Nine Considerations Before Selling Your Veterinary Practice
Posted on November 5, 2020
Nine Things Veterinary Practice Owners Need to Consider Before Selling the Earlier, the Better
Owners who have expectations significantly beyond that range may be setting unrealistic expectations. To help make the most of your potential value, please consider the following recommendations.
Considerations for Veterinary Practices Looking to Sell in the Next Three Years
Many of the points below apply to owners who are considering a near-term decision. Others require longer implementation and work best for those who are looking out 18 months or longer to prepare their clinic for sale.
1. How long do you want to continue working?
Now is the time for honest soul-searching. This decision should be handled thoughtfully and with a clear understanding of your age, personal goals, financial needs and overall desire to continue working. Most acquirers will ask the owner to stay on for two to three years at a minimum, so careful thought is required in exit planning.
2. Where in the life cycle is your business? Is your business on the rise, stalled, or on the decline?
Ideally, an informed owner will time the sale of the practice for a period when sales and profits are on the rise, but have not yet peaked. However, perfect timing may not always be an option. In our experience securing the best price traditionally requires experienced advisors.
Clinics that are not growing, but can weather a challenging economic period, may be best served by developing a plan that will focus on growth and profitability. Sometimes a period as short as 12 months can make the difference, however, taking 24-36 months is more common. The trick is to get started immediately with a well-designed approach.
Securing a fair price for a declining business can be more difficult – but it can be accomplished by identifying the right buyer.. Owners in this situation should consider professional assistance immediately before more drastic measures are forced upon them.
Potential buyers will want to see at least three or more years of financial performance, plus the most recent year-to-date performance (along with monthly comparatives to highlight the impact of COVID). Either you, or an advisor knowledgeable with industry benchmarks, should be completely familiar with your financial performance so that your practice can be presented in the best light.
3. Have a realistic expectation of what your practice is worth.
Understand and be prepared to deal with industry norms. If your expectations of value are well above the high end of the scale, you will most likely become frustrated with the sale process and will not find a willing buyer. There are, however, instances when an amount above the market scale can be realized, but these are normally tied to an “earn out” provision where additional value is realized based on achievement of a set goals during the first several years after the sale.
Caution: As a seller, you will need to separate the business reality from your emotional attachment to your clinic. The potential buyer will view the transaction as an investment and will be calculating their expected return on that investment.
4. Do things now that have a direct impact on profitability. Work on key initiatives that can improve your financial performance, including:
- Conduct an assessment of your pricing – is this in alignment with the market or are there opportunities to modify your fee schedule.
- Review vendor contracts and agreements – are there opportunities to competitively bid some of the services you utilize?
- Be thoughtful regarding your outbound marketing efforts – which methods are you using? Have you invested in AdWords or have your website optimized? Are you utilizing text reminders for your patients?
- Closely examine inventory – are a lot of your on-hand inventory items just “sitting”?
5. Tighten up your collection practices; clean up your receivables.
For those practices that offer “house” credit, take a moment to make sure your receivables are not “aged” and work on outstanding amounts that are past due.
6. Capital expenditures and return on investment timeframe.
When considering a sale, practice owners may be well served by holding off on major capital expenditures that will take a long time to pay off. On the other hand, expenditures that will have a near-term positive impact on earnings by immediately reducing expenses, will generally benefit an owner at the time of a sale.
7. A reminder to keep your associate veterinarian agreements fresh.
A potential acquirer will view the retention of your associate veterinarians as paramount. Make sure that all of your associate veterinarian contracts are fresh and reasonable. Have a plan to address any veterinarians that may have unusual clauses or no contract at all.
8. Keep the people who know about what you are considering to a minimum.
In spite of questions, excitement, nerves, and a need for information – this is the time to keep it buttoned up. Limit the number of people you bring into your confidence regarding a potential sale to a bare minimum and have each sign a tight Non-Disclosure Agreement (NDA). They won’t be insulted and it gives them a legitimate reason why they can’t tell others.
9. Should you engage an advisor or negotiate your own sale?
Our best recommendation is to talk to people who have sold their practices. If possible, pick clinics that have recently completed a sale – their memories will be fresher and they can speak to current market conditions. This is a close industry; find someone you trust who can make the introduction. Find out if they used an outside advisor, and if not, would they hire one if they could start over again.
If you do decide to hire an advisor, bring one in to talk under a non- disclosure agreement but get them involved early. Any advisor experienced in this industry will be able to tell you in short order whether you’re selling at the right time, or if you should complete a series of activities to build up your clinic value first.
Develop a Plan and Timeframe
As you go through the list above, develop a punch list of the things you need to accomplish and assign each item a rating based on the impact it can have on your selling price. Implement your changes on a schedule that improves the business without disrupting it or sending signals about an impending sale to your staff.
Again, the ideas presented above are meant to help you think about a very important decision. Should you have questions on selling your practice, buying another one, or general profitability improvement, we are always happy to answer questions or provide a confidential sounding board. These are tough decisions to make and educating yourself about how to approach them is the most important part of the battle.
If we can be helpful to you, please call us – we are happy to have a confidential conversation with you regarding the acquisition market and your situation. We would be delighted to help.
We are pleased to have had the ability to assist Mechanicsville Animal Hospital in its sale to NVA, Inc. The transaction closed at the end of August 2020.
About Keiter Advisors
Keiter Advisors is a full-service transaction advisory group serving companies in middle market M&A transactions and financing. KA is recognized as the national leader in assisting owners to:
- Buy or sell foodservice distribution, meat processing and produce companies
- Plan and execute transition strategies, including family buy out initiatives and third party sale
- Examine the profitability of their business and develop viable improvement programs
- Renegotiate existing financing arrangements and secure new lenders
|Carroll Hurst||Scott Zickefoose|
|(804) 273-6204||(804) 273-6253|
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