Find the right exit

Whether you're 20 years or two years from retiring, you want to map which exit you'll take. Without a definite route, you could end up miles off course, forced to drive longer than you hoped or caught in a messy pileup. And if you get in the car with no plan about where you're going, pinpointing your end destination becomes impossible.

So start mapping your route—sooner rather than later. If you want to retire in two years and you haven't started, then the cliché "better late than never" applies. If you have years to plot and plan, that's great. Start now. Some exits take longer to reach than others, and you'll have plenty of time to make the necessary arrangements for your road trip to one of these five exit strategies.

1 SELLING TO YOUR ASSOCIATE

This route is preferable for most owners for several reasons. First, the potential buyer is likely a long-term associate—someone you like and respect and who shares your views and work ethic. And because you've built a good relationship with your associate, you'll feel reasonably secure that he or she can successfully take over the reins.

Mile markers

The road to this exit takes years to navigate. To get started and maintain your path, you need to:

• find the right associate

• train and mentor him or her

• pay your associate well

• consider selling your associate a part interest, even before you might be ready.

Travel considerations

• Selling a part interest. You may need to solidify your succession plan by selling a part interest to your associate, with the written promise to sell the remainder later. Before pursuing this path, make sure you want this veterinarian as your successor and believe he or she can help take your practice to the next level.

• Value. Given your relationship with this person, are you willing to give a little on the value of the practice? Owners sometimes make this choice because of loyalty, a wish for security, or even guilt.

• Financing. Again, given your relationship with the person, are you willing to finance the sale? Owners often offer their associates financing, especially if they know the associate well. It can be a good investment.

Travel perks

• Clients and staff members will experience a relatively seamless transition from old owner to new owner.

• Given your relationship with the buyer, you'll probably be more willing to finance the transaction, making the sale that much smoother to close.

Hazards

• Because you have a personal relationship with your associate, you might be too accommodating when it comes to the terms of the deal—value, interest rate, down payment, and so on—costing you in the long run.

• The negotiation process might be awkward.

2 SELLING TO AN OUTSIDER

This exit can be difficult to find, making for a gut-churning ride. Basically, you're gambling that when you're ready to sell, there'll be a buyer there to wave you off the expressway.

Mile markers

You'll want to work hard to get your practice in tip-top shape prior to putting it on the market. You'll want to:

• improve practice gross revenue and profit

• decrease personal expenses running through the business

• make necessary cosmetic changes and other improvements

• put the word out to colleagues and industry professionals that the practice will soon be for sale.

Travel considerations

• Time frame. Once you put the word out, how long are you willing to wait before pursuing other options, such as advertising or working with a broker?

• Due diligence. People always talk about a buyer doing thorough due diligence, but as the seller, you also need to thoroughly investigate the buyer. Consider your potential buyer's resume, finances, and references.

• Financing. Given that you probably don't know the buyer, you would be less likely to finance this transaction.

Travel perks

• Because you have no emotional ties to the buyer, you may feel more comfortable negotiating for the full price.

• You'll feel less pressure to provide owner financing, so your financial future won't be tied to the buyer's success.

Roadblocks

• Finding a buyer.

• Clients and staff members may experience a difficult transition.

3 SELLING TO AN OUTSIDE CORPORATION

Some owners see corporate buyers as evil entities gobbling up their industry. If you feel this way, this strategy clearly isn't right for you. For other owners, corporate buyers represent a natural evolution of the marketplace. And if your practice is attractive to a corporate buyer because of its size, geography, and potential, you'll probably know that well before you decide to sell.

Mile markers

Prior to approaching a corporate buyer, you should work hard to:

• improve practice gross revenue and profit

• decrease personal expenses running through the business

• make needed cosmetic changes and other improvements.

Travel considerations

• Employment agreement. Undoubtedly, a corporate buyer will require you to stay on as an associate, usually for a year. Are you ready, willing, and able to do this?

• Real estate. Often, a corporate buyer isn't interested in buying the real estate the practice is on. If you own the real estate, are you willing to be a landlord indefinitely?

Travel perks

• Typically, a corporate buyer is willing and able to pay more for the practice than an individual.

• If you're looking to securely finance the sale, corporate buyers will often accommodate.

Sharp curve ahead

• Usually, the buyer will want you to stay on for at least a year, pushing your retirement back.

• You'll see the changes the new buyer makes and won't be able to say boo about them.

4 MERGING OR SELLING RECORDS

While this concept may be difficult to digest, merging or selling your patient records to another clinic can be a viable option, especially if you don't see any buyers on the horizon. The remaining elements of the practice—equipment, furnishings, leasehold improvements, and other fixed assets—generally sell at fire-sale prices.

Travel considerations

• How are the records valued? Formulas vary throughout the veterinary industry. Your gross revenue, the number of records, and your average rate per patient all factor into the price.

• Will clients come? For the buyer, the records he or she buys are only as valuable as the client's willingness to change clinics. To minimize the buyer's risk, some sellers tie the final price to the number of clients who actually make the change.

• Do you own the real estate? If so, selling the records might not be feasible, unless you could sell the real estate for another use.

Travel perks

• Local competitors are likely willing to consider this transaction.

• It's a good option for smaller practices.

Hazards

• The practice you worked so hard to build goes away.

• What will happen to staff members? Will the other practice hire your former employees?

5 CLOSING THE DOORS

Clearly no one wants to just close shop and walk away. Yet if a lack of good fortune and/or inadequate planning leaves you with no potential buyers and no practice that wants to buy your records, you may have no choice.

Travel considerations

• Winding things up. Try to coordinate the last day you're open with the expiration of the lease to minimize future costs.

• Get what you can. Sell the hard assets. And direct clients, your financial lifeline for so long, to the veterinarian you believe will serve them best.

Travel perk

• You're retired.

Potholes

• There are too many to list. ?

The bottom line

No matter what exit strategy you choose, you want to make sure your practice is in excellent shape for the road ahead. So perform this regular maintenance:

• improve gross revenue

• improve profit

• decrease personal expenses running through the business

• make necessary cosmetic changes and other improvements.

Tom A. McFerson, CPA, accredited in business valuation, is a member of the Association of Veterinary Practice Management Consultants and Advisors and a partner with Gatto McFerson in Santa Monica, Calif. Send questions or comments to ve@advanstar.com

Tom A. McFerson, CPA