Private practice, corporate group, partnership—choosing the right business model requires careful consideration. By Cameron Cooper
After almost 20 years in practice, Dr Deborah Webb admits she had been feeling somewhat “isolated” as a veterinarian in her four Redland Bay part-time vet clinics south-east of Brisbane.
She wanted more professional and social contact with her peers and, though proud of the achievements of her clinic, Veterinary Happiness, started to think about changing the business model. Soon after, Dr Webb attended an information session about VetPartners, one of the biggest corporate veterinary groups in Australia, and opted to join its operations in February 2017. For her, the group’s philosophy of Join Us, Stay You really resonated.
“I loved the business model in that the clinic would not get rebranded and my legacy would be preserved,” Dr Webb says.
Almost two years later, she is enjoying the transition and the economies of scale that a corporate group brings. She is also relishing the chance, along with staff, to mix with like-minded colleagues at regular social, networking, leadership and educational events.
Weighing up the options
In days past, the pathway for vets was pretty clear. Study hard. Get experience. Set up your own business. However, Dr Webb is one of a growing cohort of vets who are eschewing sole practice in favour of forming a partnership or aligning with corporate entities such as VetPartners, National Veterinary Care or Greencross Vets—the largest corporate group in the country with more than 150 clinics. Joining such groups can reduce management headaches and ensure consistent income in the form of an agreed salary. Alternatively, if the aim is to transform hard work and long hours into equity, partnership is another possible route.
Dr Rachel Chay, chief veterinary officer at Greencross, says determining a succession plan can be very difficult for those vets contemplating a sale or retirement.
“It is important that vets consider all options when looking to move on from their clinic or retire. Allowing adequate time is key!” she says.
Dr Chay notes that in the Australian market the major considerations for vets are whether to sell privately or to sell to a corporate group. With regard to the latter option, she says it is important for vets to meet with the relevant group and ensure alignment of values. “All the corporate groups have mission statements and core values and given the time, emotional energy and finance invested into building and managing a veterinary clinic, it is critical that there are shared goals.”
Greencross also offers a mutual partnership option for practice owners who prefer to retain their independence and remain partially financially vested in their current practice.
Going into partnership
Setting up a partnership is also an attractive option for some vets given that pet treatments have become much more sophisticated in the past decade, leading to higher costs for medical equipment and supplies.
“Given the time, emotional energy and finance invested into building and managing a veterinary clinic, it is critical that there are shared goals.”
Dr Rachel Chay, chief veterinary officer, Greencross Vets
It is also usually easier to get financing if two or more vets set up or take over a practice.
Determining whether the practice owned by a potential partner is worth investing in or not is often more complicated than it first may seem. So, doing your due diligence is a must [see panel]. This will help ensure you are not caught out by issues such as buying into unexpected debts or joining a clinic where the existing partners are drawing down too much of the profits.
Going the corporate route
With more than 120 practices, VetPartners has found its niche in the corporate market with a model that provides extensive management and operational support while respecting the existing culture of clinics and how they practise medicine.
CEO John Burns says rather than relying on transgenerational sales as younger vets or associates take over, vets now have an option through corporate entities to leverage the value of a business, maintain independence and get assistance in areas such as training, marketing and recruitment and retention of staff.
With VetPartners, a base wage is agreed upon with each vendor before settlement. After the earn-out period, it then generally adds in a bonus based on growth in profit. Burns believes the high incidence of vendors opting to stay with VetPartners, even once they have passed their earn-out period, can be attributed to maintaining staff benefits such as bonuses and general compensation, along with keeping salary decisions as an internal function.
“Essentially the staff engagement process is retained. It’s really important to veterinary owners.”
In addition to practice purchases, VetPartners is ramping up its joint-venture deals with clinic owners, with the group typically taking a stake of 60 to 90 per cent of the business. Burns says the joint-venture model lets younger vets, especially, keep some financial ownership of the clinic and benefit from the group’s buying power and HR, legal, IT, finance and marketing clout.
Assessing your future
Greencross’s Dr Chay insists that corporate, private clinic and partnership models all have their place.
“It’s not necessarily about advantages of a group over a private clinic model as both have a valuable role to play in the future of the veterinary industry in Australia.”
In Redland Bay, Dr Webb is pleased she embraced a corporate model and appreciates the benefits of a wider support team.
“Having dedicated HR, IT, marketing and financial departments is absolutely fantastic. It’s made a huge difference to my enjoyment of practice—knowing that supportive, friendly, expert help and advice is always only a phone call or email away in any given situation. It has lifted a lot of responsibility and stress off my shoulders.”
- The choice of partnership typically entails buying into a business at which you work or targeting another practice. With the former option, put friendships aside to assess whether the business is a good buy or not.
- As part of due diligence, be aware that buying into a business could see you take on some of its liabilities and debts. So, organise an independent valuation and review of the finances and operating history of the practice.
- Assess funding options to ensure financial statements truly reflect the realities of the business. As a rule of thumb, a good level of profitability for a small companion animal practice is between 15 and 25 per cent of turnover.
- Remember that while all partners benefit from a share of the profits of a business, they are also legally liable for obligations under the partnership. So ensure that the contract is fair and does not contain any surprises down the track.
- Check that a clinic has professional indemnity coverage in the event of accidents or potential legal claims against the business.