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Selling Vet Practice: A Guide for Practice Owners (2023)
Understanding the Vet Practice Sales Process
Selling a veterinary practice can be a daunting task, but with the right approach, it can also be a profitable and stress-free experience. In this blog post, we will explore the steps you need to take to prepare your vet practice for sale, attract potential buyers for your practice, and close the deal. Whether you’re looking to retire or move on to a new opportunity, this blog will help you get the most out of your investment and make the transition as smooth as possible.
You will learn:
- How to price your veterinary practice for maximum return.
- How to sell to veterinary consolidators or corporations.
- How to pull in quality buyers for your veterinary practice.
- How much are corporations paying for veterinary practices.
- A simple solution to selling your vet hospital easily without doing all the heavy lifting.
Selling your vet practice has never been more lucrative.
With the help of Transitions Elite, Dr. Graeff was not only able to complete the selling process within 120 days, TE was able to create competition for Dr. Graeff’s practice that ensured he received more for the sale of his veterinary practice than he could have ever imagined.
Don’t miss out on your chance to discover the true worth of your practice. Click here to request a free valuation.
Overview of the Steps Involved in Selling a Vet Practice
Step 1 – Preparing for Sale
It’s never easy to sell a business. Even if you are ready and willing to move on, there are still a lot of details and tasks involved. But when it comes to selling veterinary practice, these can be even more complicated than usual.
The key is to start planning well before you decide to sell your vet practice/clinic/Hospital. That way, when the time comes, you will already have everything lined up.
Here are some suggestions to kick off the process:
Make sure the building is clean and well maintained : The condition of the building can make or break a sale, so be sure everything looks presentable from the outside and Inside. If any repairs need to be done, make sure they are completed before showing off the building so that potential buyers don’t get concerned about anything else breaking down after they buy it.
Update your website and social media profiles : If you haven’t updated your website or social media profiles in a while, it’s time to do so. Make sure the site/profile reflect the practice’s current status and that it’s easy to find information, hours of operation and services offered.
You can also use this opportunity to provide links to any social media profiles and showcase what makes your veterinary practice unique. Specially if you are looking for buyers who want something different than what they can find elsewhere. Include photos of the facility and some testimonials from the past clients.
Gather Essential Documents and Information
Documents are vital when selling any business. These would give your potential buyer the impression that you have been running a tight ship.
At the very least, prepare :
- Profit and Loss Statement (P&L) of your Veterinary practice for three years
It is an itemized list of income and expenses for your practice that shows how much money you made in a given period by subtracting the expenses from revenue. This helps buyers understand how much money they will make after purchasing your business. It also helps you know whether your business is worth selling in the first place.
- Three Years Of Tax Return
Tax returns also show how much tax you paid on that profit, which can affect how much you net after taxes each year. Most buyers will ask for it because it shows them how much money you took home as a yearly profit from the business.
Together, these two documents allow potential buyers to see how well your business is doing financially over time.
Familiarizing Yourself with State Regulations
Every state in the country has its rules and regulations regarding sale of veterinary practices. The easiest way to find out which is true in your State is to call your state veterinary board and ask them what their rules are regarding the ownership of a veterinary practice. Some states have very strict rules about who can own a veterinary practice, so if you’re planning on selling your business, check with the authorities first before making any decision about ownership.
And that brings us to an all-important question:
Can You Sell Your Veterinary Practice To A Non-Veterinarian?
In many states in the U.S, you can’t just go around owning a vet practice or employing vets to practice veterinary medicine. And you definitely can’t do it as a business corporation or a non-veterinarian
It is because “the corporate practice of veterinary medicine” is illegal in many states. This includes States like New York, New Jersey, Minnesota and North Carolina.
So, what are your options if you are selling veterinary practice in these states?
There’s a solution for you!
The so called “Friendly veterinarian’ model
What does that mean for you?
With this model, investors create a management services organization (MSO) to take over the administrative and management aspect of the veterinary practice for a fee.
More than that, the investor will acquire only the non-regulated clinic assets, like building and equipment, while you, as the veterinarian-owner, must be prepared to remain both owner and employer of veterinarians.
However, that’s not the case if you are selling veterinary practice in states like Connecticut, Georgia, and Massachusetts, where there are no such state law prohibitions.
Finally, states like Florida, Oregon, and California have a more lenient policy on this issue. They don’t prohibit the corporate practice of veterinary medicine, but they make sure that a licensed veterinarian-manager supervises the practice of veterinary medicine.
Getting Your Financials in Order
When preparing for a practice sale, all financial records must be organized and easy to understand. You will want to ensure that you have a record of all income, expenses, and assets so that buyers can see exactly where their money would be going if they purchase your practice. Make sure these are addressed if there are any outstanding debts or liens on property owned by your practice.
Step 2 – Valuing Your Practice
To cut a long story short, you need to know what your practice is worth before you decide how much you will sell it for.
Unfortunately, that’s easier said than done.
Let us explain why, there is much confusion about properly valuing your practice. There are reputable companies that specialize in selling veterinary practices ( Like Transition Elite).
We will be upfront about the process, help you understand your financials, and steer you towards the best-prepared and highest-revenue offers.
Here’s how we helped different sellers in getting top dollars from the sale of their vet practice
“Darren had received an offer in late last year of (when we were first talking but not working together) of $1.9 million. His deal is closing on Wednesday for $3.5 million. He received 3 formal offers through the Elite Process, all over $3 million”
“Barbara had previously accepted an offer of $1.5 million in late last year (before working together),and the deal fell apart after they came to introduce themselves to her staff. Her deal is set to close next month for $2.8 million. I have been extremely involved in her deal thus far to ensure the deal happens”
Okay, with that out of the way, let’s set the record straight about retiring your practice.
To properly assess your practice’s value, you need to look at some key factors:
Factors that Impact Practice Value
- Location: The location of a veterinary practice is one of its largest assets. Practice locations in urban areas tend to be more valuable than those in rural areas because they are more accessible to clients and have more foot traffic for advertising purposes. For example, a veterinarian who is looking to sell their vet practice in New York City would likely get a better price then one in the outskirts of the city. Some other locations that may attract higher-paying clientele include malls and university campuses ( especially if there are well-known research facilities nearby)
- Size: The size of a veterinary practice also affects its overall value- larger practices generally bring in more revenue per employee than smaller ones do, which means they are able to afford better equipment’s, pay their staff better salaries, etc., which creates an overall higher standard of care for patients at those practices compared with smaller ones (or even solo practitioners).
- Staffing : A well-staffed veterinary clinic/hospital with experienced staff members is often valued more than an understaffed one where patients must wait longer for service or employees work overtime during busy periods.
- Technology: Up-to-date technology makes it easier for veterinarians and their staff members to manage appointments, patient records, and finances while providing excellent care for pets and livestock at all times (even if they are not at the clinic). If your practice is equipped with top-of-the-line technology, it will be more valuable than a similar practice with none or one using an older technology.
- Timing of the sales process: If you are planning to sell your vet clinic soon, you will have no choice but to accept the best available offer. But if you are willing to wait a little while, more potential buyers will come forward, and you will be able to negotiate better terms.
- Quality of clients: If you have loyal clients who bring in repeat business and refer others, your practice is worth more than one without these qualities. For example, if you have a longstanding relationship with a local pet food manufacturer that sends clients your way or if you regularly receive referrals from other veterinarians in the area, those relationships will add value to your business when you sell your practice.
- Reputation: A good reputation is important for any business, but it’s especially critical when selling your practice. If you have built up a good reputation over the years, potential buyers will see this as an asset and be willing to pay more for it than they would if you didn’t have one.
- Specialization: Generally, small animal practices are more desirable than large ones. The reason is not far-fetched: there are more small animal owners than large animal owners, thus more potential clients for the potential buyers.
- The prevailing state of the economy: The economy’s health directly impacts how much money people have to spend on goods and services. A recession will lower the price you can sell your business, as fewer buyers will likely be able to afford it.
Approaches to Valuation
It is true that there is no quick and easy way to evaluate a veterinary practice for sale effectively, a holistic approach utilizes one or a combination of valuation approaches. Keep reading to find out.
Three most common approaches are:
This method involves comparing your business to similar practices and looking at how much they sold for. This approach can be useful if you want to sell quickly but may not give you an accurate reflection of what your practice is worth.
The income approach looks at how much money per year the business makes and multiplies that number by a multiplier based on years in operation, age and condition of equipment/buildings, and so on. This method will usually provide a more accurate reflection of what exactly you should be asking for, but it does take into account only one factor out of many when determining an appropriate price tag (revenue).
In this approach, all assets are valued individually before adding up their total value.
Goodwill and its Impact on Sale Price
Just in case you are scratching your head and wondering, “what the heck is goodwill”
Here’s a simple definition:
“Goodwill refers to the value a company gets from its brand, customer base, and reputation associated with its intellectual property. Goodwill is a long-term asset that generates value for a company over a number of years.” – BDC
That’s not all.
In today’s business landscape, goodwill will include the value of things like your website ( plus parked domains), phone number, and other intellectual property, as well as your practice’s online reputation.
Why should you care about it?
Simple answer: It can impact the value of your practice.
Here’s the thing
Know this: the sale of a veterinary practice is based on tangible and intangible assets.
Tangible assets are physical assets, such as equipment and office furniture, that can be seen and touched. Intangible assets are things that cannot be seen or touched.
The most significant intangible asset in the sale of a veterinary practice is goodwill. Goodwill represents the difference between what your practice is worth on paper and what a potential buyer would want to pay for it. However, we will be honest, there’s no easy way to quantify goodwill.
Yet, goodwill is so important that businesses must record its value on their financial statements and record any impairments.
Here’s how you calculate the goodwill of your vet practice:
You can calculate goodwill by subtracting the fair market value of a company’s assets and liabilities from its purchase price.
All that being said, here are three vital pieces of information to keep in mind:
- Based on experience, buyers are unwilling to pay a premium for goodwill. Rather, buyers tend to value a business based on how much profit it has historically made and whether they think it can make more.
- Even if your veterinary practice is a revenue-making machine and enjoys tremendous goodwill, demonstrate to the buyer that it could make even more with a few tweaks.
A simple piece of advice: Ditch the hand-wringing and get real about what it takes to make a sale- get in touch to find out more.
Tips for Pricing Your Practice
We get it: you’ve worked hard and have done everything right. You know that there are perhaps other Practices in your area, but yours is better – at least, that’s what you have been told by everyone who’s ever been there.
So why shouldn’t you get top dollar for it?
Here’s the danger:
The truth is that buyers are looking for value and will be willing to pay up if they think they are getting a good deal. However, if you price yourself too high, you might turn off some potential buyers.
And if, after a while, you fail to sell the practice at the high price point ( which is likely), it becomes shopworn. Then human psychology kicks in- buyers will equate the high price tag with poor sales because they think, “if this place were really worth X amount of dollars, it wouldn’t still be in the market – something must be wrong with the practice.
We have seen it a thousand times- trust us, it doesn’t end well.
So how do you get it right?
The secret boils down to all we have discussed so far- and also that you need an experienced team in your corner who can guide you through the process and make sure everything is done correctly.
Step 3 – Closing The Deal
When buyer comes along, you need to do these three things:
- Due diligence
- Making the decisions official (Documentation)
Navigating Due Diligence and Legal Requirements
What is due diligence?
Due diligence is the careful investigation into all aspects of a business before signing a contract and becoming liable for its obligations. When selling your practice, many things need to be investigated before the final process.
Buyer’s financial standing : Diligence is about investigating the buyer’s financial strength.
Legal matters : Things like litigation history must be checked before the deal is closed. If there are outstanding lawsuits or other issues that could cause problems after closing, you need to know about them to decide whether or not to proceed with the sale.
Note: This is not an exhaustive list of all concerns that should be addressed in a due diligence investigation. Get in touch with our expert today for more information on due diligence investigations.
Negotiating and Drafting the Sales Contract
Contract negotiations have a single purpose- to strike a deal that works for both parties.
In other words:
You and the buyer will be talking about the elements of a sale. You will discuss them, weigh the pros and cons of each element, and come to an agreement that represents both parties’ needs.
Important elements when negotiating a vet practice sales contract
In this section, we will go over some very vital elements you should consider when negotiating a veterinary practice sales contract.
Form of Sale
When selling a practice, there are two basic forms to choose from- an asset sale and a stock sale.
- Asset sale – In an asset sale, the seller transfers all assets both tangible and intangible including liabilities, to the buyer in exchange for cash at closing.
- Stock sale – If your vet practice has been incorporated as an LLC or other business entity ( as opposed to being owned by one owner), you may be able to negotiate an entity sale. In a stock sale, the seller transfers ownership of shares in their practice to the buyer, who then assumes management responsibilities of the business.
When you choose to sell your vet practice, In an asset sale, you are likely to pay higher taxes than in a stock sale.
Why? Because other than intangible assets like goodwill, an asset sale isn’t taxed as a capital gain; it’s taxed as ordinary income.
If you are a C-corp, shareholders will be exposed to double taxation if you decide on an asset sale. On the other hand, the sale of your practice as whole may result in single taxation in a stock sale.
Think about that for a minute.
Which should you choose – a stock sale or an asset sale?
If you are considering selling your vet practice, it may make sense to do it as a stock sale. You could realize the gain on your business at preferred capital gains tax rates. On the other hand, when you sell an asset, gains are subject to ordinary income tax rates.
Payment Terms and Essential Documents
Price and terms of payment. This may include how much money is being paid for the business, how many installments will be paid over time, what percentage of profits will be paid until the full amount has been received by the seller, as well as any other conditions related to payment such as interest rate charges or penalties if payments are not made on time.
That’s not all:
There are several ways to pay for a business, but here are some common options
Cash purchase or all cash paid at closing (Cash sale): This type of sale will occur when you sell your practice directly to another veterinarian or someone with substantial funds available. This type of transaction is attractive to buyers because they know exactly how much they will be paying out at closing and do not have any other financial obligations or commitments until then.
Installment: The transaction occurs when the buyer pays a portion of their purchase price over time instead of all at once.
Earn-outs: An earn-out is essentially an agreement allowing you to receive a portion of the profits made by the buyer during a certain period after the sale date.
Stock swap : In this scenario, the buyer would purchase your business with stock in their company instead of cash.
Each of these payment arrangements has its pros and cons, but generally, paying cash upfront can also help prevent buyer’s remorse and help ensure that both parties are committed to closing the deal as planned.
Clauses and Agreements
Here are some clauses and agreements that are essential when negotiating your veterinary practice sales contract:
Terms and conditions: This section outlines what both parties must do to ensure a successful transaction. It also states how disputes will be resolved and how long the contract lasts.
Representations and Warranties: Seller representations and warranties are promises the seller makes about the company. These aim to shift risk from the buyer by assuring them that everything is as advertised.
An Acceleration Clause: An acceleration clause is a provision in a contract that makes the buyer speed up the seller’s payment. Acceleration clauses can be applied when there is a default on the payment of interest or other charges as per the contract.
Essential Documents You Need to Have to Sell Your Practice
One way to do that is by insisting on three documents: a letter of intent, a non-disclosure agreement(NDA), and a sales agreement.
What are they?
- Letter of Intent (LOI) – The LOI is also called “The Term Sheet”- an agreement between two parties that states the terms of an agreement but doesn’t legally bind them. It’s a great way to ensure all parties are on the same page before they get too far into the negotiations or due diligence
There are some best practices to keep in mind:
- Setting a firm minimum price on the practice means you don’t have to deal with buyers trying to get a better deal.
- State that the purchase price will be paid in full upon closing.
- Be very clear on the employment terms. You don’t want to leave this to interpretation as it could lead to problems later. It should include compensation and benefits, signing bonuses, vesting schedules, and more.
- Make sure your lawyer reviews any documents before sending them out to avoid any potential problems later on down the line.
- Be very clear on non-compete clauses and other restrictive covenants that may be present in your employment agreement. You may want to negotiate these away entirely or reduce the length or scope as much as possible.
- Pay attention to the employment terms, as failing to agree on those can complicate the deal further.
- Have your attorney review the LOI. Investing the time and money upfront is better than discovering deal-breaking surprises at closing.
- Non-Disclosure Agreement (NDA): A NDA protects any proprietary information during due diligence. It ensures that both parties maintain confidentiality throughout this time, even if they decide not to move forward with the practice sale.
Some key points to consider when creating an NDA for a veterinary practice sale:
- The permitted purpose of your NDA should be clearly stated. It will help prevent any confusion later on when trying to determine whether a breach has occurred or not.
- Ensure all the information you want to protect is included in the agreement. The more specific you can be about what you want to remain confidential, the better.
- The NDA should preferably include the time period.
- Sales Agreement
This document outlines all aspects of the deal, including price and payment terms. It is the final legal binding agreement between you and the buyer before closing the deal. While it does not need to be lengthy, it should contain all the agreed-upon details by both parties. The contract should include payment terms, conditions for sale (i.e if the property is sold subject to certain conditions), warranties, and representations. It should also contain covenants that protect your interest if things go wrong after closing.
Things to Consider Before You Sign A Non-Compete Agreement
It is not uncommon for buyers to request that sellers sign an agreement that prohibits them from competing with the buyer for a defined period.
While this is a normal part of the buying and selling process, it’s important to consider the agreement’s duration, geographical area, and specifics before you sign. If it clashes with your interest to practice again, you can negotiate this with the buyer.
Furthermore, a veterinary practice sales agreement must be spelled out as a separate document- usually as an addendum.
It can be hard to know where to start with all of this and chances of knowing and finding the best buyer for your practice is very low, so if you have any questions about selling your practice contact us for a free consultation!
Step 4 – Ensuring a Smooth Transition
One of the major concerns for buyers buying a vet practice is “attrition”. In other words, how many people will leave? How many staff members and clients will be lost to attrition? Some practices have higher than average turnover rates, while some are much lower. If this is an issue for you and your buyer, it’s important to plan how you will handle turnover. Start by outlining your expectations. Do they have any policies regarding staff or owner departures? What steps will they take to help staff make the transition?
Tips for Facilitating a Seamless Transition for Your Staff and Patients
- Inform Key Stakeholders – Make sure everyone involved ( especially clients and employees) understand what is happening and why it’s happening, so there aren’t any surprises for them.
- Expectations – Let the buyer know what to expect early on. This way they can plan accordingly for things like hiring new staff members or making updates to their marketing materials.
Managing Post-Sale Expectations and Communication
If possible, try to schedule a meeting with the new owner. So they can learn more about how things work behind the scenes at your vet clinic and understand how they can adjust as per the existing processes.
Sell Your Veterinary Practice Fast, For Top Dollar!
Struggling to sell your practice? Frustrated by lack of leads and cash, do you need to retire or reinvent yourself?
You may have even tried all the basics – joined local vet groups, updated your website with all your credentials, refreshed the office decor, and listed on Craigslist for extra visibility. Nothing is working!
It is a fact; selling a veterinary practice can be a difficult and stressful process.
Between the pressure to sell quickly, pricing your practice, negotiating, and then dealing with someone who may not be the right fit for your business, selling your vet practice can be difficult.
You may be worried about the longer process and how to sell your practice quickly at a high price.
And it doesn’t stop there deals that are self managed by the owner fall apart or end up receiving a much lower price than originally offered vs managed by an experienced advisor such as Transition elite
Well, we can help!
At Transition Elite, our team of experts will work closely with you throughout the process. We will handle everything, including marketing and negotiations, in a way that brings only qualified buyers to the table. No hassles-selling faster and easier means you enjoy the next phase of your life sooner – no matter where that may lead.
Your Practice is an asset, not just a business. We know how much your vet practice means to you and selling it for the right price doesn’t have to be a painful task.