“Exit Strategies for Veterinary Practice Owners”

A veterinary practice is not just a business but rather an extension of the veterinarian-owner’s passion for animal care. If you are reading this article, it is likely that you have found yourself at a point in your career where you are considering selling your veterinary practice. There are a number of factors to consider when selling your practice, including the reasons for selling, the types of buyers available, and the legal considerations that come with the process. Let’s dive in!

Reasons To Sell Your Veterinary Practice

There are a variety of reasons why a veterinarian might consider selling their practice. Some may be looking to retire, while others may want to move on to new opportunities. Whatever the reason, it is important to carefully consider the decision to sell and to be clear about your goals and objectives.

One common reason for selling a veterinary practice is retirement. After years of hard work and dedication, many veterinarians are ready to step back from the day-to-day responsibilities of running a practice and enjoy a well-earned retirement. For others, selling a practice may be a strategic decision that allows them to move on to new opportunities or explore new areas of interest within the field of veterinary medicine.

Another common reason to sell a veterinary practice is to take advantage of a favorable market or to explode your practice’s growth potential by partnering with a Veterinary Service Organization (VSO). With demand for veterinary services on the rise and a dramatic increase in the prevalence of VSO buyers, there has never been a better time to sell.

Understanding the Veterinary Practice Sale Process

Selling a veterinary practice can be a complex process that includes a number of different steps. Before embarking on this journey, it is vital to have a clear understanding of the process and the various parties involved.

The first step in the veterinary practice sale process is to prepare your practice for sale. This may involve making improvements to your facility or equipment, updating your financial records, developing a marketing plan to attract potential buyers, and determining value. Many veterinarians choose to hire a veterinary practice broker or appraiser to conduct a thorough valuation of their practice based on factors such as revenue, profitability, and client base.

With a clear understanding of the value of your practice and confidence in its foundation, you can begin to market it to potential buyers. Once you have identified a buyer, the next step is to negotiate and finalize the terms of the sale, including negotiating the purchase price, developing a transition plan, and addressing any legal and tax considerations related to the sale.

Types of Veterinary Practice Buyers

There are different types of buyers that may be interested in your practice, including:

• Individual veterinarians
• Existing veterinary practice groups
• Veterinary Service Organizations (VSOs)

Each type of buyer brings their own strengths and weaknesses to the table, so you need to carefully consider the pros and cons of each option before making a decision.

Individual veterinarians may be the most common type of buyer for a veterinary practice. These buyers are typically looking for a practice that they can take over and grow over time. While individual buyers may not have the same level of financial resources as larger organizations, they may offer a more personal approach. This category of buyer includes associate veterinarians who are already employed by your practice and are eager for ownership or partnership.

Existing veterinary practice groups are another common type of buyer. They consist of established single- or multiple-office practices that are looking to expand within their current territory or break into a new territory altogether. These buyers may also take the form of veterinary practice groups conducting strategic acquisitions in order to enhance their ability to provide specialty services to patients. Existing veterinary practice groups may have more financial resources than individual buyers; however, it is likely that they will absorb your practice into their own model, including assimilating branding and operations.

Finally, Veterinary Service Organizations (VSOs) are a relatively new entrant into the veterinary practice market, but they are growing rapidly and are best served for veterinarians who wish to continue practicing following the sale. VSOs are built upon a successful consolidation model that has taken the healthcare industry by storm, where private equity-backed management companies acquire non-clinical assets of veterinary practices and thereafter provide a range of support services to their partner veterinarians, including marketing, human resources, purchasing, and fiscal management. By partnering with a VSO, veterinarians can continue to practice medicine while outsourcing many of the administrative tasks associated with running a practice.

Valuing Your Veterinary Practice

There are a number of different methods that can be used to determine the value of your veterinary practice, including:

• Book value
• Discounted cash flow valuation
• EBITDA multiple valuation

A veterinary practice’s book value is arguably the simplest valuation methodology, derived by subtracting the practice’s total liabilities from its total assets. The simplicity of book value is deceiving because while its black-and-white nature can paint a reliable picture of objective net worth, it neglects to consider significant factors such as market value, intangible assets, and growth potential. Thus, book value practice sales prices are among the lowest and least favorable to sellers.

Discounted cash flow valuations are conducted using future cash flows to calculate a veterinary practice’s present value. The goal of this methodology is to anticipate what a potential buyer would gain through their investment in your veterinary practice, adjusted for the time value of money. A discounted cash flow valuation will give your practice the benefit of projected cash flow maintenance and growth but may end up being inaccurate given its reliance upon estimates.

EBITDA multiple valuations are the most popular among VSO buyers. These valuations are similar to discounted cash flow valuations in that both methodologies factor in the future cash flow of a veterinary practice, but EBITDA multiples consider relative market value based on comparable transactions rather than focusing solely on the selling practice. To put it simply, buyers using EBITDA multiples to value your veterinary practice will look at the trends of comparable practice sales in addition to your practice’s financial health in arriving at their purchase price.

Practice valuation is notoriously considered equal parts art and science, and the types of methodologies that can be employed are limitless. Working with a qualified professional to conduct a preliminary appraisal and assist you in evaluating your offers will guarantee your veterinary practice is valued accurately and fairly.

Make It a Smooth Transition

When selling your veterinary practice, it is important to have a clear exit strategy in place to create a smooth transition for yourself, your employees, and your patients. This may involve developing a transition plan that outlines your role in the practice during the transition period and the role of the new owner.

One effective strategy for ensuring a smooth transition is to stay involved in the practice during the transition period. This may involve working part-time or serving as a consultant to the new owner such that the practice can continue operating successfully. If you partner with a VSO, it is most likely that you will continue to be employed in a full- or part-time capacity for several years following the sale.

You will also want to make a plan for maintaining effective communication with your employees and patients. You should work closely with the buyer on any announcements regarding the transaction and consider how (or whether) patients will observe the change.

Legal Considerations When Selling Your Veterinary Practice

Finally, the legal implications of selling your veterinary practice are not to be overlooked or under-analyzed. You need to work with an attorney who is experienced in the field of practice sales to review and negotiate the terms of the deal and address any legal issues related to the sale.

Some of the legal considerations that may arise when selling a veterinary practice include:

• Non-compete restrictions
• Purchase price structures and earn-out payments
• Assignment of existing contracts
• Rights and obligations regarding equity consideration
• Transfer of licenses and permits
• Tax treatment
• Accounting for patient pre-payments, credits, and accounts receivable
• Limiting your liability after the sale
• Handling disputes

Working with an experienced attorney can help address these and other legal issues in a way that protects your interests during the sale and thereafter.

Conclusion

Selling a veterinary practice can be a complex and emotional process, but with the right preparation and guidance, it can also be extremely rewarding. By carefully considering your reasons for selling, understanding the veterinary practice sale process, and developing an effective transition strategy, you will go into the transaction with confidence and position yourself for an optimal outcome.