Congratulations!  You’ve finished 2018, another year as a veterinarian.  You’ve gained more experience as both a veterinarian with clinical skills as well as observing a practice in operation.  We hear general rules of thumb about how many years you should have under your belt before you own a practice.  Typically, the number is five years.  We’ve seen in practice that the number really depends on the doctor.  We’ve had doctors who were able to purchase a practice after three years and do quite well.   A lot depends on your comfort level, skill set, and experience.  Here are some things to consider for you to buy a practice in the coming year:

1. Are you comfortable with your clinical skills?   If you have been out of veterinary school 3 to 5 years, you should have a feel for where you are with your skills.  A lot depends on the clinic(s) or hospital(s) you’ve been working.  Some may limit what you’re doing and others just may not be busy.  If you’re in a location that’s given you a variety and volume of experience, you should be getting a good amount of experience.
2. Have you seen a good practice in operation?  Sure, you’ve been working in one or more clinics, but are they well-run?  Or, if they’re not, you know the difference?  If you are in a well-run practice, you should be observing how the doctor and/or office manager treat the staff.  Whether a veterinary assistant, office manager, or veterinary technician, they should all be treated well.  How about the patients and clients?   They should be given good, Nordstrom-like treatment.  They pay your rent and you want them coming back.
3. Do you know how to read financial statements?  Most veterinarians in the early stages of their career don’t know what a financial statement is, let alone, how to read one.  There are online courses such as accounting for non-accountants and other courses on financial statements and bookkeeping that can fairly quickly teach you what the financial statements are and how to read them.  Understanding them is imperative in running any business.
4. Now that you know how to read a financial statement, do you know what the numbers should be?  What percentage of collections should your payroll numbers be?  What about rent, etc.? If you don’t know, there are resources online.  Watch all of the White-Board Wednesday online videos from Joel Parker, DVM.  They are great in teaching you numbers as well as other aspects.
5. Practice Management – Learn as much as you can with the free stuff online.  From the White-Board Wednesday videos to other online courses, you can learn a lot for no cost to minimal cost.  This will quickly help you grasp the key concepts of managing a practice.

These are just a few things you can do to prepare you to own a practice. And remember, practice owners typically make 20% to 25% more than an associate veterinarian.  In addition, the equity you build in a practice is a great source of retirement.  So, congratulations on completing another year as a Veterinarian and cheers to a New Year which may bring you Happiness, Joy and Practice Ownership.

I meet hundreds of veterinarians each year who are looking to buy an existing veterinary practice.  Of those, I would estimate that 30% have done any research on what is involved in buying a practice. Of that 30%, none know the beginning to end process of buying a veterinary practice.  While all the steps cannot be covered in this article, here is some guidance on where to start and what steps to take before buying a practice.

1. Contact a bank that finances veterinary practice acquisitions and makes sure you can qualify for a good loan.  Banks can require decent credit scores, cash in the bank, that you are two years out of school, and show production from your current employer. Every situation is a little bit different.  Try to avoid SBA loans if you can, as they can be expensive with early payment penalties. However, if that is the only avenue to ownership, do not pass it up.
2. The next step is to understand a little bit about veterinary practice valuations.  You don’t want to go into a sale not knowing if the practice is worth the price listed or not.  If you are looking at a practice that a corporate entity is also looking at, the rule of thumb is that valuations are out the window.  Practices grossing 1 million or less could be worth between 65% and 75% of its’ last 12 months’ production.  Remember, that’s a rule of thumb - I’ve seen practices go for as high as 160% of production and as low as 30% of production. 
3. Think about where you want to practice.  You’re probably going to be there a while, so you might as well like the area.   Research demographics - there are excellent demographic services that sell great Veterinary demographic information for about $500.  It will tell you where the best locations to practice are located.  Also, do not ignore the smaller, older, and not-state-of-the-art-equipped practices. These can be the best opportunities allowing a higher return on your investment.
4. Put together a good team.  Get referrals for a good veterinary broker, attorney, banker, and accountant.  They’ll help you analyze the veterinary practice, do the legal work and help you find a practice.
5. Get an understanding of the true cash flow of the practice and if expenses are above industry averages. For example, is the staff expense greater than 25% of production? Is the reason because one employee is overpaid and will be retiring at the same time as the seller, or is there an over-staffing issue?  Be an informed buyer.
6. Be prepared for your due diligence.  You need to know what to look for when you do get to the point of buying a veterinary practice.  Does the practice have a website?  As the practice should be valued on current performance, not future potential, there could be real opportunities for immediate growth. Know how to spot these things.
7. Finally, spend some time with a veterinary broker before you go look at the practice.  Understand what the practice you are looking at is all about.  Does the broker think it’s honestly a good practice?  Why?  Does the explanation make sense?  Once you’re comfortable with the numbers, then go take a look at the practice.

By being an informed buyer, you will avoid a lot of headaches and potential problems down the road.  There are practices that are hidden gold mines and practices that you should not touch.  Being educated and knowing the difference is critical in your veterinary practice acquisition success. 

If you have been out of veterinary school for a few years, you may be contemplating owning your first practice.  But, for one reason or another, you have not taken that first step.  Maybe it’s the fear of not knowing the process of what you need to do to buy or build a practice.  Or, it could be you are afraid you may not have what it takes to be a practice owner.  Or, possibly, you believe the corporate veterinary practices are taking over the veterinary ownership world and you’re afraid of competing against them.  We are here to help educate you and calm your fears away.

Owning a practice should be on nearly every veterinarian’s list of things to accomplish.  Pride of ownership, directing your own clinic or hospital, and treating those types of animals you want to treat are just a few reasons why you should want to be an owner.  In addition, veterinary practice owners typically make 22% more in annual salaries than an average associate veterinarian.  On top of that, the equity you build in your practice will contribute towards your retirement nest egg.

The process of owning a veterinary practice can be simple if done right.  Simple, but it does require work.  Having a good team on your side keeps the workload down and alleviates road bumps.  One of the first decisions is should you buy an existing or build a new practice?  That decision comes down to whether you want to buy an existing practice with potentially good cash flow, but also potential problems?  Is there a practice available to your liking and in the area you want to practice?  Do you want something that truly has your stamp on it that you have built from the ground up?  A self-evaluation and talking about it with a few experts will enlighten you into knowing which route is best for you.

The other question is whether or not you have what it takes to be a practice owner?  The simple answer is “yes, you do”.  Even if you don’t want to manage staff, do bookkeeping, or handle other management tasks, you can still outsource all of that and enjoy being a practice owner.  Proper guidance and education are key if you have not ever done any of those things before.  A consultant, accountant, broker, and others can help guide you in practice ownership.   

Corporate practice owners are here to stay.  I would not be afraid of a corporate practice as a competitor.  You can open a clinic across the street and out personalize their services.  Some corporates are just in it for the money.  Not all of them mind you, but quite a few of them.  They don’t provide the personal touch and sense of community that you can in your practice.  Many also have an associate turnstile where they change associate veterinarians every six to twelve months.   I don’t know about you, but if I’m taking my beloved dog Fi-Fi, who is a part of my family, I’m going to get to know my vet and make sure Fi-Fi sees that same vet every time.  I don’t want someone whom I’ve never met and don’t know anything about them.  I think the majority of the pet owning public feels the same way.

Fears are a product of the unknown.  You fear there’s a monster under your bed because you cannot see under the bed in the dark and you don’t know what’s under there.  You fear broccoli as a kid because you don’t know what it’s going to taste like.  Fear of practice ownership is similar.  If you educate yourself, you can squash those fears.

To help facilitate this, we are offering a seminar called “Build or Buy - Your Pathway to Practice Ownership”. This seminar will help you begin the process of educating you on what you need to do to be a practice owner.  There will be experts from various fields of buying or building a practice.  You’ll learn everything from finding the right practice or location to analyzing the value of a practice.  You will receive continuing education credits while you learn about the process of owning a practice.  It will be an evening full of information with dinner provided as well. For dates, locations and registration information, visit our calendar.

Each year one of the largest corporate veterinary practice owners holds a one day conference exclusively for veterinary practice brokers.  At the conference, they discuss, amongst many other things, how their company is different than other corporates, how they value veterinary practices and trends in corporate buying.  It’s an interesting meeting to get the “state of the union” from a corporate buyers’ perspective.  I wanted to share with you some of the notes I took and give you my thoughts on a few of their points.

• Corporates are continuing to expand.  Not only in the U.S. and Canada, but this corporate buyer has begun acquiring practices in Australia and New Zealand.
• Some corporates have begun to do de novo practices.  They are filling the gaps where they don’t have ownership of a practice with a startup practice.  If you can’t buy it, build it!
• The DVM retention rate for the industry is 62%.  A particular corporate claimed to retain DVMs at a rate of 82.5%.  They said it’s due to how they treat the DVM and staff leaving everything as close to the same as possible. They also give the owners a piece of the pie.
• There currently is a shortage of DVM associates. They are putting a heavy effort towards recruiting DVMs at Veterinary Schools as well as the general public.
• This corporate has three commitments – Wellness Plans, Dentistry and Fear-Free Clinics.
• They expect the current acquisition trend to continue for the next three to five years.
• Valuations are different among the various corporate buyers.  Their add-back for DVM salaries is 20%.  Another corporate buyer uses 22%.  That can make a big difference in the purchase price on a large practice. Another example is adding back an office manager salary.  That can vary significantly amongst corporate buyers.  These are just two of ten examples of the differences they provided. 
• Valuations have gone up over the past 5 years.  Five years ago, they were buying practices at 4x to 5x EBITDA.  They are now acquiring practices at a broader range of 6x to 9x EBITDA.
• They believe valuations are currently at their high peak with the expectation that they will start tapering back down to the 4x to 5x EBITDA range they saw five years ago.
• General Veterinary Practices that are in the sights of corporate acquisition teams represent 50% of all General Veterinary Practices.  Corporates currently own 30% of all of these practices.  The expectation is that once total corporate ownership hits 50%, the acquisitions will taper off dramatically.  Corporates then may turn to specialty clinics.  Note, we’re already seeing this in the marketplace.  They also may focus on de novo practices.

In summary, the presentation confirmed what our thoughts have been:

1. Corporates are here to stay. 
2. Corporate ownership will continue to grow. 
3. There are some good corporate buyers who treat their staff and DVMs well and there are others that do not. 
4. Corporates will go the de novo route when they can’t find a practice in an area they want to have a concentration. 
5. Valuations will begin to trend down in the not too distant future. 

The number of corporate buyers in the market and the supply of practices corporates want all play into this.  Whether good or bad, the corporate veterinary practice is here for the long haul. 

This is just meant as an educational document and we are not promoting this or any other corporate buyer. ​

I have heard from other practice transition consultants, bankers and attorneys who are telling me they are busier than ever.  We, Omni Veterinary Practice group, are experiencing the same thing with more listings and more practices under contract than ever before.  So, why are so many veterinarians deciding now is the time to sell?  I believe it’s for a number of reasons:

1. Interest Rates are rising.  Buyers have had the luxury of living through ultra-low interest rates over the past five years.  Historically, interest rates on practice acquisitions have been around 7% to 8%.  The last five years, we’ve seen them dip down to an average of 3.8% and one bank offering loans at 1.89%!  Crazy rates!  Buyers are now seeing the rates creep back up.  Current rates are around 5% to 5.5%.  This is scaring some buyers into acting on their desire to own a practice.  They feel if they wait, interest rates will be back to the 7 to 8% rate soon.
   
   
2. Baby Boomers are reaching their peak.  Baby boomers doctors make up the largest portion of the veterinarian population.  Approximately 50% of veterinarians are now over the age of 55.  The largest portion of the baby boomer population is now hitting their mid-60’s.  These doctors are now selling and retiring.  Along with this, as we age life events, such as health issues, or even death happens.  We are seeing sellers with health challenges where they cannot work at the same pace as they were before, or they cannot work at all. 
   
   
3. Veterinarians tired of being Practice Owners.  Several of our current listings are from doctors in their 40’s or 50’s who are just tired of being owners.  Managing staff and managing expenses such as rent, employee benefits, etc., have caused owners to rethink their dream of owning a practice.
   
   
4. Equity Harvesting.  Veterinarians at the peak of their production in their practice are deciding to sell their practices and get the equity out before production goes down.  Many are selling to either small groups or investor veterinarians who allow the seller to not only harvest their equity but also to work back in the practice.  A perfect storm in most situations.
   
   

Whether you fit into any of these categories or even if you are in the middle of your career, you owe it to yourself and your family to have a transition plan in place.  Life events happen.  We meet with veterinarians of all ages to discuss their career plan and look at different options of how to sail into retirement, or even sell and work back. We put customized plans in place and offer solutions in the event the doctor needs to sell quickly.  

All practices have something wrong with them. Some have more problems than others.  The key to analyzing and acquiring a practice is having a vision and being able to know how to overcome and fix the problems. 
Case Study #1 – A practice has historically produced $800,000 but is now down to $400,000 with no new clients coming in the door.  Turn and run, or look into it further?  If you looked further you would find that the doctor has had a health problem.  He’s turning away 10 to 15 new patients per month while he’s getting treatment. Purchase price is $300,000.   A buyer with vision purchases the practice and in his first year, he collected $900,000.
Case Study #2 – A practice in a nice neighborhood has been in existence for 45 years. The doctor is 67 years old and as it often is with older doctor practices, the collections have gone from $1.2 million down to $500,000.  As it also is with these practices, he still has one full time and one part-time technician, two front desk, and two assistants.  His overhead is 75% and he’s taking home $100,000 per year.  The equipment is old and the practice hasn’t been updated since Jimmy Carter was President.  We sold the practice to a buyer for $350,000 who bought it primarily for the good location.  The lease was up for renewal, so we assisted the buyer in getting money from the landlord to buy new flooring and repaint the interior. He offered one of the front desk employees a small severance package to leave the practice.  He had the entire staff working the phones and sending letters to patients.  Within two years he was collecting over $1 million. 
Case Study $3 – A practice is collecting $350,000 in a downtown metropolitan area.  The doctor is earning around $40,000.  There is a technician, assistant and front desk staff.  The practice formerly produced $800,000.  The doctor is doing a lot of “watches” and not much treatment.  The price is $275,000.  Bank XXX tells the first buyer they will not loan on the practice because there is no cash flow.  The first buyer walks away.  Buyer two comes along and likes the practice.  She’s also told by a different bank that the practice will not cash flow.  We explain the opportunities in the practice to the buyer and how it doesn’t cash flow based on prior years’ collections.  However, we are certain the practice will grow a minimum of 10% in the first year and more likely 20%.  We suggest to the buyer that they let us help them find a lender who will lend on the practice based on future, projected collections.  We speak with a couple of banks and find one who sees the vision of the practice with a young buyer who is ambitious and wants to grow her own practice.  The bank agrees to loan on the practice.  The doctor does $50,000 her first month in the practice and grew the practice 30% in the first year.
These are all true examples of transactions where doctors were able to see the jungle through the trees.  They had a vision and confidence in their ability to grow a practice.  Not all practices are like these, but if you can see that the practice has a good foundation, or a good location, or good “bones”, you can pick up a practice where you’re not spending $1 million to get a practice that may not grow, but rather spending a lesser amount for a practice that will grow. ​