If you’re a vet employed in a practice, your aim may be to own your own practice in the next few years.
But have you considered what kind of practice you would like to run? Would you start it from scratch or purchase an existing business?
There are plenty of issues to think about—from planning permits, equipment and access to the less quantifiable aspects like client good will, work-life balance and, the big one, future profits.
Whether you buy an established practice or start one yourself will depend very much on your location. Most veterinary practices in Australia are concentrated in the capital centres, attending to companion animals in the cities and suburbs.
The overwhelming majority of first-time practice owners in these areas, entering a saturated market, will find that buying an existing practice will make the most sense. Location is one of the keys to any successful business. In built-up suburban areas, chances are that most of the prime practice positions—in terms of access, parking and visibility—are taken by existing practices. In particular, veterinary practices need off-street parking to enable sick animals to be brought into the building easily. These considerations, as well as all the relevant planning permits from the local council, need to be accounted for.
Building a new vet practice in suburban areas is therefore risky, and in today’s market, the rents are likely to be prohibitive. Specialist veterinary practice finance expert, Graham Middleton, who has been providing advice to vets for 27 years, says the choice is stark. “Given the option of buying a reasonable practice at a fair price and starting one from scratch, 95 times out of 100 we would say go for the existing practice. There are too many pitfalls in the start up process for first time vets.” Middleton is founding partner of Synstrat, which provides accounting services, practice valuation services and business advisory services to vets across Australia. It is important to consider how you would like to run your practice. Many vets value the professional companionship and support of fellow vets, and this is one reason an established practice might be more attractive. Existing two-vet practices can be purchased at a reasonable price and will provide that vet-to-vet contact. “Solo vets work long and lonely hours, so it’s advisable to purchase a practice that is able to grow to support two vets’ living wages pretty quickly,” says Middleton. “Long-term sole practitioners can become professionally isolated though some solo vets do extraordinarily well and work efficiently and keep their costs in line with their benchmarks,” says Middleton.
The best strategy for a smooth practice handover is to work with the existing practitioner for a period before you assume ownership. Dr Garry Edgar, Australian Veterinary Association (AVA) practice management president, was fortunate enough to work with the prior owner of his practice when he bought it in 1995. The existing owner was somewhat eccentric and his clients were used to his manner and methods. “We were able to work with his client base and I think spending time with him made the transition seamless,” says Dr Edgar. “The better you can communicate to your clients why you’re doing something differently, the smoother the handover.”
Middleton agrees, and sees this as a marketing basic. “If you’ve got a much-loved vet who has practised for years in the one location who has a number of young vets working at the practice, the first thing we’ll say is that a good handover is an essential part of the process. We want the old fellow to stay around for a year or so, perhaps work part-time. “The last thing you should do is put up a sign saying ‘under new management’. That just gives an excuse for loyal clients to go somewhere else; you want to bond them. We want the old person’s good will. Their name must be up on the wall for as long as possible while the new person is getting to know the clients,” he says. Another essential, whether you’re buying a practice or starting up, is to make sure you can keep your overheads down—this includes referrals. This means it is a good idea to have an in-house surgery, giving you the ability to perform most procedures, and relatively up-to-date technology. “No-one is going to get rich doing consults and inoculations and selling some flea powder at the front counter,” says Middleton. “You won’t grow your practice that way. Of course you have to refer out for some procedures—but all the relatively frequent procedures should be done in-house.”
Buying an existing practice means that you have the time to work out what equipment and technology might need updating. You can find out as you go along what the priority expenditures are, and whether you’re better off spending the money up front or waiting to see what the essentials are for your specific practice. That said, the upgrade work that needs to be done is often significant. “We spent a good 12 months just reinventing the practice,” says Dr Edgar. “Getting in new shelves for stock and for food, new surgical equipment, new cages in the kennels, and new technology, including an Idexx machine—there was probably a lot more than I had anticipated.” A pre-existing practice can be the foothold you need, but it won’t necessarily be the practice you want to remain in for the long term. After three years in the existing practice, Dr Edgar bought a block up the road and moved to new, larger premises where he still practises today. “We did it both ways—buying a practice and then starting a practice. Both worked well,” he says, acknowledging that the first paved the way for the second. “The old building was becoming a health hazard. The layout was really poor, the equipment was degraded. We either had to bulldoze or move,” Dr Edgar explains.
Complaints were also starting to come through from neighbours near the old location about noise. The new practice, while just up the road, is in an industrial area and noise is not an issue—though re-zoning could change that in years to come, as demographics change. Unanticipated factors can play a big part in the value of a practice you purchase. “Re-zoning is something to be aware of when you’re choosing a place,” explains Dr Edgar. “If the families with dogs move further out to the suburbs, and you don’t see it coming, you may find that the residents in your area are budgie-owning apartment dwellers. That can affect your business dramatically.”
However you choose to start, take time to think about the sort of practice you want to run in the future and the sort of practice you can live with now. Look beyond the classifieds and make use of your industry connections. Many of the best practices are run by former employees. Make sure you get an independent, realistic, holistic valuation before you make a purchase. Be wary of self-valuations and valuations by corporate buyers, which may be subject to a raft of conditions on the vendor and buyer that will affect true value.
Also, make sure you are buying (or creating) a business that can turn a profit. “One thing you’ve got to be really careful of when you’re buying goodwill is that you’re buying profit not revenue,” says Dr Edgar. “A practice might be turning over a million dollars but not making any profit so how are you going to fund the purchase of all that goodwill? There are different valuation methods out there, but it’s really important that you make sure you’re buying the profit because it’s the profit that’s going to pay for it all.”