Buying Your Veterinary Practice 
At some time after graduation or internship, many veterinarians will make the once in a lifetime decision to purchase a veterinary practice. And no matter whether you’re selling or buying a veterinary practice…
There Are Three Main Areas To Watch When Choosing a Practice to Buy:
1. The Location
2. The Type of Practice
3. The Practice Income and Cash Flow
1. The Location
Location is extremely important in any business. The mantra of “location, location, location” certainly applies to buying your veterinary practice just as it would if you were buying a home. The community in which one practices is typically also the community in which he or she will live. So, the local community and geographic area where you purchase your new practice will not only be the veterinary business model you wish to pursue, but also the lifestyle you want and desire.
2. The Type of Practice
Whether the practice is companion animal, mixed, large, equine or specialty will determine the type of veterinary medicine you will be practicing once you purchase the practice. While it is certainly possible to change the practice model and include any of the above mentioned categories, this can be risky, expensive and difficult. Most buyers will wish to go with the practice model that is already in place in the practice and not change the clientele that is served. However, many times a practice with a better location will allow the new buyer to modify the practice model type and wind up with their own perfect practice.
3. The Practice Income and Cash Flow
The ole’ saying that “Cash is king” was never more true than when buying a veterinary practice! When one considers purchasing a veterinary practice, the new owner and their lenders must be assured that the practice will be able to produce sufficient income to pay overhead expenses and produce a salary and profit for them. So income and cash flow is simply, the most important factor that will determine the value of the practice in question and maybe even more importantly, it will determine how the banking underwriters at a financial institution will view the loan application to buy the practice in question.
We can work backwards using the available cash flow and separate it into two main categories: salary (practice owner wages) and excess profit or debt service. The money that remains after you write your monthly paycheck for working in the practice, which should also be as much or greater than an employee in your capacity would receive, is the maximum cash or excess profit available to service any debts or loans. And most bank underwriters will want a large cushion when providing a loan so as not to over extend the new veterinary buyer and put the lender and the buyer in difficulty.
Remember, purchasing your veterinary practice should be no different than buying any other type of business, as the practice should be viewed as an income-producing asset for you. The sad truth is that most veterinarians will spend more time, effort and energy in purchasing their “dream home” which is never an income producing investment, than they will in picking and choosing the right veterinary business to buy. Choose your new veterinary practice carefully and take the time to make sure it is the right fit for you.
Other Tips for New Buyers
And don’t worry about buying older equipment within the practice because the reason you are buying a veterinary practice is for the location and cash flow, you are not buying a practice for the equipment necessarily. If the new veterinary practice is profitable, you will soon be making enough money to buy all the new equipment that you could ever need, and you will be able to afford it as well. And it’s usually customary to purchase 2-4 weeks of inventory on hand, so don’t purchase 6-12 months worth of product or food that you may or may not sell. And don’t worry if you think the seller veterinarian’s procedures aren’t quality medicine. If you’re more thorough than the previous veterinarian and practice higher quality medicine, that in itself will create more revenue for you when you assume the practice. And yes almost without exception, most veterinary practice locations, will pay for quality medicine for the patient regardless of any low cost vaccinations and neuter clinics in the area. The best practice “deals” are those where the current owner has been running basically a maintenance type veterinary practice and not doing all the latest procedures or carrying the newest and most effective products. Look at this as an opportunity and not a detriment to your success.
Purchasing a veterinary practice is simply not just a $300,000 or $600,000 decision. What I mean is that if a practice is grossing $450,000 and you expect to practice approximately 30 years in the practice without adjusting for growth and inflation it’s actually a $13,500,000 decision. Don’t lose millions or have to work 5-10 years longer than you have to by getting hung up on nickels and dimes. Look for rock solid opportunity in the new practice. And remember, the best deal is one that is fair to both parties.
Also be cautious of any deal that seems heavily weighted in favor of either side. Practice values are based on documented reliable historic numbers and along with a detailed appraisal is what should determine value. It’s best to try and get to know as much about the practice as possible before you sign the dotted line.
Many times when a buyer cannot procure 100% financing from a lender, but can get for example say 80% funding for a practice purchase the seller must be willing and able to carry in essence a second mortgage on the practice to get the deal done. This percentage of the purchase price the seller may carry varies but it is not uncommon for the buyer and seller to come to some agreement regarding this number and for this to be part of a purchase deal. The good news is this allows the deal to be completed quickly, but the down side for the buyer is they become bound for a period of time to the seller and also the buyer to the seller until the second note is fulfilled.
“Caveat Emptor”, which is Latin for let the buyer beware, is the controlling factor in a contract involving a veterinary practice sale. And since both parties had opportunity to seek professional help to seek out the facts during the transaction any type of lawsuit seeking to rescind a sale, collect damages for alleged fraud or misrepresentation in a practice sale will be near impossible. The courts typically presume that both parties are educated and informed and that adequate time and energy was spent investigating the facts before any transaction occurred. So seek the advice of a competent attorney, accountant, practice appraiser and lender before signing on the dotted line..
Non-Compete Convenants
Are covenants not to compete even legal? Will these covenants withstand legal challenges in court? Generally speaking, a covenant not to compete is designed to assign some value to the “good will” of a veterinary practice. This covenant, or promise, usually consists of an agreement by the seller veterinarian(s) not to practice within a certain number of miles of the practice being purchased and generally lasts for a specified length of time.
This “covenant” or agreement has to be exchanged for some monetary amount from the buyer. When a covenant is associated with a sales contract within the sale of a practice, the court usually assigns the sale as money paid for the non-complete agreement or covenant, and it will be upheld as part of the sale. On the other hand, a covenant not to compete when signed by an associate employee vs. a covenant attached to a sales contract by a seller are at opposite ends of the legal spectrum and are very different animals altogether.
The bottom line is that all sales contracts should include a covenant not to compete from the seller.Do not rely on a “gentleman’s agreement” in this area just because you think it’s “no big deal”. If that’s the case then putting it all in writing will be no big deal either. Trust but cover your bases so you don’t get burned. Overall buying and owning your own veterinary practice will likely be the single biggest investment and the most rewarding thing you ever do doing your entire career, so enjoy the process and do it right the first time.
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Finding your perfect dream practice as soon as possible is important for you and your future, so check back here at www.VeterinaryPracticesForSale.com regularly and sign up for our new practice listing notification service. Good luck!
