A practice of one’s own

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business

Purchasing a practice is the dream of many vets but as John Burfitt writes, this is one business decision that can’t be rushed.

Next to the great Australian dream of home ownership, many aspire to purchasing their own business and being their own boss.

Veterinarians are no exception. For many, owning their own practice eventually becomes reality—as an all-new start-up business, or a practice purchase or buy-in.

“Very few practices are listed on the open market—maybe 15 per cent, with the remaining 85 per cent changing hands internally or being bought up by corporations,” says Dr Tony Thelander, a veterinary practice consultant with ValuVet.

“I believe the internal buyout of an established practice is still the best strategy but for the first-time buyers, there are still some smaller practices available as buying opportunities, however, the same rules about making a good purchase still apply. It is a matter of doing all the due diligence first, but it is astonishing how many are in a hurry to do the deal before checking everything out,” he says.

Doing the deal

Just like buying a home, purchasing a practice can be a major emotional experience. For many vets, it marks a sign of independence as they make the move from being the employee to being the boss, in charge of their own domain.

“Which is why I think we see so many people getting overexcited, rushing into things and not seeing the deal clearly,” says Dr Leonie Richards, head of general practice at U-Vet Veterinary Hospital, University of Melbourne.

“Most people graduate from veterinary school with great clinical skills, but are not trained as business people and often unsure what to do in a situation like this when they want to take their careers to the next level.”

Purchasing a practice may well cost the same as buying a home. In some cases, depending on the size and location, it could be much more.

“So, this is a big move that requires wise direction and good advice through each step,” says Simon Palmer of vet brokerage business Practice Sale Search. “You need to slow down, take time to talk to professionals and get as much advice as you can from the best in the game.”

“It is a matter of doing all the due diligence first, but it is astonishing how many are in a hurry to do the deal before checking everything out.”—Dr Tony Thelander, ValuVet

The ‘Five Fs’ rule

Dr Peter Higgins, a lecturer in the University of Sydney’s Faculty of Veterinary Science, advises that anyone buying a practice needs to adopt the ‘Five F’ rule before putting a deposit down.

Front Up: Physically visiting a practice and taking a thorough look at it is an essential, not to mention the old golden rule of ‘location, location, location’.

“I know people who have bought a practice without even seeing it beforehand, and then wonder why it was not ideal for them,” says Dr Higgins.

Dr Richards adds, “Visit the location to see how it operates and fits into its area, and also how that location impacts on its business.”

Facts: Research the demographics, population and plans for the area and check with local council about any changes planned for the business location.

“Don’t go looking for details as a clinician, but instead go with the mindset of a business owner,” says Dr Higgins. “This is more than how does the reception area look. It might be that a freeway will be going through the building within the next three years.”

Financials: This is when a good accountant who is trained in data and figure analysis of company records is vital.

“Paying your accountant to go through all the records with a fine-toothed comb and determining a valuation is so important, but you also need to do some work of your own,” says Dr Higgins.

“A vet should be able to do their own business analysis of the accounts and any red flags need to be taken note of and talked through with the current owner. Don’t forgive and ignore those details in your excitement about buying the place.”

Simon Palmer adds, “It is of course essential you have your accountant ensure the financial records are in order but there is a lot more to consider when making decisions regarding the sale than that. A practice is like a living thing; it is a complicated system of inter-related functions.”

Forward thinking: The coming three-year plan for the business needs to be evaluated to determine what direction the business is heading. This is when, says ValuVet’s Dr Thelander, a potential buyer needs to be looking for what opportunities the practice has to offer. “You need to know what skills you can bring to the practice and what you can do to make it grow. The buyer needs to be able to make a difference—that should be one of the key reasons why you want to buy it.”

Fit: “Take a tough look at this business and ask if you can really see yourself there for the coming five to 10 years,” says Dr Higgins. “Never, ever ignore your gut feeling as that is what you are going to have to live with and will be spending a lot of time in.”

Also confirm which of the staff will be remaining and how they will continue to fit into the team, or possibly not.

“Good staff are worth their weight in gold and might prove to be the most valuable part of the business,” says Dr Leonie Richards. “The success of the business might well be the staff who have been working there. In that case, be sure they are going to stay around.”


BIG BUSINESSdog

The growth of corporate entities such as Greencross Vets, National Vet Care and VetPartners in recent years has seen many smaller practices bought up to become part of a larger integrated national network. Some of these organisations actively invite offers of sale with a ready cash payout for the purchase.

“The corporates have raised the bar,” says Dr Thelander. “We have seen prices for some practices edge up between 10 to 20 per cent above market in the past five years, so that can make things difficult if you are a younger person trying to buy in and your competition is a corporate buyer.”

The emergence of these corporations, notes Dr Higgins, have also added other options for those looking to sell.

“When there are more options to consider, I think that is a good thing for everyone,” he says. “When you look at the stats, there are clearly still more individual practises operating than there are big chains moving in, and I know of many practices that will not sell to a bigger organisation as they want to see their business continue in its current model.”

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