“I heard my Practice should sell for the average of the last 5 years gross revenue.”
This is an antiquated ballpark method that may have been used many years ago. In actuality, revenue can have little to do with market value. Practices are Valued based on profitability and a multiple of earnings. Just because a practice has a gross of X does not necessarily mean it has any excess earnings. Have a Practice Valuation done by an industry professional to know and understand your market value.
“I can’t get financing because of my student loan debt.”
In most cases, this is not true. If you are delinquent in the payment of your student loan debt, or any other debt, it might affect your ability to secure a loan to buy a practice. But, if the debt is current the student loan debt should not hinder the financing for a good cash-flowing practice. Lenders in the Veterinary space understand why you have that debt and as long as the cash flow of the practice covers your personal debt service it will not be a deterrent.
I only work my Practice part-time, but my Practice has tons of potential for a young energetic Veterinarian and the purchase price should reflect that potential.”
Unfortunately, this will not fly with the Lender. Almost all acquisitions have some form of Bank financing and banks will only consider the historical performance of the Practice….typically the last 3 years. They will not lend money on projections that the Practice will do better with a full-time effort from the potential buyer.
“I’m not sure I can buy a Practice and put in 60 hours per week as an owner.”
Most owners average 43-45 hours per week. It is imperative as an owner to delegate tasks around the office so you can focus on medicine and have some life balance. If you don’t try to wear too many hats this should not be an issue.
“I don’t have enough business experience to buy a Practice.”
In today’s business environment, there is plenty of access to business expertise. Many Practice owners have a mentor to look to for advice. As well, owners utilize the expertise of Accountants and Practice Consultants to make sure they are running a profitable enterprise.
“If I buy a Practice my interest rates will be the same as my home mortgage.”
Unfortunately, this is not the case. But, until just recently, interest rates for Practice acquisitions have been historically low within the industry. But, because the purchase of a Veterinary Practice is typically about 85% Goodwill (Blue Sky) lenders cannot offer the same rates as home mortgages due to the increased risk involved with lending mostly on Goodwill.
“As a seller, I’m afraid there is no financing available to sell my Practice and that I will have to be the bank.”
In most cases this is not true. The Practice finance world is very competitive and if a Practice has decent adjusted cash flow numbers there are a multitude of places a buyer can go for financing. The key is to have your financials in order and to be as profitable as possible and you should have no trouble with a buyer obtaining financing.
“If I can’t find the practice that I want…. then a start-up should work just as well.”
Not always…..there are many factors to consider before taking on a start-up as your 1st endeavor into Practice ownership. It is always better to buy cash flow than it is to create cash flow from $0. Financing is typically harder to obtain and limits you to the size and location of the hospital you desire to start. Seek some professional advice before going from looking to buy to jumping into a start-up.
“I should be able to find a high quality, good cash flowing practice within driving distance from my home.”
Again….. not very likely. Think of the number of Practices within a 20-minute drive from your home. Think of how many of those are even desirable practices and then think of how long it may be before the owners may be ready to sell. Too often young Veterinarians get too anxious to own a home and then decide they want a Practice…but then become limited in the geographic area they want to buy in. It is much harder to find a good cash-flowing Practice that checks all the boxes on your want list than it is to find a nice house in the area once you buy the practice of your dreams. Advice…. buy the Practice you want before you buy your dream house.
“I will need a huge amount of cash saved up to use as a down payment for my 1st practice purchase.”
Not necessarily… Lenders in the Veterinary space are cash-flow lenders, not equity lenders. So if the cash flow is sufficient, then most acquisitions can be accomplished with 100% financing. The exception to this is when Real Estate is involved. In this case, conventional lenders will require 15 to 20% down on the Real Estate portion of the transaction and the sellers will typically carry this as a seller note. It is always a good idea to have money in savings when you go to purchase a Practice to cover related expenses and as a cushion….but it is not typically required as a down payment on the transaction.
Dr. Richard Alker TPSG-Florida
In collaboration with:
Dr. Len Jones TPSG-Southeast & Texas [email protected]
Kurt Liljeberg TPSG-Great Lakes [email protected]