If advisors tell you to sell your practice but to keep ownership of the building that houses the practice or veterinary hospital, ask them veterinary practice brokers to explain carefully how this will be to your advantage. Ask to see the profit projection in writing. Although you may receive rental income from the property, it might be better for you to own other property that will provide a better return.
A veterinary hospital, which is a special-use building, will likely appreciate at a slower rate than a multi-use property. The tax professional who is advising you on other matters related to the sale of your veterinary practice will help you determine whether selling the real estate and reinvesting in another property will be to your advantage.
Valuation of the Practice
Knowing the value of your practice is key to selling it. In short, the value of the practice is its profitability. Ideally, you will have done a practice valuation every three to five years of your practice.
The business value is your planning tool. It helps you with retirement planning, what happens if a partner dies or decides to leave, or how to place a value on the practice when you decide to sell. It also helps you learn about what you can do to improve the value in preparation for getting the best sale price.
In order to accurately value your practice, you need to have an experienced veterinary practice appraiser value it for you. Your veterinary practice attorney and CPA can help with the valuation and in obtaining the correct expert for conducting the professional appraisal.
You want to be as wary of over-valuing the practice as in under-valuing it. Over-valuing can reduce the chances of you even selling it.
Selling Options
Some veterinarians in rural areas may decide just to shut the door and walk away. This may work if there is no value to the practice because the facilities are out of date and for other reasons, there is no profit to be had. But there are other options.
Stay and work for a while and improve the sales potential. Identify the problems with the non-profitability of the practice and work to make necessary changes. This may be an option if you have time to make improvements. If you can increase the profitability, and show a growing, profitable, up-to-date practice, you can then sell the practice instead of just shutting the door and walking away. Keep in mind that increased profitably needs to be on the books for more than just a few months.
Sell to associates. If you have associates, one or all of them may want to buy out your interest in the practice. There may be dates along the way of the practice where an associate wants to buy into the practice. There are pros and cons to this.
If you plan to stay in the practice for years to come, this may work out. The associate who owns a percentage of the practice will have a greater incentive to make it successful. It also allows you, as the owner, to maintain your management philosophy.
On the other hand, if it does not work out, it may be difficult to disengage. If there is only a partial sale, the contract needs to be air-tight with a clear buy-sell provision in case one party wants out of the contract.
Merge the practice with another veterinarian or other veterinarians in the area. Small practices are discovering if they join together, they can maximize the use of the equipment and even the staff. This is more common in practices with only one or two veterinarians, but it generally increases the profitability of the practice. If you choose to do this, check with your CPA and attorney to make sure there are no tax problems for you and to make certain a valid contract is drafted that covers contingencies such as if one veterinarian wants to change the practice agreement.
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