At some time after graduation and internship, most veterinarians will make a decision to buy a practice.
There are three main points to keep in mind when you select the practice you want to own:
2. Type of Practice
3. Cash Flow
Location is everything. The mantra of “location, location, location” is appropriately applied as much to the buying of a veterinary practice as it would if you were purchasing a home. For most veterinarians, the community in which you practice is also the community in which you will live. Thus, the community will not only be the business model you wish to pursue, but also the lifestyle you desire.
Type of Practice
Companion, mixed or large, will determine the type of veterinary medicine you will be practicing. While it may be possible to change the practice model in the future, most buyers wish to buy the practice model in place and not go through revamping it in the future. However, many times a great location will allow the new buyer to revamp the practice model type and wind up with the perfect practice.
“Cash is king” was never more appropriate than when buying a veterinary practice or another business. When considering the purchase of a practice, the buyer must be assured that the practice will be able to produce sufficient income in its operation. It is, in simple terms, the number one factor that will determine the practice value and more importantly, how the underwriters at a financial institution will view the loan to buy the practice.
Using a reverse engineering method, the available cash flow is separated into two main categories: salary (practice owner wages) and excess profit or debt service. The cash that remains after you write your monthly paycheck, and it has to be as much or greater than an employee receives, is the maximum cash or excess profit available to pay the debt or loan. Most bank underwriters will allow a sufficient cushion when providing a loan so as not to over extend the new buyer.
Remember, purchasing a veterinary practice is an income-producing investment. Many doctors will spend more time and effort purchasing that dream home which is never an income producing investment, but strictly a non-income-producing investment like your automobile. Unlike the car, the purchase of your home is only different in that it will most likely appreciate in value and its useful life is much longer. But, other than those two differences, it will never make a nickel in your pocket or produce any income needed to allow you to live a lifestyle that a lucrative veterinary practice will.