Preparation in advance is just one of the many issues to consider when planning to sell your veterinary practice. By Kerryn Ramsey
When an owner-vet decides it’s time to sell, it’s important to be patient. For many practitioners, the process for a good return on their investment can take more than three years—no matter who they are selling to. You want your practice to be in the best possible shape. But how do you start this process? According to Sam Bowden, former CEO of United Vets Group, the owner’s passion for their practice can often work against the seller. “Many owners have worked hard in their business, their clients love them and they have good equipment,” he says. “They think that’s worth something but it’s not even a negotiating point. When someone buys your practice, their main concern is how much net profit is left in the business at the end of the year. The higher the net profit, the more desirable is your business.”
He says that a buyer will pay for certainty and clarity. “Spending time keeping your books up to date can prove that you’re running an expanding business and there’s a future for it.” Making the decision
Queensland vet John Wright, who purchased Salisbury Veterinary Surgery in 1999, followed due diligence before putting it on the market. Dr Wright started working there after completing his vet degree at the University of Queensland in 1995, then purchased the practice four years later. He started his veterinary career a little later in life having worked as a pharmacist during the previous 10 years. He was 37 when he began practising as a vet. After 17 years of owning a clinic, he was well and truly ready to retire.
When planning the sale, Dr Wright was confident when it came to the practice’s books. “Mathematics is my favourite subject and I enjoyed personally maintaining the financial records,” he explains. “I knew where the practice was at financially, and how well it was trading, but I wanted to make the clinic more appealing to show that not only was it a solid business, but it still had potential for more growth. I started this process three years prior to the sale.”
Another positive aspect was that the business had a long lease. “The purchaser knew that the premises were stable,” Dr Wright says. “I had a good growing income and I’ve always kept my expenses down—part of which is not to overcapitalise, and to keep wages and stock levels in control. I was able to put the business on the market with a consistent high net profit. Overall, it was a good practice to sell.”
Dr Wright made the decision to sell to the corporate group VetPartners. “From a financial point of view, an individual vet may not have been able to offer the same as VetPartners,” he says. “Staff security was another important reason to me.”
He had a two-year earn-out contract, which has just finished. According to John Burns, CEO at VetPartners Australia, the retention rate post-earn-out is an important KPI (key performance indicator) preference. He says the corporation has lost less than five per cent of staff within the six months of their acquisitions when totalled together. “Allowing a strong culture to continue plus maintaining staff hours and conditions is key to keeping staff engaged post sale.”
Telling your staff
Bowden says the owner shouldn’t tell staff until the deal’s going through. Dr Wright agrees; he didn’t tell his staff until after the contracts had been signed. He recalls that a few of his staff—including the vets—were wondering if their positions were safe. Dr Wright and John Burns had a staff meeting to assuage their fears. “VetPartners doesn’t come in, take over and change the staff, nor the practice software,” says Dr Wright. “The practice is run in the same manner as always. The sale has had no impact on the staff—that’s a very important reason why I sold to them.”
“Allowing a strong culture to continue plus maintaining staff hours and conditions is key to keeping staff engaged post sale.”
John Burns, CEO, VetPartners Australia
According to Bowden, there’s no reason to change the business system of a practice, even when a sale is about to take place. However, once staff are told the practice is about to be sold, they may feel nervous or start looking for other work.
“In many cases, within six months of a sale, a large proportion of the staff often move on,” says Bowden. “Not because the business owner’s done anything wrong—it’s purely because a new owner means a different mindset and a different culture. Naturally, owners worry about their team when the sale is about to be completed. The right thing is to make sure they’re looked after but the harsh reality is that within six months, a proportion of staff have moved on.”
Dr Wright says that none of his staff have left because of the clinic sale.
Equipment and other considerations
To make the practice attractive to potential buyers, it’s important to have quality equipment that’s in good condition. However, according to Bowden, it doesn’t need to be the newest gear. “Prospective buyers don’t really care about your equipment, so long as it works—what they care about is your profit. As soon as you start buying new equipment, your profit goes down. You need to have equipment to run the day-to-day business, but your price will not be decreased because of the age of your equipment.”
After selling their practice, some vets may want to continue working there, perhaps one or two days a week. This can help provide consistency for regular clients and staff. However, don’t depend on this after a sale. “Sometimes, the new owner wants to align the team—showing them the new culture and how they need to increase their customer service,” says Bowden. “The original owner may be a hindrance to this process.”
When selling to a corporate group, the vet has the opportunity to keep working in the business. “It may not be their business skills being chased—it might be their surgical or consulting skills, and that’s a very valuable asset,” says Bowden. “If they’re happy to keep working and they’re adding value to the business, it’s a nice two-way street.”
John Burns says that only seven vets have retired after selling their practices to VetPartners. Of those seven, four are still active in the business on some type of temporary basis.
Another option when selling is creating a partnership. “This has become very common,” says Burns. If a young vendor is not ready to sell, they sell to VetPartners 60 to 80 per cent of the business, still holding some of the equity themselves. “When the clinic comes into the network, we bring buying power, support and HR—and all of that goes to the bottom line.”
Dr Wright is happy with his decision to sell his practice at the age of 60. “I was starting to feel mentally fatigued,” he says. “Down the track, I’m open to working as a locum, preferably at my old practice.”