Harness your veterinary practice purchasing prowess

You're a few years out of school and you've put a decent dent in your student debt. You've got a good job as an associate, but recently you've had a nagging feeling you could run a practice every bit as well as your boss—probably even better.

You consider starting a practice from scratch. But the idea of incurring even more debt without any assurance of incoming cash flow is daunting. Instead you wonder about buying an existing practice, along with its ready-made income stream. That might just be the ticket—if you do some careful planning and take the appropriate steps.

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Easy to finance, hard to find

Recent research by veterinary consultants indicates that practices available for purchase are increasingly hard to come by (see the April dvm360 cover story "Attention practice owners: Buyers are lining up"). For those who monitor the financial markets, this development is not unexpected—rather, it was inevitable.

As large corporate veterinary practices continue to pursue target hospitals, the demand for them increases. At the same time, the U.S. Federal Reserve is forcing interest rates down with its policy of so-called "quantitative easing," which makes cash easily available. This makes financing and the cost of entry (the monthly expense for a loan to buy a practice) less of a hurdle than it has been in the past.

For these reasons it's tougher to locate practices that are available to buy. So as a potential buyer, you need a solid strategy.

Make a shopping plan

One way to locate a veterinary practice for sale is to shop classified ads online and in the Journal of the American Veterinary Medical Association. Another is to monitor veterinary broker listings. Beyond those traditional routes, though, lies one important approach overlooked by many potential buyers: direct mailings.

Direct snail-mail contact can be a powerful tool. I recommend that an eager potential practice buyer develop a carefully drafted letter indicating that he or she is a private practitioner looking to buy an animal hospital in a specific region of the country. Immediately this distinguishes the letter writer from the many veterinary corporations with whom practice owners may be reluctant to do business. This sort of mailing can be sent to dozens of practices in the location the buyer is interested in.

This direct approach can work when ads and brokers do not. Why? There are two main reasons. First, with a direct mailing you have the opportunity to introduce yourself to a practice owner who may have been discouraged in his efforts to sell in the past. For example, some sellers who have listed with brokers grow weary of insincere inquiries and leads. They simply become fed up with the barrage of unqualified buyers whose interest in their clinic amounts to little more than a pipe dream attached to a faint hope for 100 percent seller financing.

A direct letter allows you to announce that you are, for example, pre-approved for a certain amount of financing and perhaps that you are willing to have the seller stay on during a transition period—or that you would not require it.

Second, a direct snail-mail approach allows you reach that group of potential sellers who may have given only passing thought to an exit strategy. When faced with a personal letter signed by a motivated buyer with a good credit history, however, things can change. Ideas may start to swirl and the idea of at least exploring a sale may be aroused in a veterinarian who would never look at the classifieds or contact a broker.

Pen a privacy pact

You may not want your employer to know you're shopping for a practice or your employees to know you're in the market for a practice in your dream retirement city. These are just a few of the many reasons to suggest a mutual nondisclosure agreement to a potential practice seller.

A mutual nondisclosure agreement is simply a contract between a potential practice buyer and seller stating they will protect each other's secrets. The interested buyer promises that he or she will maintain the confidentiality of all financial, employee and other records received for purposes of conducting prepurchase due diligence. The seller covenants, in exchange, that he or she will not tell anybody the name of the interested potential buyer.

When a potential buyer suggests this arrangement, it implies a couple of things. One, the buyer considers the privacy of his or her business contacts to be of high importance. And two, the buyer has given the idea of entering into a business negotiation at least a reasonable amount of thought. This in and of itself distinguishes the potential buyer from the hoards of business owner wannabees.

Get serious, don't dawdle

Don't waste time beating around the bush with a potential practice seller. Once you've signed a mutual non­disclosure agreement, the seller has nothing to lose by giving you all the financial information you need to decide if the practice is right for you. So move forward aggressively and request a minimum of three full years of practice figures—those shown on the accountant's profit and loss schedules and the tax schedules submitted to the IRS.

These two sets of figures are not redundant; rather, they're the same song performed by different artists. If your target veterinary hospital is making a good profit, the profit and loss documentation should show that. The practice tax return should disclose the same information in a way that legally minimizes tax liability.

A weak profit picture reflected on IRS schedules needs to be clearly justified. The tax forms and the profit and loss schedules need to be examined together. Get three full years of both and get them promptly. Don't waste your time or the seller's—if the place is a dud, you want to learn that fact early and move on.

While no one should take the process of entering into practice ownership lightly, it doesn't have to be painful either—if you plan properly.

Dr. Christopher Allen is president of Associates in Veterinary Law PC, which provides legal and consulting services to veterinarians. Call (607) 754-1510 or e-mail info@veterinarylaw.com