7 Sept 2018
If you are thinking of selling your veterinary practice, you can improve your chances of a successful sale by avoiding the 10 most common mistakes made by practice owners.
Malcolm Wright
Job Title
The VBA can help you avoid the many traps and pitfalls of selling your veterinary practice. Image © Elnur / Adobe Stock
During the course of my 35-year career, I’ve helped countless veterinary professionals sell their practices. But I’ve also seen many mistakes made by sellers that have resulted in either a failure to sell or, more frequently, an undervalued sale.
Selling a practice is a one-off opportunity, so it’s essential you get the maximum price when the time comes.
In this article, I outline 10 of the most common mistakes I’ve seen people make at this critical juncture, and offer some practical tips to help you avoid them when the time comes…
Talking to potential purchasers without knowing what your practice could fetch on the open market can be disastrous. Would you think about selling your house without finding out what other similar properties were selling for?
Unfortunately, it’s not as easy to get comparable information about veterinary practices, but you should at least take advice from someone who has that knowledge.
TIP: Always keep things close to your chest – at this stage you need to find out information, not give it away. No two practices are the same and each corporate has a different requirement and approach.
This can result in a failure to maximise your practice’s true value. If you think yours is worth £750,000 getting an offer of £1 million can result in a knee jerk response, when the practice could actually be worth far more to another buyer.
The market at the moment is dominated by the corporates; they have the funds to make an indicative offer quickly.
Having knowledge of the maximum potential price can ensure you speak to the best corporates.
TIP: Listen to the offer, and get professional advice on whether it is viable for you to consider accepting before responding. Remember, you will only sell once so get it right and take your time.
This often happens when a seller either approaches or is approached by a corporate.
However, it is your practice and you should be in the driving seat and taking charge of the process.
TIP: Remember you will only sell your veterinary practice once, so don’t be rushed and be sure to get the price right first time – and never rely purely on the valuation of the buyer.
In the first instance do not allow the interested party to have sight of your raw accounts, as any offer made will be based on financial information only, which is often historic and is more than likely to undervalue the practice. You should be able to show the practice and its associated financial information in a way that will give the prospective purchaser confidence in the practice’s viability for producing maintainable profits or potential for producing future profits.
Once you have your offers in and decided on a preferred bidder, the buyer will take on a lot of the work as they go through their due diligence over the next couple of months. During this process to maintain the agreed offer price you must be able to back up all your financial and commercial information.
Selling a high value practice requires a professional team to deal with potential purchasers, not only to maximise the price and sale terms, but also look at the tax and legal issues of the sale.
Your team should consist of:
Their purpose is to obtain the maximum offer for the practice from competing sellers and to minimise the stress of the sale process. They should:
Tax law changes all of the time, and every individual has a different taxable position, so it is essential to check out what your liability will be after selling your practice. This is especially so when you are incorporated as there may be some complex issues that arise relating to the sale.
Use solicitors with good commercial experience who have an in depth understanding of the legal issues associated with commercial and corporate sale purchase agreements [SPAs].
Your financial advisors must be able to produce information quickly and in a structured manner, and should be used to dealing with £1 million plus commercial sales.
TIP: You need an accountancy firm that has specialist tax accountants. Having a one-man band going on holiday for three weeks in the middle is not ideal! Your selling team should have the drive to maximise your practice value and the expertise to deal with your legal and financial advisors.
You will need to know the type and rationale behind buyers’ questions and have answers for these.
The quality of the financial reports produced are essential to the buyer. Remember the initial offer is only indicative, and could vary once further details come to light.
The purchasers will monitor the management accounts from the day of the sale agreement to the completion date.
The level of financial detail sought by corporate buyers from the date of the heads of terms (HOT) to the completion of the sale is often beyond what is normally needed to manage the business effectively (Ref: Mistake 4)
TIP: Try to ensure the practice continues to improve on the previous years turnover and profits, as this is comforting for the buyer. You must be totally transparent regarding accounts and declarations, and everything should be declared.
Preparation is not just sending copies of the historic accounts, but preparing up-to-date projections and a sales memorandum that encompasses everything about the practice.
Many well-run practices show sufficient profitability to prepare for a sale to go through quite quickly.
Preparation and going through the sale process can take up a high percentage of your time if you choose to do it alone.
TIP: Ideally the sale of the practice should be simply another stage in your practice career of growth, consolidation and sale. Each stage produces differing levels of financial return – your last consultation fee before retiring may produce £50, but your first business sales deal after selling could produce £1 million!
Overpricing is not the same as maximum pricing, there are many practices that will sell for 100% more that the assumed value due to a mix of circumstances the buyer desires.
If you decide to fix a price it must be justifiable.
Underpricing is easy and will probably result in a quick sale and a good deal for the purchaser.
TIP: Consider how many surgical procedures you have undertaken in your career, and the skill that has come with experience. Then consider how many practices you have sold over that same period. Then decide whether to do it yourself or take advice from someone with that experience.
Negotiating is not poker, but a question of having the right answers to questions that may be directed at you to justify the required price.
Completing a successful deal is not just getting the price right, it also involves the add-ons that may come with the offer. All these factors should play a part in agreeing to an acceptable offer.
Ideally when you sell it is better to have at least two interested parties, this will always put the seller in an advantageous position. However, trying to create an auction or making excessive demands can lose you the buyer.
TIP: If you choose to undertake the sale yourself, you should still produce a sales memorandum that gives a detailed outline of the practice and its strengths. Cast your net wide and decide on a preferred bidder.
Running a veterinary practice is hard work, especially if you are the sole owner. The total commitment put in by some principals removes the delegation that would normally take place in other commercial units. The result can be that you become indispensable to the long-term success of the practice.
A corporate buyer prefers to purchase a ready-made structure that is not reliant on one particular person, and as such will normally only be interested if the principal stays on for a period of time to allow a more delegated structure to be developed.
TIP: It’s not just about the sales value of a practice, but the level of management delegation. The ideal practice for a corporate structure has everything they require in place to allow it to bolt onto their model. So, anyone who shows potential or the desire for advancement within the practice should be encouraged and trained to improve your management team.
If the practice fails to sell, it is important to consider alternative methods of divesting yourself of your business. Simply trying again is not the best way forward, so should you:
You will need to look at the practice, its strengths and weaknesses, and accommodate them in any changes you make to the way the practice functions.
TIP: Your broker should be honest enough to let you know the position regarding saleability at the onset. Suggesting an unrealistic sales price simply to get the work can result in failure to sell at all. If your turnover or profitability is too low to achieve a reasonable price or even any sale you should know from the beginning.
If the practice runs from your residence, consider moving it to a commercial site. That way the practice value may well be increased and you will have a house to sell on the open market.
To find out more contact [email protected] or telephone Malcolm on 0793 921 6174.
