You’re a dog lover.
A cat lover.
An animal lover period, and you’re ready to go into business for yourself.
You’re seriously considering practice ownership, but you don’t know where to begin.
How do you go about analyzing the finances of a hospital you want to buy?
How do you determine if it’s something you can afford?
What’s more, how do you acquire the finances to do it?
Without answers to these questions, you may feel a little lost. Allow me to guide you by giving you immediate information that will help you make the most informed decision as you move forward with buying an animal hospital.
1) Buying Your Own Practice
The standard process of veterinary graduates is to find work at a practice that resonates with him or her. While some will seek out an opportunity to work within an existing practice, others are on the lookout for managing their own.
This might be you.
Of course, buying your own practice comes with a price, and not just a monetary one. Location, need, and continued growth all play a part in how quickly your practice will succeed.
Let’s say you’ve found a piece of property in an area where you believe the market calls for a veterinary practice. Consider these tips:
- Understand your personal finances. Budgeting for your own practice is important and reviewing your financial blueprint should be a first step.
- Conduct market research. This will help you determine if your clinic will thrive at the corner of Perfect Place and Main Street.
- Reach out to a veterinary management consultant. Highly specialized consultants like David McCormick of Simmons Veterinary Practice Sales & Appraisals can further educate you on crucial next steps as you dive into the purchase process.
- Secure a loan with a decent interest rate. Some experts recommend aiming for a ten-year loan to avoid cumulative interest rates, citing that high functioning practices can typically pay the loan off within 7 to 10 years.
- As you grow your veterinary hospital, a practice valuation should be performed at least once every three years so that you can understand the worth of your practice as it matures.
- Retain an attorney and a veterinary specific CPA before moving forward. You know pets. They know laws and numbers. You want to make sure you understand every step of the process before you buy.
Owning your own veterinary hospital and the property beneath may prove lucrative as you move into your golden years. If it makes sense to keep your property as part of your investment and overall strategy, excellent. Having that extra stream of income never hurts.
However, if this isn’t part of the initial plan, sit down with your financial planner to work out some sort of retirement analysis. Depending on the value of the hospital property, you may be too concentrated in the real estate sector. If this is the case, it may be appropriate to diversify and hold other investments in your retirement strategy instead.
2) Buying an Established Practice
If starting a business from scratch doesn’t flip your switch, buying an established practice might be the better option for you.
Already established practices have done the market research and are proven. All you’ve got to do is secure the funds and move on in.
I know, it sounds easy.
And in some ways, it is. But the financial risk is the same, and if you don’t do your homework before buying, you may find yourself in a bit of a quandary.
Here are some steps to take as you consider buying an established veterinary practice:
- Talk to other owner veterinarians. Ask questions until you’re blue in the face. You’re about to take on a big investment and you need to have answers that banks might not readily provide.
- Find a practice that suits you. There are various veterinary association publications and websites that offer information on practices that are up for grabs.
- Assemble letters of credit from your bank. Before you approach Dr. Soon-To-Retire, be prepared to show him or her that you have the funds to buy a veterinary practice.
- Spread the word. If you’re in the market to buy, share this information with your colleagues. They may know someone who knows someone else who is looking to sell.
- Review financials and talk to the owner. You may find the perfect practice, but it’s not perfect if the current financial landscape is messier than the bottom of a gerbil cage.
- Spend time asking questions of the current owner. If your philosophies don’t align, move on. You want to move into an establishment that already matches your medicine and beliefs.
- Retain an attorney and a veterinary specific CPA before moving forward. Again, you know pets. They know the law and numbers.
3) Checklist to Evaluate a Practice
Established practice or not, having a checklist to help you evaluate a practice can only serve you as you move forward with the buying process. There are things you may not think about as you dive into the realm of ownership.
To get the wheels rolling, here are some things to consider:
- Determine asking price
- Perform a feasibility analysis
- Secure a letter of intent
- Review financial data of existing animal hospitals:
- Tax records
- Bank statements
- Financial statements
- Patient medical records
- Legal action documentation (if any)
- Lease information
Inside The Practice
- Patient demographics
- Number of exam rooms
- Employee turnover
- Quality of employees
- Years in business
- Potential practice earnings
- New patients vs. regular active patients
- Gross revenue
- Transferability of business
- Equipment quality
Outside The Practice
- Patient parking
- Hospital accessibility
- Clear signage out front
- Building aesthetics and quality
- Interior layout
- Zoning permissions and restrictions
4) Tips on Buying
It’s one thing to want to buy a practice of your own, but it’s another to actually have the funds to do it.
An already functioning, reputable animal hospital goes for anywhere between $700,000 and $1.5 million dollars.
If you have that in your bank account, great!
But most aspiring veterinary hospital owners don’t have that kind of disposable cash, especially if they’re still paying off student loans. Therefore, they need to be financially savvy when preparing to buy.
Here are a few tips to get you primed and ready to purchase:
- If you’re buying real estate, be prepared to put 20% down.
- Most lenders will finance 100% of a practice acquisition. If you need 100% financing, take the time to find a lender who offers this incentive.
- Talk to a veterinary specific CPA about the total earnings of the practice after expenses are paid, as well as the cost of the establishment after taxes.
- Ask about tax incentives and breaks to help justify initial buying costs
Practice owners choose to buy their own animal hospital when they discover being an
associate isn’t as lucrative or fulfilling as being a proprietor.
If this is the route you decide to take, don’t let the numbers scare you. After all, this is
your future. Ask questions, play it smart, and go all in.
All of the Fido’s of the world will thank you.