It’s never been easier - or more lucrative - to sell your veterinary practice.
Of course, relinquishing the reins to the business isn’t something to take lightly. It’s one of the biggest decisions you’ll make in your professional life and plotting out a good exit plan ensures you’ll be in the best possible position when the time comes to finalize the deal.
Thinking about selling? Buckle up. In this blog post, we’ll take a high-level look at (almost) everything you need to consider when selling your veterinary practice, including your reasons for selling, financial goals, staff retention, and more.
1. Think about why you want to sell your veterinary practice
The first step in selling your veterinary practice is identifying why you actually want to sell. What are your goals? Are you ready for a significant change? Why now?
This is a very personal decision and there are no right or wrong answers. Generally speaking, there are three main reasons why practice owners decide to sell:
- Retirement: You’ve worked hard and enjoyed a successful career. Selling your practice is the perfect opportunity to reap the fruits of your labor and set yourself up for a bright financial future.
- Career change: You’ve experienced the ups and downs of the industry and have decided it’s time for a career change. Many veterinarians transition into adjacent industries such as academia, research, animal welfare, and biosecurity, while others may use their business skills to launch a new entrepreneurial venture.
- Personal reasons: A change in personal circumstances might motivate you to sell. This includes things like poor health, relocation, divorce, financial hardship, and death.
2. Talk to finance and legal sooner rather than later
Selling a practice ain’t easy. To maximize your chances of a smooth sale, start the discussion with your lawyer, financial planner, and other specialists as early in the process as possible - months or even years before the final transaction takes place.
Your advisory team can guide you through the sale process, provide insight to help you make more informed decisions, negotiate deals, and ensure offers are in line with your best interests. Starting these conversations sooner rather than later means more time to prepare and more time to mitigate potential liabilities and tax consequences.
3. Get your practice appraised
You can’t put a price tag on your practice if you don’t know what it’s worth. Undervalue the business and you risk low-balling yourself. Overvalue the business and there’s a chance you’ll intimidate potential buyers.
That’s where a valuation comes in. A valuation is a crucial business planning tool that tells you how much your practice is worth and should ideally be conducted every few years. It can help you get a better picture of your current financial situation, which you can use as a starting point to get to where you want to be further down the track.
While there are a few different valuation methods, the income approach is the most common way of appraising a veterinary practice. This method primarily looks at a practice’s ability to generate profit and largely ignores the value of individual assets. To accurately value your practice - and ensure you get a fair price! - you’ll need to enlist the services of a business appraiser, preferably one with experience in appraising veterinary practices.
4. Organize your paperwork
Buyers will want to see your business records, so take some time to ensure all your paperwork is complete and up to date. These records might include:
- Ownership records.
- Financial statements.
- Partnership agreements.
- Operating agreements.
- Business registrations.
- Meeting minutes.
- Intellectual property documentation.
- Articles of incorporation.
In addition to your business records, prospective buyers will also want to review any existing contracts that would be assumed in the purchase, including:
- Employment contracts.
- Supplier contracts.
- Advertising contracts.
- Technical support contracts.
- Loan agreements.
- Equipment leases.
- Software licensing contracts.
You’ll need to show a complete set of records for each year you’ve been in business. Talk to your lawyer if you discover any gaps in your records or contracts.
5. Consider the real estate
If you own the land your practice sits on, you’ll need to consider whether you’re going to sell the real estate or keep it and lease it out to the new owners.
On paper, holding and leasing sounds like an attractive option. Rental income offers a reliable revenue stream, the value of the land is likely to appreciate, and taking the upfront cost of real estate out of the equation effectively makes the package more affordable for prospective buyers.
However, there are also some downsides to be aware of:
- While it’s true that you’ll be able to tap into rental income from the property, there may be other types of property that would provide better returns.
- A veterinary practice is a special-use building, which means it will probably appreciate at a slower rate than mixed-use properties, which can be used for a variety of purposes (e.g., commercial, residential, office, retail, etc.).
- Most buyers want the whole package. If you can offer both practice and property, there’s a good chance you’ll attract a higher number of interested buyers.
It’s important to remember that there’s no one-size-fits-all solution here. Talk to your financial adviser to determine whether selling or leasing the land is better for your circumstances.
6. Find a buyer
Once you’ve had your practice appraised and have a price in mind, it’s time to find a buyer. If you’re running a profitable practice and have the paperwork to prove it, you probably won’t have to look too hard. In fact, there’s a good chance you’ve been contacted by multiple buyers before the thought of selling even crossed your mind!
Buyers come in many shapes and forms, including:
- Associates: One (or more) of your colleagues may be interested in buying out your share of the clinic. This can make for a smooth transition as the associate already knows the business inside and out, and has established relationships with your clients and patients. Similarly, current partners who are already invested in your practice may be interested in expanding their stake.
- External veterinarians: Veterinarians outside of your clinic may be interested in purchasing your practice, with the intent of either taking it over or merging it with their existing business.
- Corporations: Corporate buyers are typically interested in small animal practices. They’re well resourced, have a lot of experience in practice acquisitions, and are most likely to offer you the best price. Corporate buyers are primarily interested in ROI and will look very closely at your profits, gross revenue, location, client base, and future earning potential.
- Non-DVMs: The prospect of strong returns may attract investors and entrepreneurs from outside the veterinary industry. Some states and regions prohibit non-DVMs from becoming practice owners, but there are some strategies for working around these rules. Talk to your lawyer for more information.
7. Manage the transition
It’s easy to get complacent once you’ve negotiated the terms and drafted the contract - but don’t pop the champagne just yet. A lot can change before the transaction is finalized, so stay on your toes and try to head off any issues that could disrupt the transition.
- Retaining staff: It’s generally a good idea to keep the transaction under wraps until the deal is signed. When you do break the news to staff, approach the conversation with compassion, reassurance, and sensitivity. Being transparent about the future of the practice will encourage staff to continue working with the new owners and keep morale high across the team. Incentive plans such as retention bonus schemes or deferred compensation can be an effective way to incentivize key staff to stay with the company.
- Stepping down as owner: If you’ve arranged to stay on at the practice after the sale (indefinitely or for a specified period), mentally prepare yourself for the transition from owner to employee. The shift in dynamic can take some getting used to, particularly if you’ve been running the business for a long time.
- Expect the unexpected: Anything can happen before the deal is signed, so go into every potential sale with a solid contingency plan. What happens if it takes longer than expected to find a buyer? What course of action will you take if the buyer backs out in the eleventh hour? What will you do if your clients react poorly to the change of ownership? Having a backup plan for the common worst-case scenarios will help give you more confidence in the sale.
A successful sale doesn’t happen by accident. It takes planning, preparation, and months of hard work.
Do some soul searching to figure out why you want to sell, start developing a game plan sooner rather than later, and draw on the expertise of external specialists to assist you on your journey. Taking a proactive approach to selling will ensure you’re rewarded fairly for the blood, sweat, and tears you’ve poured into building your business.