5 minute read
Practice Ownership In A Corporate World
by FVMA
by Carly Watson Tobler & Evan Watson, Simmons & Associates Southeast
It’s no secret that corporate money goes farther than private, causing the constant expansion in corporate power. Though the veterinary industry is safe from a lot of societal ailments (i.e. recessions and pandemics), it is not protected from this corporate power, which is here and not going anywhere. However, we want you to know veterinarians CAN still be successful practice owners and SHOULD aim to do so.
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Before we go into the how, we must also point out that it is not the road for the faint of heart, as there are other hurdles to overcome aside from corporate competition. With the increased activity (and prices) from investment buyers in recent years, plus currently being a “sellers’ market”, it has become more challenging for veterinarians to own. However, if you are willing to be flexible with your practice needs, desires and the pathway towards ownership, you will find there are more options than you imagined.
Practice Start-Up
This is one of the most obvious routes to practice ownership. The concern with a start-up is that it’s not always a road to success. Many markets are saturated with veterinary practices, the pool of qualified employees is limited, and the cost of drugs and supplies is ever-increasing. We see many start-ups fail within the first few years of opening, and unfortunately, there is rarely an option to sell a failing start-up. Not only does a start-up require a lot of work from the owner, but it also typically takes about five years to see any return on your investment.
Expand Your Location Preferences
Of course, most buyers (veterinarians and corporate investors) want to live in urban/ suburban areas. Unfortunately, there are a limited supply of practices available to buy in these markets, and you’ll most likely be outbid by corporate buyers.
There are many great practices for sale in rural markets that are worth your consideration. While it might not be feasible to move your family to the community, with a little extra effort you could live somewhere between the practice and nearby suburban community. This might mean you have a commute, but chances are it would be in the opposite direction of traffic and a little more pleasant than the urban bumper-to-bumper.
Expand Your Practice Criteria
Having a shiny new facility and appealing equipment certainly helps to attract clients. However, having everything brand new is not often feasible, nor the most profitable way to manage a practice. Few practices for sale are new and spotless due to their age and long-term establishment in a community.
Clients are accustomed to the dated facility and staff are adjusted to older equipment which still produces healthy revenues and profitability. Over time in your 15+ year ownership, you can incrementally make updates to equipment and the facility which would hopefully increase revenues. Consider how you can update the facility with DIY projects or in phases. This would prevent loss of revenue from an interruption in services and allow you to conserve capital to invest in larger projects over several years.
Equipment can be updated for little to no cost as well by committing to lab services and/or minimum supply agreements. While these are discouraged for owners considering selling in upcoming years, they can be great arrangements for a newer practice owner not selling soon.
Buy Into Your Employer’s Practice
While minority ownership is not always advised, there are reasons that you, as an associate, might want to go this route, especially if you’re employed at a larger practice. If your operating agreement is structured correctly, you will have input on the practice sale should the majority owner wish to capitalize on a corporate sale after you’re a partner.
Not only will you be able to participate in the selling process and potentially choose a buyer that best fits your personality, but you will have the ability to decide whether you want to remain in partnership with the corporate buyer or also be bought out at the premium price. If you choose the latter, you will have more liquidity than you’ve likely ever had and could then start up or purchase your own practice after riding out the employment expectations with the new owner.
The other options are buying the majority owner out over several years, allowing them to transition out, or buying their remaining shares and becoming 100% owner when they’re ready to exit. As a minority partner at the outset, you would have more opportunities for ownership in the future. While this might be a slower route to getting to full ownership, you’d still get there in the long run, or at least make a nice return in a short period of time.
Sign On With the Corporate Buyer
This sounds counterintuitive to “practice ownership in a corporate world” but is a strategy worth considering. There is a chance your employer’s corporate sale could be contingent on you signing an employment contract with the new owner. This is often only a one-year contract, and you have the power to negotiate a minimal non-compete and other employment terms attractive to you. And you should request a signing bonus which could be paid by your current employer or the new employer at the time of sale. This bonus could be sizeable, allowing you to satisfy any outstanding debt and save liquidity setting you up for better financing options when you are ready to purchase (or start up) your own practice.
As you can see, practice ownership is an option for you. The path to getting there likely isn’t what you envisioned, but it is achievable. Knowing your options and hiring the right representatives to assist you with the process will enable you to accomplish your ownership goals with ease.