1 Sept 2013
Jonathan Steele
Job Title
For many, buying a veterinary practice is a hard-earned dream, but can be a daunting process, particularly for the first-time owner. As probably the highest value purchase made, it is crucial to get it right first time. Selling requires similar close attention.
MANY VETS, WHEN weighing up the merits of whether to make the transition to owning their own practice, find themselves asking (and often needing help to answer) such questions as: “Where do I start? What are the risks? What should I buy? How do I obtain finance? What can I afford? What is the legal process and should I operate as a company?”
First and foremost, you need to do your research about financing options – speak to a financial advisor or local bank, which should have a health care team able to assist. If it doesn’t, ask yourself, are you actually speaking to the right bank?
Look at nearby practices for sale through sales agencies websites. There are, of course, sales agencies that specialise in the sale of veterinary practices.
Following initial research, you need to work out how the sale and purchase will be structured. Vet practices may be owned by individuals (often in a partnership) or by corporate bodies such as companies or limited liability partnerships (LLPs). The way a veterinary practice is owned will normally dictate the structure of the sale and purchase transaction.
Generally, there are two types of transaction: the transfer of key assets from seller to buyer (asset sale); or the transfer of ownership of the company, which operates the practice from seller to buyer (a share sale). At the outset, a selling company will need to consider whether a share sale or asset sale is more appropriate. Naturally, there are advantages and disadvantages, from a legal, accounting, tax and logistical perspective, associated with each option and for both sellers and buyers.
An asset sale involves a buyer acquiring selected assets of the practice, for example, the premises, goodwill, staff and drug stock. It is important to identify what the buyer wants to buy, as ownership of the practice assets will not automatically transfer unless specific provisions are made. When a buyer acquires shares in a company, he or she inherits all the company’s assets and liabilities (including the practice premises), as opposed to an asset sale where permissions will usually be required from third parties for the transfer of certain assets – for example, a landlord’s permission for transfer of a lease.
A buyer of a veterinary practice (whether acquiring shares or assets) should consider whether he or she wishes to purchase the business in his or her personal name, or in the case of the buyer being a number of vets, through a partnership or LLP, or for any buyer, as a limited company.
In broad terms, companies and LLPs have a separate legal existence, while sole traders and partners are liable to the fullest extent of their personal assets for all business liabilities incurred. The directors, shareholders and members of companies and LLPs will not usually be liable beyond their initial investment into the company or LLP. There are also likely to be tax advantages and disadvantages with each approach and this is something on which advice should be sought at an early stage. Typically, lenders require security for the provision of finance for a purchase and the security arrangements can often be simplified if the borrower is a company.
While this article sets out a broad overview of matters to be considered by a prospective buyer, it is by no means exhaustive. Both a buyer and seller should seek accounting and legal advice at any early stage of any potential transaction from advisors with experience in buying (and selling) veterinary practices.
