The vet crew who worked the Biltmore Endurance Ride, Asheville, N.C. in September 2025. PHOTO COURTESY RANELLE KOHUT If you are considering selling, it is advisable to have your practice’s valuation done to determine the expected sales price and identify areas for improvement that can ensure a smoother and more lucrative sale. It typically takes two to three years to implement the necessary changes and provide prospective buyers with the data they need to make an informed decision about your practice. The prospective buyer will want to review at least two years of filed tax returns along with the underlying accounting to decide whether your asking price is what they would be willing to pay. I have spoken to aging practice owners who are ready to retire, but their practices are not prepared for sale. They have an expectation of what the practice price should be and may have spoken to a broker to find out that the actual value is far lower than expected. As a practice owner, you may have been a solo practitioner where clients are loyal to you rather than the practice. Some owners start backing off in their practice in anticipation of retirement and think the original potential of the practice should still be reflected in its sales price. However, buyers are not going to buy the potential that they would need to build in turn. Paying your dues Without an audit prepared by a CPA, buyers will rely on the tax returns to determine the reported revenues and expenses. The owner may have paid certain expenses through the business that may arguably be deductible for tax purposes. However, these may be expenses the buyer will not pay in the practice when they own it. Conversely, are all the revenues reported? We have not seen many veterinary practices doing this, but some small businesses will put cash payments in their pocket instead of the business bank account to avoid paying tax on that money. However, when it comes time to sell or get a loan from the bank, they want the buyer or lender to imagine what that extra money would be. If it is not reported in the returns, then any buyer or lender will ignore that additional possible income. For veterinarians, it would be too easy to prove wrong under an IRS audit because your PIMS reflects the invoices and payments, which can be reasonably traced to the practice income for verification purposes. Reviewing the numbers Financially, the practice records must be in order. Even if a sale is not planned for several years, the owner(s) should review the practice’s financial statements, comparatives, key performance indicators within the PIMS, and cash flow projections on a monthly basis. The practice should manage debt correctly and separate personal expenditures from the practice. It is typically better to pay the tax and benefit from a stronger sales price. Is your practice running efficiently? Do you have documented procedures? This gives a more professional appearance to the practice and, while you are running it, adds to the efficiency of your employees. The buyer will want to see they can step in with the current employees and know the business will continue to run efficiently since those procedures are in place. Or, if the buyer needs to hire additional staff, the practice procedures are documented for easier training and resources for employees. Is your practice outdated? Hopefully, the practice has kept up with technology and new equipment or maintenance as necessary. The buyer will not want to modernize all the equipment to maintain the standard of care they are looking to achieve. Conversely, if you are nearing the end of your practice and all equipment is outdated, you may want to strategically replace certain items; however, in the long run, the cost of replacing all major equipment will most likely not offset the additional sales price. Does the practice or the owners hold the real estate? Or is it leased? We suggest that real estate is held separately from the practice, and an attorney can help the practice owner establish a separate entity and a lease where the practice pays most of the operating expenses, as well as rent to the separate entity to cover the mortgage. Considering whether you will sell the real estate with the practice or offer it to the buyer later? This is a good way to defer taxes by delaying a portion of the transaction. If your space or building is leased, will the landlord extend the lease to the buyer? It is not easy for the buyer to keep the same clientele and change locations, so ease of transferability is paramount. Interested in selling to a corporate buyer or an independent veterinarian? Corporate buyers are paying higher amounts, but there are more stringent operating requirements. Usually, there is a two- to three-year employment contract with certain production requirements. When looking at retiring and after working for yourself for a long time, sometimes the prospect of working for someone else is not appealing. However, to ease transition, working for either the corporate or independent veterinarian and being available for consultation thereafter, will help the success of the new practice. Does it make sense to hold the note on the sale of the practice? We suggest that you consult with your attorney, as you may be increasing your risk. The buyer can stop paying, and then you may have to go to court to settle payment, which often results in a decrease in the price. However, for tax purposes, having an installment sales contract can help defer taxes, allowing the gain to be taxed incrementally at potentially lower tax rates than if it were all taken into income in one year. I have seen some corporate arrangements that pay a substantial amount upfront and defer the final payment to the end of the employment contract, which is another way to defer tax. Typically, these larger buyers are less likely to default. Another instance where it may work is if you have an associate vet working for you that is buying out your practice. Keep in mind that if you have debt associated with the practice, you will need to pay it off while receiving less money upfront. Your attorney can ensure the appropriate language is in your contract to protect you in the case of default. Some final steps When you are finally at the point of reviewing the contract and the buyers, the practice owner(s) will want to evaluate the culture and the standard of care of the buyer. If you are comfortable with that, then you will need your team to help you evaluate the contract. Your attorney will ensure that the necessary legal aspects are in place, and your CPA-tax strategist can provide suggestions regarding the financial arrangements and allocation of costs in the sale agreement to minimize taxes. Buyers and sellers have different goals. For instance, a buyer may want to allocate higher amounts to equipment where larger deductions are allowed upfront, but the seller may have fully depreciated those items and may incur higher taxes due to depreciation recapture. Your CPA advisor will help you calculate the amount of net proceeds you can expect to receive. Debt does not reduce the taxable gain, but reduces the cash coming out to you in the transaction. What buckets are used for the cost allocation will help determine the overall expected tax at the federal and state level. Then, when you know what the net is, what are your investment goals? Do you want that money to work for you in retirement? Or perhaps this sale was to allow you to pursue other interests. Will part of the investment be invested in a new venture, while the remaining part is invested? You will want a knowledgeable investment advisor to help you invest that money based on the risk you are willing to accept. Also, tying up investments in long-term contracts may or may not be to your advantage. It may promise a good return but not allow you to touch those funds if needed. Overall, you will want to make sure the practice is first ready for sale by doing the work in advance of listing it. You will want to employ a team of consultants who will work for you on your behalf. Holly R. Corcoran, CPA, is the founder of Corcoran Business Advisory Services, LLC, a virtual firm specializing in business advisory and advanced tax strategy for veterinary practices and their owners. With more than 30 years of experience in public accounting and an understanding of the veterinary industry, she partners with practice owners to improve profitability, prepare for transitions, and maximize tax savings. She is also the author of The Vet Advisor: Are You Running Your Business or Is It Running You?
