Pros and cons of selling to a corporation

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Last year, I finally did it! I sold my practice, but not to another veterinarian—I sold it to a corporation, something I swore I would never do. In this article, I’ll explain what motivated my decision and highlight some of the potential obstacles my wife and I discussed before the sale. My goal is to help you grasp the many issues sellers face and provide you with some crucial but not-so-obvious selling information.

Why sell?

I was burning out as an owner and employer. I love being the doctor, but the added stressors of ownership suck the life out of you. I was ready to let someone else take the reins so I could focus on what I do well—helping pets stay healthy and live longer.

Although I’m still a few years away from retirement, I decided to sell my practice to provide for my wife. That way, if I died suddenly, I wouldn’t leave her with a practically worthless investment to sell during her grieving process. Now, if I suddenly pass away, that burden of selling the practice has been removed.

Why a corporate buyer?

Truthfully, I never thought I would sell to a corporate buyer. I saw firsthand the corporate intrusion in our industry and how my colleagues would often quit after the owner “sold out” to corporate America. The new corporate owner would change policies and payrolls and make the once independent practice fall under the corporate umbrella. Um, no thanks, I certainly wanted no part of this. However, over the past 5 years, I’ve been solicited regularly (and still am) by various corporate buyers, especially those new to the veterinary field and smaller in size. I initially ignored their requests, thinking these corporations would come in and overtake my autonomy as a doctor.

Thankfully, last year, I finally decided to give some of these corporations an objective look, and I’m glad I did. I discovered that smaller players in the game didn’t want to “corporatize” my practice but rather turn it into an investment opportunity. They would take over the management issues that many of us want to give up, but doctors would still run their practices without changing medical protocols or remaking the practice.

After investigating several of these groups, I decided Heartland Veterinary Partners was the best choice. I knew the founder and former CEO, George Robinson, DVM, a well-respected man in the industry. We had both served on the editorial board of Veterinary Forum years ago. Additionally, Heartland allowed me to continue running the medical side of my practice the way I wanted. The buyout offer was also higher than I would have received had I sold to another solo veterinarian, and I can continue to work at the practice for as long as I’d like.

The contract we negotiated was fair to both parties, and Heartland was receptive to my specific needs. (This is not true of every corporate buyer.) Finally, the company has enhanced my practice by upgrading equipment and providing an office manager to take over the “business stuff” I no longer wish to perform. So yes, corporate ownership turned out to be a positive decision for my wife and me.

Selling concerns

My wife’s main issue with selling my practice was a decrease in salary. Before the sale, my monthly take-home pay included a salary plus distributions (since I was an S corporation). Technically, my salary didn’t change after the sale, but my take-home pay decreased by about 50% because the distributions (profit) now go to Heartland. Our main concern was that my salary might not be sufficient for us.

To help assuage my wife’s concerns, we decided to do 3 things with the money we received from the practice sale:

• We devoted a portion of the money to retirement funds as the majority of our distributions or profits from our S corporation also went to retirement before the sale.
• We wanted to share a financial gift with our church and other charities, so we started a charitable trust. This accomplished 2 goals: We were able to distribute some of our windfall to those in need and set aside money for future gifts. Our trust also allowed us to decrease our huge tax bill from the practice sale by almost 50%. We could be charitable with our money and give less to the government to waste—our decision was a win-win for everyone.
• To address my wife’s concern about our decreased take-home pay, we set aside part of the money in a market fund to make up for any financial shortfall. The money is there if we need it and, when it’s not, we can invest it and/or enjoy some of it.

I advise you to consider doing something similar when you sell your practice.

Final thoughts

Whether you sell to a corporation or to an individual veterinarian, you must assemble a team of experts to help, and this excellent team doesn’t come cheap. My current certified public accountant (CPA), who’s familiar with the accounting practices of my S corporation, helped me to structure the deal in a tax-friendly way. I also assembled a crack team of attorneys and another CPA and practice evaluator. Although fees may vary, be prepared to spend $30,000, $40,000, or even more on this team. The costs were well worth it as I would not have wanted to navigate (or known how to negotiate) through more than 100 pages of legal documents.

The team pointed out possible pitfalls and ensured I understood every detail of the sale. For example, Heartland, like other corporations, pays part of the selling price upfront and the rest over the term of your contract as you hit certain reasonable (and negotiable) goals. My advisory team also made sure I understood that if I didn’t hit my goals (which I expect to and am working to hit) I would only receive the amount of cash given to me at closing. If you plan to sell to a corporation, go into the deal as if you won’t hit your goals and make sure you’re comfortable with the cash in your hand. Your team will help you understand this and other items that you may not think about due to everything else on your mind (such as running your practice).

By the way, get ready for a heart attack once you see the estimated tax bill your CPA prepares for you, as the Internal Revenue Service wants to enjoy your newfound wealth as well.

Wrapping it up

There’s no question that selling was probably the biggest and most important decision I’ve made in my almost 30 years of practice ownership. Although it was extremely stressful at times, I have no regrets. My overall practice stress levels have decreased, especially after 2 challenging employees left shortly after the sale. Additionally, my wife is taken care of in the event of my untimely death, and we can look forward to the next chapter of our lives.

Shawn P. Messonnier, DVM, owns Paws & Claws Holistic Animal Hospital in Plano, Texas, and serves on the dvm360 Editorial Advisory Board. He has written multiple books on marketing as well as holistic veterinary medicine.