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Why veterinary practices don’t sell – and how to sell yours for more than the industry standard valuation

by
01 July 2013, at 12:00am

PAUL GREEN of Vets Practice Growth discusses aspects of the ‘difficult and painful journey’ often involved in selling a practice and things to do to ensure a good price is obtained

I MEET hundreds of veterinary practice owners every year, and most fall into one of three camps.

There are the ones who have just acquired their first practice. They’re full of enthusiasm and excitement at finally being their own boss.

Practice owners who’ve been doing it for 10 years or more are normally enjoying the spoils of years of hard work.

Then there are the practice owners who have been in business for many years and are actively looking at what the end game will be. They want out.

It may be several years till they actually do it, but for many they are already tired or frustrated with their practice.

Selling a practice can be a difficult and painful journey. Often it takes twice as long as you expected, and costs far more than you budgeted for. Retirement sales have to be completed before the owner loses interest and lets the business start to deteriorate.

These tough economic times have made it harder for owners to sell their practice at a decent price (and I’m excluding selling to CVS as an option here).

The reality is that successfully selling your practice for a good price is less to do with the sale, and more to do with the work you do in the three to five years leading up to the sale.

Your business is really only worth what someone will pay for it. The more value they see in the practice, the better.

The key thing to be able to demonstrate is three years of growth. Can you show that your sales, turnover and profit have all shown steady and consistent increases over the longterm? This single factor alone will allow you to break away from the standard industry valuation.

When your business is flat or in decline, the buyer has to weigh up their ability to turn the business around, with the risk that they are buying something that can’t be turned around.

There are a couple of factors that you cannot control when selling your practice. These include what else is on the market; the price of other practices; who’s buying; and the availability of borrowing.

But there are several factors you can control – all of which will be uncovered during due diligence and will affect the sale price one way or another.

Does the business need you there to thrive?

It’s one thing to be the practice owner; and another to have a business that can’t even operate without you there.

If you need to be there for the place to even open in the morning it will be less attractive. Businesses that thrive whether the owner is there or on holiday in Spain are always more valuable.

Have you systemised the business?

This is the most robust way to achieve a practice that operates the way you want it to without going mad. You build something called a franchise model for your business.

Systems give you control and the ability to truly measure staff on their ability to thrive within a clear method of operations.

How strong is your new client marketing and your client relationships?

The business’s relationship with its clients is critical. If all of those relationships are tied up in you, the business owner, that’s a problem. Demonstrate that you have a series of robust marketing strategies to acquire new clients and retain them.

Can you demonstrate solid cost control?

Practices that grow turnover but not profit will sound alarm bells. They show a potential lack of cost control. No buyer wants a fat, bloated business full of costs.

They want to know they can start maximising profit from day one of ownership.

Can you demonstrate there is no need for major capital expenditure in the near future?

It’s tempting to put off major capital purchases leading up to a sale, but really it should be business as usual. There is a delicate balance to be made between investing in the business presale, and maximising what you will make from the sale.