An exit strategy will help a veterinarian maximize the return on their investment and make the practice sell more quickly when the time is right. Since the sale of a practice is a complicated procedure, it’s better to use the services of a professional broker who specializes in veterinary practices. So, the first step in your exit strategy is to consult with PS Broker, who will guide you through a process that will preserve and enhance the value of your practice, make it marketable, and lead to a smooth closing with the right buyer.
Start now. Veterinary doctors love their work, their patients, and their staff. The thought of leaving a practice may be uncomfortable, but the doctor who plans ahead will be able to do it when they’re ready. With a successful sale, they can look forward to a comfortable retirement and time spent with friends and family. Sometimes, it’s not a matter of choice – personal circumstances, like health issues and family needs, can make it time to sell or relocate. We see a number of doctors who decide to sell in order to pursue a specialty or a passion before they retire. Planning makes that possible. When a doctor eventually starts to slow down, or is starting to get burned out, gross income can suffer if he hangs on too long. A practice with declining revenue will be unattractive to buyers; it becomes harder for a buyer to obtain financing, and if there is an offer, it will be lower. Your practice should, at the very least, show consistent revenue – and showing long-term growth of 3% is even better. In the same way, the worst thing a doctor can do is work until the last possible moment and then shut the doors. The value of the practice will begin an immediate and significant decline, and becomes virtually impossible to sell. In the event of a doctor’s demise, in most states, the estate will not be allowed to operate the practice and it will see a serious decline in value until a sale is arranged. To prepare for this scenario, a doctor is well-advised to have a plan in place with a broker for an immediate sale, thus minimizing the loss in value.
It can take a long time to create and implement an exit strategy. If you have a rough idea as to your desired exit date, start three years before. Begin with a valuation from your broker. The results of the valuation will suggest changes; these will range from cosmetic improvements to long-term strategies in your financing, staffing, and operating assets. By starting well in advance, you’ll have a better chance to implement these improvements and create a solid track record. If you wait until the last minute, it can adversely impact marketability and price. Business owners will often hire expensive consultants before selling, but veterinary practitioners can get the same service from their broker, who is likely to have more specific knowledge about the veterinary market than the typical consultant; for example, PS Broker has been evaluating veterinary practices exclusively for more than three decades. This valuation and consultation is an important first step in a successful exit strategy. Remember – approximately 70% of doctors do not have an exit strategy, and it eventually costs them money at the closing table.
Who Do You Want In A Buyer? You’ll want to think about what kind of buyer you want – after all, it’s not just about who can come up with the money. After building relationships with your community, your clientele, and your staff, you’ll want a buyer who will value them as you do. You may be reluctant to sell to a corporate buyer or a chain, for example, and you won’t have to, especially if you have an exit strategy in place. Be prepared to explain the philosophy of your practice, and what you’re hoping for in a buyer.
What About My Partners? If you have partners in your practice, you will have to reach an understanding with them. This can be a very difficult process, and emotional responses can take over. PS Broker knows and understands this tricky terrain, and can help you avoid conflicts with your partners.
What About My Staff? Your staff is one of the major assets of your practice. As part of your exit strategy, you should develop a solid, productive staff. A staff with low turnover, long service, and good training is attractive to buyers. In general, delegating office functions to key staff is a wise decision. Having a good practice manager is especially attractive to a new doctor who wants to concentrate on medicine. If you are working as both doctor and manager, consider hiring a practice manager who will stay on. Buyers find it reassuring to have an experienced office manager in place for the transition. At some point, you will have to inform the staff of your intention to sell. You will be expected to protect the staff as you would any other asset, seeking their continued service with the new owner and assuring them that the practice will continue to be in good hands. The clientele will need similar reassurances – and PS Broker has a great deal of experience in these delicate subjects.
How Do You Want The Money? You will have to decide how to structure your proceeds, and PS Broker can explain the options that are commonly used. With the assistance of your tax specialist, accountant, and attorney, you can specify a plan that is best for your tax situation and future plans. Typical arrangements range from a simple lump sum payment to 1031 property exchanges. Sellers sometimes provide partial financing to the buyer, in the form of a note or lease agreement, and you should consider how much financing you’re willing to provide, if any.
Will I Be Expected To Sign A Non-Compete Agreement? Yes – a non-compete clause will be part of the sales contract. The length of time and the geographic area of the non-compete agreement will be negotiated. Typically, in a highly-populated area, you will not be allowed to compete for 3 years within 5 miles; in a less-populated area, it might be for 5 years and a much larger area. It all depends on the specific circumstances of the practice. In many cases, you will be asked to continue working at the practice after the sale as part of the transition process (30 days is typical), a point that will negotiated during the sale. You may also have the opportunity to continue in an associate or relief position, and you should think about that as part of your exit strategy. Do your personal goals include some continued full or part-time involvement? And for how long?
Keep An Eye On The Big Picture. You should take an interest in local, national, and global events that can affect your sale. Interest rates are a prime example – even modest changes in interest rates can increase or decrease the number of buyers who can get financing. The economic trends in your area, as well as nationally and globally, will also impact the value of your practice. The winds of political change often affect buyer and consumer confidence. While PS Broker doesn’t have a crystal ball, we are very familiar with the cycles of the marketplace and the best strategies to deal with uncertainty.
Things You Should Start On.
- If you are uncertain about the value of your real estate and aren’t planning to sell immediately, you should consider getting an appraisal. Note, however, that the value of your real estate may change significantly by the time you sell, but it does give you a starting place. If you are planning to sell soon, the buyer will be paying for an appraisal, so there’s no need for you to spend the money.
- Make sure that all issues regarding the real estate are resolved and the property is sale-ready. Encroachments, environmental issues, zoning, or permitting problems should be addressed. The presence (or disposal) of X-ray processing chemicals is an example of an environmental issue that can complicate a sale.
- Make sure that your accounting system is up-to-date and can generate accurate reports for a complete picture of your financial health. Your broker will advise you on the specific documentation that you will eventually need to provide.
- Take note of doctors in your area who might be interested in buying your practice. They may be interested in expanding and they already know the local market. And, be prepared to discuss an associate buy-in, or a merger with a competitor.
- Set up a reliable system of relief doctors, associate rotations, and emergency and specialist referrals.
- PS Broker will help you maximize your return on equipment, but here are some general principles. Don’t enter into any new equipment leases as you approach your exit date; leases can be paid off at closing or assumed, and can include a hefty early pay-off fee. Upgrades to your equipment may be sensible, but care must be taken to avoid investments that won’t really help the bottom line. The same thing applies to improvements in the real estate. Make improvements and updates that make sense, but do so carefully.
- You should talk to a financial planner about your personal financial goals and expectations. PS Broker can refer you to financial planners who work with veterinarians.
- If your practice is in a leased facility, it’s good to have a multi-year lease that is renewable and transferable, plus a landlord that is willing to work with a new owner. Any expansion opportunities offered by the landlord, or other potential changes, should be documented.
- Compile an equipment list, and keep it up to date. It should include model and serial numbers.
- Prepare for your own accidental disability. PS Broker can provide you with information on disability strategies that are common to the industry.
With an exit strategy in place, you’ll have a better chance of finding a buyer and getting top dollar for your practice when it’s time to sell. You’ll be able to provide a smoother transition for your clients, your staff, and the new owner. You’ll be more able to cope with unexpected changes, and now is the time to get started – PS Broker is ready to put together the exit strategy that’s right for you.