The Do’s and Don’ts of Selling Your Veterinary Practice
Corporate interest in buying existing veterinary practices has recently increased from what was already an extraordinary high level. New and existing corporate consolidators have been aggressively courting the owners of independent animal hospitals. Many pet clinic owners have been getting emails and calls from some of these potential buyers as they search for acquisition targets.
As buyers proliferate, so do opportunities to sell your veterinary practice ownership. This makes it easier for unprepared animal hospital owners to make mistakes that could cost them lots of money and effect their personal financial net worth. Practice owners who have made the decision to sell need to understand the do’s and don’ts of the sale process.
At VetValue.pet, we interact with independent practice owners all the time providing us with insights into the do’s and don’ts of both valuations and transitions. This experience gives us an in-depth understanding of the sale process from start to finish.
Be Prepared by Knowing Your Veterinary Practice
Do take the time to understand your practice’s financials. Make sure you know what your practice’s normalized income and cash flow would be. In other words, make sure you know what your financial results would look like if your practice was ALREADY owned by a consolidator.
While revenues are straightforward, expenses are trickier. Most independent practice owners manage expenses differently than a corporate owner would. For example, some owners will take distributions instead of a salary. Once the practice is sold, the managing veterinarian would likely be paid a salary consistent with their role like any other employee.
Don’t assume that your bookkeeper or accountant is the only person who needs to know how your financials work. It is much easier for a potential buyer to pay an inadequate purchase price based upon your numbers if you don’t understand them!
Manage Your Veterinary Clinic Like You are Selling Now
Do manage your practice like you are going to sell it each year. Adding another doctor and new clinical equipment will allow you to offer better animal health care for more hours, while charging higher fees. These changes, while costly, will make your practice more valuable to a buyer. They also typically lead to growing revenues, a key operating metric that consolidators look for and can drive valuations.
Don’t assume that it’s too much trouble to hire a new veterinarian, learn a new procedure or get trained on a new piece of equipment. Don’t be afraid to charge fees that are appropriate for the services that you are providing. Naturally, every practicing veterinarian must decide which animals to treat if their human owners can’t afford to pay.
The Right Veterinary Practice Valuation Can be a Huge Asset
Do a market-based valuation if you are seriously considering selling. An asset-based or book value-based valuation may not give you a good idea what the market really thinks your practice is worth.
The valuation process should involve feedback that will touch on some of the questions we raised earlier regarding your financials. If done correctly, an accurate valuation is a powerful tool that should help you to negotiate a fair sale price for your pet clinic.
Don’t just take a consolidator’s word for it that you are getting a fair or market price for your animal hospital. We have been in situations where corporate buyers offered half what the practice eventually sold for.
Now, this doesn’t mean consolidators are trying to short-change practice owners. Instead, an individual corporate buyer’s price represents what they think your practice is worth. It may not be the market price since there are many potential corporate buyers all of whom will assess the value of your practice differently. Also, what can’t be proved by data, must be taken on faith, a risky proposition for a buyer. More risk under-written by the buyer equates to a lower potential sale valuation.
Choose the Right Financial Advisor to Help You Sell Your Veterinary Practice
Do hire an experienced and capable financial advisor to run your transition process. Interview potential advisors to be sure they are knowledgeable and understand the market for veterinary practices. Ask for, and speak to references. While the basics of selling a small business are the same, industry specific experience will ensure you are ultimately matched with the best long-term partner.
Do recognize that you are paying your advisor to get more value in your sale process than you can get on your own. Generally, you pay for what you get. If you select the advisor on the basis of who will do the deal for the lowest fee, don’t be surprised if you receive a poor level of service.
Do select a transition advisor that will take the time to carefully review your practice and “normalize” your financial statements. This due diligence will boost potential buyers’ confidence that the information they have is accurate, preventing any renegotiating as your deal moves to closing.
Don’t negotiate a sale or transition by only talking to one or two consolidators no matter how much you might like an individual. Many corporate buyers looking to buy established practices have active outreach programs targeting independent veterinary practice owners like you. These are designed to preempt a competitive, auction-like sale process.
Don’t rely on your attorney, or accountant to help you choose an advisor. Many prominent CPAs and lawyers have long-standing referral relationships with other professionals that will influence their recommendations. The testimony of an advisor’s reference, someone who has seen the advisor in action should carry much more weight.
Don’t rely on your accountant or attorney to negotiate, or analyze the key economics terms of the deal for you. The skills needed to do this well are very different from the skills one needs to become a successful CPA or attorney.
Don’t try to sell your practice yourself or hire a business broker. There are firms that specialize in helping independent veterinary practice owners complete this complex process.
Once again, these purchasers are typically not trying to “low-ball” sellers. They are trying to entering into exclusive arrangements that often will allow them to buy existing practices at lower prices.
Make Sure You Focus on Your Ultimate Veterinary Practice Sale Goals
If it’s time to sell, do agree to sell to the consolidator that will allow you to achieve your transition goals. It’s not always the highest bidder. Instead, it may be a buyer who will allow you to keep your practice’s name and truly believes in decentralized practice management.
We hope that you found these do’s and don’ts helpful. If you want to learn more contact Jerry Marcus or Carson Taylor at VetValue.pet. It could be the best decision you’ll ever make.