Are you grooming your practice?

I know of a number of equine veterinarians who worked for years, delivering excellent service to clients and providing jobs and other economic benefits to their community, only to close their doors and walk away in the end with nothing. These dedicated practitioners created a job for themselves, but not a sustainable, growing business that would have value for a potential buyer.

Don't let your investments go to waste. Instead, learn what steps you need to take to improve your practice's value today—and to get a fair price when you're ready to sell.

Grooming tools

All successful practices have great leaders, a clear vision, repeatable and reliable service, and benchmarks that help them monitor their financial results. As you evaluate your practice in each of these critical business areas, think about:

1. Leadership. Every small business owner needs a group of talented individuals to help along the way. This dream team will inspire you and help you prepare, manage, and monitor your success.

Your team of advisors should include a certified public accountant, an attorney, a banker, a veterinary practice consultant, an insurance agent, and a certified financial planner. These qualified individuals will aid you in developing a practice with a solid foundation and a sustainable and successful business.

Theory into action : Mentoring for ownership

When choosing these advisors, be sure to pick people you think you'll trust and enjoy working with. You'll be sharing details about your practice and your business approaches, so you need to feel comfortable. Also consider whether they're familiar with the veterinary profession and therefore may have a better feel for what's typical or out of the ordinary.

Great leaders inside your practice are important too. Of course, great practice leadership starts at the top. When you delegate well and empower your team, everyone develops leadership skills and learns what it takes to work well together.

2. Vision. Deciding who you are and where you want to go gives you a clear sense of direction and purpose. And your thinking on these issues can easily evolve into your mission statement and your vision for the practice. You'll use these guiding principles as your basis for making decisions.

Your mission statement details who you are and where you want to go. You'll use it as a basis for developing your vision. Your practice vision should answer these questions: Where are we going, and what will we look like in the future? It's a belief system that promotes dialogue between leadership and team members and generates momentum that keeps the practice team moving toward its goals.

Everything your practice team does needs to be tested against your vision. If the actions don't pass the test, there's no reason to pursue them.

A vision usually won't change unless there's a fundamental change in the business. If you become disabled, for example, then you'll likely have to revamp your vision to take into account your new circumstances.

Cross reference

3. Systems. You and your team members want to do more than create satisfied clients; you want to create advocates for the practice. To accomplish this goal, your team needs to create strong bonds with clients by establishing systems, such as billing and credit policies, that ensure great service. Ideally, your systems will be easy to learn, well understood by everyone on the team, and used consistently.

Repeatable actions make the practice more reliable. So whether you're talking about services, written or verbal communications, or staff behaviors, you want every team member to deliver consistently and to be responsive to clients' and patients' needs.

One example: Set fees that are fair to clients and your practice. And then don't waiver on your fees. Yes, some people will choose a veterinarian by shopping for fees, but many don't. And those people who do choose on fees may not be the clients you want to work with.

To determine an appropriate price for services, consider the costs to the practice, which vary depending on overhead and the services offered. Then think about your community demographics and the value you offer clients, and price your services appropriately. Continue to evaluate fees and collections to ensure you're generating enough revenue to keep the practice profitable and to compensate yourself and your staff members appropriately.

Remember "profit" isn't a bad word. Just the opposite; profit is a key ingredient in value. In fact, you figure practice value by dividing cash flow by a capitalization rate, which considers the intangibles of the practice (such as staff members, location, and systems) plus the risk associated with investing in the business. So the better the cash flow, the greater the likelihood that your practice will be attractive to a potential owner, who'll see that he or she could manage payments and enjoy a comfortable income.

Even after an investor buys in or buys the practice outright, he or she will need the cash flow to get a good return on investment and earn a respectable income. So clearly, a profitable practice is good news for the current and potential practice owner. At the same time, you'll need to balance the push for profits with the value created for the patient and client. The ideally groomed practice provides value to the owner, client, and patient. A practice that manages all this is an attractive choice for buyers.

The candidates

Do you know who you want to sell to? You may want to groom an associate, find another practice owner who wants to merge, or sell outright to a doctor who's looking to buy his or her first practice.

If you're looking for an associate to buy-in, you want a candidate with medical knowledge, a good attitude, and great communication skills. Candidates who possess these skills benefit the patient, client, and practice. And associates have the best opportunity to understand and fit into the practice culture.

Of course, you'd like an associate who will help you provide the high-quality medicine needed to grow the business, but communication skills may be equally important. Good communication skills allow the associate to use his or her knowledge and technical skills to educate clients and build their bonds with the practice. After all, the client—not the horse—chooses which practitioner they'll see. And the better your associate's communication skills, the more likely you'll develop satisfied clients—or, better yet, advocates for the practice.

Even after you've chosen an associate with these great skills, you'll need to groom him or her for ownership. (See "Mentoring for Ownership" on Equine Section.)

If this is your transition plan, be sure your associate candidate is interested in ownership by discussing this issue during the interview. You might also want to consider drafting a Letter of Understanding, a document that gives a specific date when you'll start discussing possible buy-in options. This step often helps both parties think about their goals carefully and makes sure you have open and honest discussions about the future of the practice.

Of course, an associate isn't your only choice for an exit strategy. You may want to look at other options too. If you're interested in merging, be sure the owner's practice philosophy meshes with your own and that the transaction will benefit everyone involved. If it doesn't, then take another approach.

Similarly, if you're selling outright, make sure the terms of the sale work for everyone involved. A key lesson: No matter which route you chose, you have to plan well in advance.

In the meantime, you'll be building a desirable, profitable practice with qualified staff members and reliable systems. A secondary benefit: As the practice blossoms into a sustainable, valuable, and fun-filled business, you'll find it easier to attract the best associates and future partners.

The bottom line

Successful practices have great leaders, a vision, reliable systems, and benchmarks for monitoring their financial results. Paired with a strategic exit plan, these traits will make your practice a worthwhile investment when you're ready to sell.

Dr. James E. Guenther, MBA, a certified veterinary practice manager, is a consultant in Asheville, N.C., with the practice management group of Brakke Consulting Inc., based in Dallas. Send questions or comments to ve@advanstar.com

Dr. James E. Guenther