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Ready to move on? Preparation is paramount when selling a practice

By MWI Animal Health

Communicating openly from start to finish helps ease the transition

Elderly man smiles outside
It takes a large amount of time and effort to build a successful practice. And when time comes to sell, a large amount of preparation is necessary to achieve certain goals, whether selling to an individual or corporation. The process not only takes time and planning, but also requires patience, objectivity, and flexibility. This sale means change for both clients and staff. Therefore, open communication for all involved is paramount to minimize stress from start to finish.

Carrying out good general practices that benefit the business and can prove beneficial to the sale are also important: updating service and inventory prices every six to 12 months, and maintaining and continually updating equipment and facilities. Even more important is maintaining high-quality medicine by keeping current with standard of care.

Prepare to sell

One of the first steps necessary before selling a practice is to establish fair market value for the practice and real estate. A company that specializes in appraising and marketing veterinary practices is a good option for determining fair market value for the business or "blue sky." A commercial real estate appraisal service usually valuates the building and land. Together, these figures can determine total value and market the practice.

Similar to real estate agents, these companies can also market and broker the practice for a percentage of the sale price. In some instances, if the sale is directly to a practice associate, these companies can broker the transaction even if marketing is unnecessary.Alternatively, you may choose to market the practice by utilizing an attorney who has experience in medical or veterinary practice sales. Through this process, consider working with a financial planner, accountant, and estate planner. A financial planner can assist you in setting a timeline as far as retirement and a workable yearly retirement budget. The accountant can help with tax liability planning and your estate planner can help with your will and other end-of-life arrangements.

Other factors to consider

  1. Will you stay or go? One of the biggest questions or variables in this process is whether the current owner will remain at the practice for a defined period after the sale. Some owners have no interest in this, while others stay on for quite a long time. Keep in mind that most corporate sales will require the current owner to remain as an employee for 2-3 years until newly recruited associates are in place.
  2. Are you selling to another veterinarian? If you are selling to an individual veterinarian, communication and total transparency are paramount. In some instances, the intent behind recruiting a veterinarian is for eventual practice purchase. Timely discussions and open communication are very important to make sure both parties are on the same page. Monthly and yearly reviews must keep a timeline in place. If the associate is a good fit and wants to proceed, a purchase timeline should be laid out. At that point, when executing an intent to purchase letter, you can utilize the practice appraisal and a pending current real estate appraisal. This real estate figure can be adjusted to reflect a current appraisal at the time of purchase. The intent to purchase letter outlines the price, what the sale includes, and the target turnover date.

Structure finance options

There are many ways to structure financing for a sale, and this is where flexibility on the part of the seller is important. In a corporate buy, the full sum is usually paid on the agreed-upon date. This also may prove the case when a practice sells to an individual. However, other options are available too.

One is the new buyer gets a loan for the real estate, building, and equipment (the tangibles), while the seller finances the business blue sky and other intangibles. This amount has a set assigned loan length with a balloon payment after so many years. This allows the new owner to get established with financials they can use to obtain bank financing for the balloon payment.

Another option is a modest down payment with the remainder financed through the seller over a predetermined loan period. This, of course, stretches out the payments and can serve as an income stream through retirement for the previous owner.

One disadvantage of this option is if the seller desires to make an immediate large purchase with practice sale proceeds. Of course, all scenarios need the input of your financial planner and accountant to see how these payment structures affect your state tax liability.

See to the details

  1. Inventory on-hand. The sales contract usually sets an inventory on-hand figure. A complete inventory count takes place on the sale date, and the difference in payment between the contract price and the actual price either goes to the seller if it is higher or the sales price gets adjusted down if lower.
  2. Accounts receivable. The accounts receivable due to the previous owner on the sale date gets tracked separately in order to reimburse the seller. These are client-paid receivables.
  3. Rebates. Any rebates earned by the seller but paid after the sale date need tracking and reimbursement back to the seller. This requires good communication and trust between buyer and seller.
  4. Business accounts. The new owner needs to correspond with credit card companies in order to activate deposits into new clinic business accounts. Also, some pharmaceutical companies require a new account, while others just roll the current account over to the new owner.
  5. Sales representative relationships. Help foster and facilitate relationships and introductions between the new owner and the clinic's pharmaceutical sales representatives prior to the practice's sale date.

Most of the major pharmaceutical companies, including MWI's VetOneĀ®, have new clinic account programs in which they either give free goods or discounted buy-ins to help a new owner get established. In addition, most of these programs involve delayed billing.

Transition the practice

Some practice sales involve the seller staying on for a period after the sale because this can help ease the transition to the new buyer, staff, and clients. These terms must appear in the contract clearly spelled out and include expected hours and pay. If not well laid out, misunderstandings can occur and lead to further issues.

In addition, a discussion about how the seller will handle future communications with previous clients is necessary. This is especially important in food animal practices where the client is likely to have the veterinarian's direct cell number. Some sales include a covenant not-to-compete clause. Although these are falling out of favor, the non-compete must cover a reasonable distance and time. The distance varies depending on the species of practice, with large animal practices having a longer distance allowed. Most non-competes are for 2 to 3 years.

A new buyer also needs to map out a business plan, including projected income stream and expenses, any possible changes to services provided, and client pricing, among other information. A 1-, 5-, and 10-year plan are a good start, as is exploring changes to staffing such as hiring new technicians or the possible removal of staff. Lastly, new equipment purchases or facility improvements are other portions of the strategic business plan.

Sunset into retirement
By taking time to make the proper preparations and remain patient, objective, and flexible, you can market and sell your veterinary practice and make the transition with minimal stress. The key to easing this transition is maintaining open communication through the process from start to finish. From there, you can ride off into the sunset of retirement.


See your next steps

MWI's Strategic Accounts team can help you plan for your future and the sale of your practice.