By Jim Vander Mey, CPA, ABI and Rod Johnston, MBA, CMA

​Every potential practice owner comes to a crossroad where they ask themselves, "Should I buy an existing practice, or should I just go start up a new practice at a new location?"  We typically suggest you find a good existing practice to purchase, but if you cannot find one that fits your needs and desires, then the alternative is to start one from scratch.  There are pros and cons to both and a lot depends on your vision.  Here are some things to consider before making a decision:

1.  Cash Flow – Buying an established practice typically gives you instant cash flow.  That’s if it’s a decent practice and if it already cash flows.  Cash flow is the money left over after paying all of the practice bills and your debt service on the loan for the practice.   If you can find a practice in your desired area that has good cash flow, or you believe you can get it to cash flow, then, by all means, you should buy it.
   With a startup practice, it can take 18 to 24 months before you break even.  Cash flow would happen shortly thereafter.  If you spend some time and do some good research, you can cash flow much sooner.  We’ve assisted with demographics for doctors and helped them find locations which cash flowed in 6 to 9 months.
2. Practice Philosophy – Do you have a certain practice philosophy on managing your practice?  Do you want to do certain procedures, treat clients a certain way and manage the staff in a certain manner?  Then, buying an existing practice where patients and staff are set in their ways may be a challenge.  Clients may be used to making payments.  Staff may be used to leaving early, using their cell phone during work hours, or having their kids hang out in the staff room during work.  Changing patient protocol or staff habits may result in losing some patients and staff.  At a minimum, you will have disgruntled staff.
   If you start up your own practice, you can mold your patients and staff in your philosophy and style.  Clients can be treated and trained to pay up front, accept your treatment plans and trust you.  Staff can learn from the beginning how you want them to work and what you expect.
3. Cost – A good practice in a good location is going to be valued at 70% up to 100% of the last 12 months collections in the current market.  Great practices that are high producing with low margins in metropolitan areas are going to sell for between 90% and 100% of collections.  There is a high demand for these practices, and they sell quick.  In rural areas, these practices may reach 80% and possibly 85%.  Low performing practices in these areas will be priced between 70% and up to 80%.
   Construction costs in the Northwest are currently on the high side reach up to $200/sq. ft.  They are traditionally $135/sq. ft.  That is before any equipment is purchased.  This puts a typical startup practice at around $500,000 to $600,000.  This is a negative for currently doing a startup.  The cost to build it out due to the current market is high.
4. Systems – With an existing practice, the systems are already in place.  Patient flow, collections, insurances, staff salaries, and benefits etc., are for the most part all set up.  You just need to buy the practice and copy what the current owner is doing.  As long as they are good systems, then you’re in the money.  If the systems are bad and going to potentially cost you more money, then you’re in for a headache.  Changing systems can create problems with staff and clients.
   With a startup practice, you need to create your own systems.   You hire your staff and establish benefits and pay.  If you have experience in doing this, or at least know what type of systems, benefits, etc., you want to put in place, then you’re okay.  If not, you may be learning on the job which will end up in mistakes and cost you money.
5. Finances – In certain situations, lenders may ask you to keep your associate position on a part-time basis.  This is just in case the practice doesn’t cash flow enough to support you or the debt.  Or, you may need to have some cash in the bank in order to have something to fall back on if there is a cash shortage during any one month.
   For a startup, they most likely will suggest you keep your associate job one or two days a week until your practice gets going.  If your practice picks up quick, you can quit your associate job and focus on your practice.

Over 65% of doctors want to eventually own their own practice.  Whether it be via purchasing an existing practice or doing a startup is up to you.  Following a few guidelines, getting good demographics and seeking wise and experienced advice will help you make a good decision.

​By Rod Johnston, MBA, CMA & Jim Vander Mey, CPA, ABI

You don’t choose your family.  You don’t get to choose when you’re born.  And you don’t get to choose your name given to you by your parents.  But you do get to choose who your practice broker is going to be.  So, how do you go about making sure you pick a broker who is going to represent your best interest and do a good job for you?  After all, you have spent your blood, sweat, and tears building your practice.  You want someone who is going to take good care of your transition.   Here are some things to consider when making your selection: 

1.  How many veterinary practices has your broker sold?  If your broker just started selling practices and has sold between zero practices and ten practices, you may consider finding someone with more experience.  Every transaction is different in the practice transition world.  The seller, buyer, staff, patients, clinic, location, lease, building, attorneys, bankers, and others are all different for each practice.  You have to be able to manage different personalities, different types of leases, different building sales, loans, etc.,  It’s a complex mix to try to do with little experience.
2. Who does your broker represent in the sale?  Dual representation, where the broker represents BOTH the seller AND the buyer is illegal in several states and I question the ethics of it in all situation.  You want a broker who will represent your best interest as a seller.  Not the best interest of both the buyer and the seller.   If a negotiating point comes up, how is the broker going to ethically work through the conflict by representing both sides?
3. Is the broker licensed to sell a practice and real estate if the real estate is included in the sale?  Some states require a broker to have a real estate license to sell a practice or any type of business.  All states require a broker to have a real estate license to sell real estate.   Check with the state department of licensing to see if your state requires a license and if the broker you are interviewing is licensed.
4. Does the broker have any certifications or designations to perform a practice valuation?  Designations may include a certified valuation analyst, accredited business appraiser, etc.  Having a designation means they have spent the time to learn the ins and outs of a valuation and not just a simple rule of thumb.  Certifications and accreditations require weeks and months of training, rigorous testing as well as review by a peer group of valuations. 
5. How does the broker perform their valuation?  Do they do a site visit?  Do they just use a rule of thumb valuation, which can be misleading?  Do they use a cap rate, book value or production acquisition value?  There are various types of methods and doing the valuation.  Understanding how they get their numbers is important in the process.
6. Has the broker sold practices to corporates?  If so, have they been compensated by the corporate group in addition to being paid by the seller?  This may be a tough question for some.  Receiving compensation from both the seller and a corporate buyer can be illegal in some states.  At a minimum, it should be disclosed to the seller that they are being compensated by the corporate buyer.
7. Does the broker have a list of buyers ready to go?  Having an active list of buyers will speed up the process of selling the practice.
8. Where does the broker advertise the practice for sale?  If they say “our website and the state association website” then you may consider moving on.  A good broker will go above and beyond and advertise across the nation on many different websites and publications.
9. Is your broker local, or at least familiar with your market?  National brokers will sometimes sit from the comfort of their recliner while having you show your own practice, meet with buyers, send you documents and do most of the work.  Local brokers will meet you at your practice, show the practice themselves and do what they are good at – selling practices.
10. Are you comfortable with the broker’s personality and style?  You’re going to be working closely with your broker through the transition process.  The amount of time may be up to 100 or more hours.  Be sure you are comfortable with that persons’ style, demeanor, and philosophy.  Ask them questions about how they show the practice, what they look for in a buyer and how they determine a good match for your practice.

Choosing the right broker is an important decision.  You spent a good amount of your time, money and emotional value building your practice.  Your staff and patients have become like an extended part of your family.  Wouldn’t you want to choose the best broker to look at for your best interest?  Asking these questions of your broker will help ensure that you have the best broker in your area.