As a veterinarian, you’ve spent countless hours dedicated to growing your practice. Yet, at the tail end of your career, you may be dreaming about closing up shop and enjoying retirement. You might want to reconsider, though. The business you have dedicated years to build and countless hours to develop a strong connection with the community and your patients has value.
In part two of this series, we talked about what you need to do to tend to the health and wellness of your business in terms of practice operations and finances. Now it’s time to turn the page and look into the many factors that have a material and sometimes substantial impact on the value and salability of a veterinary practice and how the transition process works.
For most practitioners, selling a veterinary practice is a once-in-a-lifetime activity. It’s important to keep in mind the following four key items to help capture and retain the greatest value, as well as position the practice for a smooth transition of ownership.
1) Financial strength: Sell on an upswing
Veterinary practitioners can become inundated by the daily challenges that come with running a clinic, and often are unaware of the financial health of the business. As such, it’s to your benefit to have an understanding of the following:
- how your current fiscal year compares to the last three;
- your percentage of front end sales resulting from gross revenue; and
- the costs of human resources and whether they have increased year over year.
If you have any locums at your clinic, determine how much they contribute to the top line (i.e. revenues or gross sales) and whether they are the driving force behind the practice’s viability. It also is important to meet and seek advice from your advisory network (e.g. accountant, lawyer, and banker) on your practice’s financial health. Lean on those professionals to help identify areas of success and those that need improvement. Both factors can help with the practice’s overall salability.
In the years leading up to the sale of your practice, it’s essential to do a deep dive to understand its financial position and where there is opportunity for you to increase production or identify opportunities for the next owner to come in and continue to grow the business. If the clinic has been experiencing a decrease in gross revenue, it’s important to understand why and come up with a plan for how that can be turned around. Generally, higher revenue and a normalized EBITDA translate into a higher purchase price.
2) The paperwork tells the story
When you are considering selling your business and creating an exit strategy, one of the most crucial components is collecting and assessing all the relevant documentation that tells your practice’s story. For example, you may want to look into having an appraisal done. Also, ensure you have up-to-date employee agreements and production reports. You’ll also want to include a lease agreement and have an understanding of its terms.
While a lot of these documents are typically not reviewed on a regular basis, each is of value to a purchaser. For example, assessing your production reports provides a way for a purchaser to determine whether they will be able to keep up with the number of patients currently cared for in the practice or whether they can increase that number. Paperwork also relays to a prospective buyer whether the business will be viable in the same location for years to come, and whether he or she can strategically take over ownership.
3) Staging the practice
Much like staging a house before selling, you need to think about staging your practice. Buyers like to imagine what the clinic could look like after they take ownership. If it has been a while since you updated some of the furniture in the reception or waiting area, staging is a great excuse to do so. You also can look to give the practice a fresh coat of paint. A lot of the staging comes down to tidying up and refreshing what exists already (and removing clutter). You want purchasers to come into your practice and visualize themselves practicing there.
One word of caution: if you make too many adjustments all at once, you may alert your team members into thinking you are selling. The last thing you would want to do is disrupt the office prior to the sale of your practice. Depending on the relationship you have with your team, it can be a good idea to have a conversation with them up front.
4) The strategic purchaser
Prior to selling, put some thought into identifying whether there is a strategic purchaser for your practice. You may have a locum currently employed that may be interested in taking over the reins. This can sometimes be a good option with helping to ensure the buyer has a similar philosophy of care and keeping a fairly consistent feel in the practice.
One of the other options available is to sell to a third party. If this is the case, have a conversation with your advisory network. Set yourself up for success so when a purchaser comes along you are able to complete the transaction in a timely manner. If you are unsure about the process of selling your practice and finding a buyer, you can always engage the services of a broker to assist with the transaction.
After getting a practice off the ground and investing countless hours over the years into keeping it running, there is still one last step: selling. Keep in mind the points discussed in this article—they will go a long way to helping ensure you capture great value for the practice and, hopefully, create the basis for a seamless transition of ownership.
Kathryn Buis is the regional market leader, Healthcare Finance GTA, for BMO Bank of Montreal. She can be contacted via e-mail at Kathryn.Buis@bmo.com.