issues related to potential forms of consideration you might receive for your practice.
The fees these professionals charge are typically hourly or flat rate for the project. The fees you pay for these services should be materially lower than the actual and/or potential costs you might experience were you not to hire them.
Most of these transaction costs go to the financial advisor – the business broker or strategic financial advisor – that you select to help you optimize the value that you have created.
For a financial advisor, superior market expertise is a requirement for helping you get materially greater value for your practice. Your advisor should know the various corporate consolidators that are likely to pay the most for your practice. They should run an organized, well-informed process for inviting buyers to submit offers in competition with one another. They may help you understand how these offers compare with one another, to help you make the best decision when deciding whether or not to accept an offer.
A practice is worth what the buyer that is willing to pay the most for your practice in a competitive situation is willing to pay for it, so getting that right buyer to submit their best offer is the major reason you hire a financial advisor. The fees that these financial advisors charge are typically almost entirely dependent upon the total value they help you secure for your practice, so their financial interests are aligned with yours.
The fees that you pay such a financial advisor should be dwarfed by the additional value that they are able to help you get for your practice, over and above the highest value you would be able to obtain without such an advisor. Certain financial advisors may also help you reduce what you pay to other professionals, such as lawyers or accountants.
Be Prepared to Invest Time in the Sales Process
Selling your practice will require a lot of your time. If you are willing to settle for a lower purchase price in your practice sale, it may require a bit less of your time, but it will still take a lot of time.
You will need to help potential buyers understand your practice and the investment opportunity it represents. Potential buyers are likely to insist on meeting you and seeing your practice, either in person or virtually, before being willing to submit an offer. You will need to understand the various offers you receive, so that can most intelligently decide which offer, if any, is right for you.
Assuming you decide to move forward to close a transaction based upon a specific buyer’s offer, you will need to help that buyer complete its due diligence process, the process of confirming that your practice is as represented by you prior to the submission of the offer.
This typically involves pulling and organizing all practice management, accounting and payroll data, all contracts, all corporate documents, insurance policies, real estate information, etc. The data will need to be clean, and you will need to be able to understand and explain the trends. Organizing the data and documents required sooner rather that later will help improve the efficiency of the entire process for you.
You will need to spend time on pre-closing onboarding calls prior to closing a transaction and you will need to work with your advisors, to make sure that all of the transaction documents meet your approval.
If You Decide to Sell without Hiring a Financial Advisor, Lean on the Buyer
Corporate buyers are generally very experienced at acquiring practices and they often engage in similar processes, including practice valuation. (However, different buyers typically determine very different valuations for any given practice, which is very important to be aware of.)
Wherever possible you should push the buyer to do the work required to acquire your veterinary hospital. This includes giving potential buyers certain types of information prior to their submission of an LOI (“Letter of Intent”) that helps them understand the value of the practice. However, never provide any detailed information about your practice to anyone without first having a high-quality non-disclosure agreement, reviewed by a qualified advisor that represents YOUR interests, executed with that party.
Once the LOI is signed, give buyers direct access to your practice management system or payroll system so they can pull the data they want. Only at this point in a transaction process does the expected benefit of providing this very detailed type of information to only one selected buyer outweigh the risk of doing so.