Selling Your Veterinary Practice: Preparing Your Exit Strategy
There are many items to consider when contemplating the sale of a veterinary practice. What price do I ask? Do I sell to the corporate or private sector? How do I tell my staff? If you’re thinking about selling then you’ve asked yourself these questions. While there is no clear-cut path to retirement, it’s important that you prepare in advance for your exit.
Important factors that determine a buyer’s desire to purchase are profitability, demographics, equipment, building condition and staff. Getting your financials normalized in the years prior to selling will dramatically affect the time it takes to sell. Depending on the location of your clinic, it could take a year or longer. While some practices are better than others in certain areas, you should consider what makes your practice unique and build upon that.
The value of a veterinary practice in today’s market is the totality of its bottom line. Items that affect that are:
- Personal Expenses – It’s not uncommon for practice owners to count personal expenditures as business expenses. This helps lower the taxable income on the clinic but also decreases the bottom line. Most buyers are skeptical to purchase a clinic on the seller’s word that additional income exists and these types of expenses are also hard for an analyst to verify. In order to prevent any problems, consult with your accountant and practice broker to clean up your books 2-3 years in advance.
- Rent – Practice owners typically pay themselves a higher amount in rent for tax purposes. While this is a common strategy for the ownership, it should be normalized for anyone looking to sell. By paying more in rent, you reduce the value of the clinic. Practice values are taken out of excess earnings, which would be significantly less for anyone paying more than normal rent. Annual rents should not substantially exceed 8% of the real estate value.
- Corporate vs. Private – There is no doubt that the corporate world of veterinary medicine is upon us. With the recent acquisition by Mars of VCA, Blue Pearl and Banfield, we know who the major player is. Additionally, there are many other corporations seeking to enhance their positions in the marketplace as well. The corporate cap rates are paying more than an associate would be able to get approved for. Banks typically approve a buyer based on their personal financials as well as the cash-flow in the clinic. Your TPSG representative can walk you through the pros and cons of each choice.
- Costs of Goods Sold – It’s very important to keep your costs of goods sold to a minimum. Industry professionals recommend they not exceed 20% of your gross revenues. Too frequently, practice owners are not charging for everything rendered. Making sure sure all billing is complete and itemized will save the owner from future headaches.
- Inventory – Keep inventory at a reasonable level. Aim for no more than two months’ worth.
- Employee Wages – A well trained staff is essential for running a successful practice. However, most owners hire excess help in their later years. While this seems beneficial for day to day productivity, the wage category gets out of line. Successful clinics keep their wages at 20% of gross revenues.
- Profit Centers – Keep profit centers for each area of your practice income. Including: office visits, prescriptions, X-Rays, dental, dental, surgery, ultrasound, laser therapy, boarding, and grooming.
- Maintenance – Cleanliness and an odor free environment are essential elements to generate a good first impression for prospective buyers. Maintaining the exterior and keeping the building in good working order will help the building appraise for full value and also reduce any items that need to be fixed on the inspection report. Your TPSG representative can provide feedback on what items are most important.
These factors will assist you in preparing your practice for sale. While we can’t control all aspects of our practice, we can limit the obstacles prior to closing.
Total Practice Solutions Group prides itself on having industry professionals with the acumen to get you from start to finish. Contact your local representative for more information regarding the successful sale of your clinic.
TPSG – Mountain Region + California