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Listing Your Vet Practice For Sale?
Here’s What You Need To Know
If you’re close to deciding on listing your veterinary practice for sale, make sure you understand what’s next. Here are some of the most common questions we hear from sellers and how we answer them. And if your question isn’t on our list, or if you have any other questions, please let us know. We’re always happy to help.
And it even gets better:
Want to skip the hassle of finding the perfect buyer for your practice?
With the help of our experts, you can explore your options and ensure you get the best possible deal for your hard-earned asset. We’ll use our veterinary practice advisory expertise to guide you through each step of selling and ensure you benefit from our full advice, buyer access, and constant support.
Selling A Veterinary Practice: Some Frequently Asked Questions
We’ve grouped the questions into five phases:
Phase 1: Preparing Your Veterinary Practice for Sale
I want to sell my veterinary practice. What are the steps I should take?
Step 1: Go through your practice’s financials, including your books and records, and identify what you want to sell.
Step 2: Get yourself a veterinary practice sales advisor. Once you have a listing with an advisor, they will contact you with leads interested in purchasing your practice. They’ll also work with you throughout the entire process — from finding the right buyer to closing on the sale of your practice! Why not get in touch with a top veterinary practice sales advisor right now? Click here to get started!
Step 3: Be ready for the selling process: have an exit strategy in place, and make sure everything is in order before it starts.
What factors can make the process of selling a veterinary practice more difficult?
An astute buyer will consider the following factors when deciding whether to purchase your veterinary practice:
Legal concerns: Generally, buyers would want to steer clear of any vet practice subject to an ongoing legal battle.
The amount of debt of the practice: Lenders are often hesitant to lend money to buyers who want to purchase businesses with large amounts of debt. So, this could make it difficult for you to sell the practice because banks may not like the burden of paying off that debt.
The location of the practice: The real estate market can significantly impact your practice’s value and ability to sell quickly. If you are not in an ideal place or if there is a veterinary practice across the street, this can be a deterrent to potential buyers. A buyer may also be concerned about whether or not they will have enough patients in that area to keep their business profitable.
Profitability of the practice: It’s a no-brainer: if your practice is ailing, operating at a loss, or its cash flow has been declining year over year, then buyers might not fancy purchasing it.
If you overprice your practice: It’s not uncommon for owners to overprice their practice – this is especially true if they haven’t had a practice valuation by a professional. When this happens, it can take longer to sell the practice.
If the practice has been on the market for too long: This is human psychology at play – many buyers might think there’s something wrong with your practice if it has been on the market for too long.
Here’s some advice:
Please consider the points mentioned above and determine how best to remedy them. Lastly, if you want to prevent unfortunate outcomes, it’s best to get some advice from a professional.
How long does it take to sell a vet practice?
Our sales cycle is 90 days. That means it takes us about three months from when a customer first contacts us to when we actually close a sale.
What can I do before listing my practice?
The following are some things that you can do before listing your practice:
Document everything. Ensure you have all the paperwork from when you bought the practice – profit & Loss (P & L) statements, balance sheets, tax returns, leases, etc. You need records of all those expenses, so potential buyers will know exactly what they’re getting into before buying it from you. It will also help them negotiate better terms with their bank or investors if they have any financing issues after purchasing your practice!
Prepare for showings and presentations. Make sure your facilities are ready for visitors with an eye toward showing off all of the great things about your practice, from its physical premises to its staff and services.
List your practice as soon as possible after deciding to sell it. Don’t wait until everything is perfect before listing it for sale; buyers know that most practices aren’t excellent, and they expect some repairs after they buy them anyway!
Other considerations for getting organized before you sell your vet practice:
- Get your financial records in order. Gather all financial statements for the previous three years. Furthermore, clean up your accounts receivable: collect what you can, or write off the rest.
- As a best practice, we recommend you prepare confidentiality agreements (non-disclosure agreements) that potential buyers must sign before you reveal vital information about the practice.
- If your practice is a corporation, assemble all the paperwork to incorporate your business, i.e., Articles of Organization (LLC) or Articles of Incorporation (S- or C-corp.). Also, make copies of any legal agreements entered by the company with any other party.
- Prepare copies of any real estate contracts and agreements, as well as licenses and permits.
- Gather the proof of ownership of your intangible assets—for example, copyrights, domain names, inventions, trademarks, and the like.
- Be sure to collect copies of awards received by your practice, yourself, or any other staff member of your practice. Or document proof of such recognition thereof.
- Prepare an executive summary highlighting everything intending buyers should know about your vet practice.
- Create a document showing a few strategies the new owner could implement to improve the practice (more profitable). For example: run a social media promotion, start an email marketing campaign, hire more staff, add new services, etc.
- Talk to an appraiser who can help you determine the fair market value of your practice.
- You will do better if you have a logical, well-thought-out reason for selling your practice. So, take note of that.
I am leasing the property I use for my practice. What should I do?
Make sure to talk to your landlord about whether or not your lease is transferable. If the terms of your lease prevent you from assigning the lease or a sublease, explore the possibility of renegotiating the terms to allow the new owner to continue with the lease.
Is it necessary to work with an advisor before listing my vet practice for sale?
An advisor or vet practice broker would ensure everything is in order and present the practice to the best buyers. This can produce outstanding results in favor of you, the seller. So, yes, it is wise to seek an advisor’s help before listing your vet practice for sale.
What will it cost me to sell my veterinary practice?
The fees charged by these advisors vary.
Phase 2: Valuation Of A Veterinary Practice
How do I value my veterinary practice?
The easiest way to value your practice is to use a professional appraiser. They will give you a fair market value for your practice.
Three popular veterinary practice valuation method include:
- The Income Approach: This approach values a veterinary practice based on the net income generated by the business. It is the most common method used to value any business.
- The Asset-Based Approach: This approach values a veterinary practice based on its assets instead of its income. This method is used mainly when there is little or no income history or when there has been no capital investment in assets.
- The Sales Comparison Approach – This method involves looking at recent sales of other veterinary practices in your area. You would then adjust the sales price to reflect what you believe your practice is worth relative to the sales comparison practices. While this can be an inexpensive way of valuing your practice, it does have some drawbacks:
- The results are only as accurate as the information you have on other veterinary practices in your area. If there are no recent veterinary practice sales near you or limited information available about them, you may be forced to use other methods to value your business.
- It may not reflect the actual value of your practice as it is based on “comparables” that may not be comparable due to location and/or services offered.
- The results may not accurately reflect what others think your business is worth.
- This method does not consider any unique characteristics of your practice, such as its reputation, location, or customer base, that would make it more valuable than other similar practices (or less valuable).
What is my vet practice worth? How much can I sell my veterinary practice for?
The answer to this question is not simple, as it depends on many factors.
- Your client base.
- Your location/traffic flow.
- The state of the economy.
- The type of practice you have: Small animal practices tend to cost more than large animal practices, while specialist practices typically attract higher rates.
- The timing of the sale. Chances are high you would sell your practice for a reasonable price when you have some time to prepare your practice for sale. But, in the case of an urgent sale with a rushed deadline, the practice would likely sell for less than the ideal price.
Takeaway: Determining the market value of your practice can be complicated because there are many factors and moving parts to consider. Luckily we can help – our team of seasoned practitioners crafts thoughtful, customized analyses of your practice to help you price your practice effectively.
What multiple of EBITDA do veterinary practices sell for?
Valuation multiples vary widely depending on your vet practice characteristics and other market conditions. However, it typically ranges from between 5-8x EBITDA.
What is “goodwill” in the sale of a vet practice?
In the context of the sale of a veterinary practice, Goodwill refers to the intangible value of the practice itself. It includes things like client relationships, location, and reputation within the community. If a practice has been around for many years and has built up a name for itself, there will likely be some goodwill attached to it when the time comes to sell.
Important Note: Goodwill is an asset of significant value in the sale of most veterinary practices, accounting for the most significant percentage of the total value of a business.
How can I calculate Goodwill?
The process of calculating Goodwill is not complicated in theory but can be extremely difficult to execute in reality.
One method for assessing a vet’s Goodwill is subtracting the net fair market value of its identifiable assets and liabilities from the purchase price.
Goodwill = Purchase price of the target practice – (Fair market value of assets – Fair market value of liabilities).
How can I get more value (money) from the sale of my veterinary practice?
The key to maximizing value and increasing profits depends on the selling strategy. Sadly, if you are not experienced in negotiating and closing deals with buyers, you will be setting yourself up for failure – it is likely that your practice will not be sold for what you think it should be worth. This is why it is crucial you have an experienced advisor in your corner.
As part of a good selling strategy, advisors would (among other things):
Determine the right buyer profile and target them specifically so they are interested in buying a practice like yours.
Phase 3: Finding The Right Buyer For Your Vet Practice
Who is likely to buy your veterinary practice?
There are many types of buyers for veterinary practices, but most fall into one of three categories:
- An existing practice owner who wants to expand their business.
- Corporate buyers such as veterinary conglomerates, private equity firms, and consolidators. These companies typically focus on buying practices that are performing well and have strong potential for growth.
- Some veterinarians want to own a vet practice by buying an existing vet clinic/hospital rather than starting one from scratch. They could be your associates, which can be great for transition and business continuity.
- Partners with stakes in your veterinary practice.
Why sell your veterinary practice to a corporate buyer?
First off, we would like to clear a point regarding “corporate” buyers:
There is a big distinction between a corporate buyer who rebrands the practice (an example is the case of VCA and Banfield) vs private equity buyers who allow veterinary practice owners to continue running the medical side of things without interference. To put it in another way: as a practice owner selling to a private equity buyer you still have control in keeping your legacy; they keep everything the same and are more interested in the growth of the practice and its financial reward.
With that out of the way, it’s easy to understand why selling to a private equity buyer is a good thing. We connect vet practice owners looking to sell their practice with top-of-the-line private equity buyers – we’d like to help you too – get in touch here.
- Private equity buyers can afford to pay more than a private investor or small practice because of their higher volumes.
- When you sell your veterinary practice to the right private equity, as the vet practice owner, you can focus more on patient care and other medical duties and less on administrative matters, relieving you of significant stress.
- Moving ahead, any mention of “corporate buyer” refers to private equity.
What to look out for in a potential buyer of your vet practice?
In an ideal situation, it’s vital for you as the seller to make sure that your practice is being sold to someone who fits all these criteria:
- They’re committed to keeping your staff in place and ensuring they’re happy with their job. This is especially important if you’re selling an established practice with several long-standing employees. They’ll be concerned about losing their jobs under new owners and may not want to stay on board if they feel like they’re going through an uncomfortable change.
- They have experience running a veterinary practice and understand how difficult it can be. You don’t want someone who has no idea what they’re getting into!
- They have the financial resources to meet your target sale price and pay off any debt owed by your current business (if there is any).
What are buyers looking for in a vet practice?
When selling your veterinary business, you need to know what buyers are looking for. If you don’t know, you might sell your business for less than it’s worth.
Other than the size of the clinic facility, established client base, and a solid staff team, here are some of the most important things that buyers look at when they buy a practice:
- High-quality standard of patient care and enviable reputation.
- Growth potential – typically a 5% or more revenue increase in the past 3 (or 5) years.
- A stable and well-managed practice boasts good production in the region of $1.3 million+ annually.
- A practice that is well-maintained with good curb appeal.
- Up-to-date equipment in good working condition.
In addition to the above, the following are considerations for corporate buyers:
- Vendor contracts entered by the practice should not be long-term.
- Private equity buyers want to see a practice with a capable practice manager who handles the affairs of the business very well, which is a good sign they’ll have a smooth transition.
- A seller that doesn’t have a problem staying on to work in the practice for 1 – 3 years, depending on the buyers.
- At least 10-20 new clients/month for every DVM employed full-time.
Where to find buyers for your practice – how can I find buyers for my practice?
However, the stress-free way to find a buyer is by working with an advisor specializing in vet practice sales. The advisor will source potential buyers and present them to you so that you can choose the best fit for your practice and your goals.
What are some critical considerations when in talks with a potential buyer?
- Ask lots of questions and seek clarification upon contact with a prospective buyer to help you discover if they’re a good fit from the onset, so you don’t waste your time.
- Once you’ve decided a potential buyer ticks all the right boxes after the “interview,” invite them to spend a day or half day with you in your practice so they can get a first-hand experience of the happenings in your practice.
- Ask them to sign a non-disclosure agreement before you proceed to share vital information.
- Impress it upon them that time is of the essence. Make them aware that other buyers are waiting in line, and if a deal isn’t reached by a specific date, you’d consider your other options. Why? Deadlines are essential to keep you from waiting around for one buyer who may end up disappointing you.
- If things go well, the buyer will signify interest in purchasing your practice with a Letter of Intent (LOI). A LOI is a non-binding document that is simply an indication of interest and commitment. Once both parties have signed the LOI, you can proceed to the next phase. The LOI typically includes:
- The price of the business, including any financing terms and conditions.
- A timeline for completing due diligence on all assets in the business.
Phase 4: Negotiations And Sales Contract
How should I sell my practice?
In most cases, you’ll either be selling shares of the corporate entity in the case of S-Corp, C-Corp, LLC, etc., or the assets in the case of a sole proprietorship.
What is the difference between an entity sale and an asset sale?
Type of ownership: The option of sale for a sole proprietor with a practice that is not incorporated is an asset sale. Nonetheless, it is possible to sell an LLC or S-Corp assets (i.e., an asset sale).
Liability: In an asset sale, more often than not, liability is not transferred. For this reason, buyers want to ensure that the sales contract includes a provision that attests that all assets are in good working condition before the sale.
On the other hand, in an entity sale, liabilities are transferred to the new owner – making it advantageous for practice sellers with lots of liabilities. So, it’s no wonder that buyers often want the sales contract to specify that all known debts are paid down or off before closing the deal.
Tax implications: An asset sale means that the taxation of certain assets will be based on ordinary income tax rates. While in most entity sales, taxation is based on long-term capital gains rate.
Here’s where it gets interesting:
The rates for long-term capital gains tax (0%, 15%, and 20%) are lesser than ordinary income tax rates, which are between 10 to 37% in the 2022 tax year.
How will the buyer pay for the practice?
While most sellers would prefer “full payment” upon signing of the sales contract, the reality is that for a purchase like a veterinary practice with plenty at stake, most buyers insist on paying some part of the total purchase price as a down payment, with the rest of the balance paid in installments.
What are the documents crucial to a successful vet practice sale?
A Letter of Intent, Sales Agreement, Representation, and Warranties.
What to include in the sales contract?
If you’re selling a veterinary practice, it’s essential to have a contract that protects your interests. A good contract will also help protect you from legal challenges after the sale. Here are some things to include in your sales contract:
- A detailed statement of facts. This section should state how much money is being paid for the practice, how much money comes with it (such as equipment or Goodwill), what is excluded from the sale, and any other pertinent information about the transaction. If you’re selling a veterinary practice as part of an estate or settlement, this section should be particular about when and why the sale occurred.
- The amount of any down payment required from the buyer at closing. Tip: Negotiate large down payments.
- Financing terms (e.g., interest rate, period length, prepayment penalties). We recommend that you charge interest rates, keep payment time under 5-years, and do not charge prepayment penalties if the buyer decides on an earlier payoff.
Will I be expected to sign a non-compete agreement?
Yes you will be expected to sign a non-compete agreement. A non-compete agreement is an agreement between you and the buyer that prohibits you from working for another veterinary practice within a certain distance of the practice sold.
What should I do with my building when negotiating sales?
We strongly advocate that you keep the building and earn income from the rent.
When should I let my staff and clients know I am selling the practice?
The entire process should be kept confidential until it is finalized. If word gets out that you’re thinking of selling, it could negatively impact negotiations and your business by raising questions about the future of your practice.
Phase 5: Transitioning After Selling Your Veterinary Practice
Will I be required to stay on and work after the sale of my practice?
We can help!
If you need professional help selling your practice, we can help you get the best price for your practice and make it easier for you to find qualified buyers.
To get a “Free Practice Valuation,” just fill out the form below and book a session with our practice selling expert.