If you are thinking about acquiring a veterinary practice, there are a few things you should consider from identifying the practice to securing financing.Looking for tips for acquiring a practice? I've got you covered. Click To Tweet
Identify the Practice
Whether this is the first time you will own a practice or if you are expanding, you need to know if the business will support your lifestyle. Before you “pick” the practice, have an understanding of how much money you need or want to make. The practice will need to support the debt of the loan to purchase the practice as well as your personal living expenses.
For example, if you hope to have an annual salary of $175,000, you will be looking for a practice with a gross revenue of at least $800,000.
The location of the practice should fit your desired lifestyle. For example, do you prefer a rural area in the south or a metropolitan area on the west coast? Do you want to stay close to your current area or relocate? You will want to find the right culture; right for not only within the practice but also within the community.
Have an understanding of the area’s demographics and population as it relates to your business model. Also take a look at the competition in the area. If there is strong competition in the area, what are your plans to differentiate your practice?What are your plans to differentiate your practice? #acquisitiontips Click To Tweet
Match the Philosophy
To make the transition successful for both the staff and clients, it is important to match the philosophy or style of the current doctor. While fresh eyes can lead to improvements in the practice, the staff may be wary of a new owner. Having an understanding of the current owner’s leadership style can help you make decisions that will ease apprehension among the staff as you take over.
People tend to resist change, so you don’t want to radically change the experience for longtime clients. Finding a doctor and practice that operates under a similar style of medicine will aid the success of the transition.
Once you have narrowed down your options by location and culture, you will want to take a look at the facilities and equipment of the practices. Is the equipment sufficient for your needs? Is the building in relatively good shape or are there improvements that need to be done?
It’s okay if the practice doesn’t have all the equipment you want right away. Updates and equipment purchases can be included in the loan or bought at a later date.
Don’t let the physical building hold you back if it does not look like your “dream practice.” Once established in the practice and community, you can consider a ground-up construction project. With a better understanding of your clients’ needs, you can build a new practice to accommodate growth and new services.
Identifying the right practice can take time. Depending on your network and criteria, it may be beneficial to work with a consultant or broker. Their knowledge of the veterinary landscape and owners looking to sell can help facilitate the process.
The process of purchasing a practice can look different depending on individual circumstances. As you move through the acquisition, consider the people you will need on your team including a lender, an attorney and a lawyer. Below are the fundamental steps to prepare for and secure financing.Do you know what's needed to secure financing? #findithere Click To Tweet
Protect Your Credit
How you manage your personal credit is typically a good indicator of how you will manage your business credit. When preparing for financing, take steps to protect your personal credit and avoid making any lavish purchases that will affect your credit score.
When seeking financing for an acquisition, a lender will look at your personal financials as well as those of the practice you plan to acquire to make a credit decision.
Determine the Selling Price
Determining and agreeing on the selling price is an important step. First, of course, know what you are buying. Are you buying just the practice or the practice and the real estate?
When acquiring, the goodwill of the practice will be taken into account. Goodwill is made up of intangible assets such as the business’s reputation, employees and strong client base. Working with a third party who understands the veterinary space to value the goodwill can help ensure the price is accurate.
The building and land, furniture, equipment and inventory make up the value of the physical or tangible assets. It will be necessary during the loan process to have an appraisal done to value the real estate.
The loan terms can vary depending on what you are purchasing, so know up front if your plan includes the practice and the real estate or just the practice.
Working with a Lender
Becoming an owner is a big step in your career. You will want to work with a lender who understands the veterinary space and is dedicated to your long-term success. Here are a few questions to ask prospective lenders:
- Ask about their veterinary credit policy.
First, do they have one? If not, it’s likely your loan will be put into the category of “just like every loan we finance.” Ask how many years of experience they have lending to veterinarians. Working with a lender who understands the details and jargon of the veterinary space will simplify the process.
- Ask if they base their loans on cash flow or collateral.
A cash flow lender will analyze the cash flow of the practice to determine the amount of debt the business can support. A collateral based lender lends on a percentage of the tangible assets. This can leave the borrower to cover the remaining cost out of pocket.
- Ask about the loan process.
What can you expect during application, underwriting and closing? What’s the expected timeline for each phase? When the necessary information is provided, a lender can typically have a proposal within 48 hours. Throughout the process, your lending team will work with you to ensure all paperwork is complete. Lastly, what happens when the loan closes? Is there a dedicated team to support you and service your loan?
From selecting the right practice to securing financing, many of these steps will occur simultaneously. Acquiring a vet practice requires planning and patience, but becoming an owner is one of the best ways to maximize your degree and build net worth.