Maximize profit and minimize hassle by viewing your practice through an investor’s eyes
Veterinary practice sales are progressing at a rapid pace given the increases in practice valuations and the 8% to 12% growth that hospitals experienced during the COVID-19 pandemic.1 Most of these sales are made to investment groups such as private equity firms and corporate veterinary groups, although some practices still make successful internal transitions via purchasing associates.
The question of whether to invest in real estate (ie, hospital design and construction), in the event of an upcoming sale is an interesting one. Most advice is focused on the sale of the practice rather than the treatment of
real estate, and yet it is important to think of both and be prepared. Here are primary issues to consider:
With this in context, should you do any upgrades prior to a sale? There are a few important factors to consider.
This is a big motivator. Whether you are selling to associates or to a corporation, your earnings and profitability matter because they can make the sale more attractive to buyers and allow you to sell at a higher price to an outside investor. Remember, however, that the outside investor is most interested in their ROI, so it’s important to invest in the areas that improve profits without increasing costs more than is advisable for the practice.
Given how expensive remodeling is, you should get solid financial advice before investing in any upgrade. That said, here are 3 of the best strategies others have used:
It is no secret that there are more jobs advertised than there are veterinarians applying to work them. If your strategy is to sell to one of your associates or a group of your associates, then you will need to potentially attract or retain them. This is too much of an uphill battle for some practices, and they would rather sell to investors who could pay more and provide better benefits. But for others, sales to younger associates are still possible. There are entrepreneurial young associates who would prefer the autonomy of private practice.
If you are potentially selling your practice to associates, take the following steps.
Keep excellent books, work on profitability, and understand the market around you. Is it saturated? Or is there a lot of unmet potential? Although an architecture firm is not the same as a veterinary practice, our architecture firm made the successful transition of ownership to new partners over a period of many years. During that period, we focused on improving our business and profitability, encourage the buy-in of new partners. The senior partners have now retired, and the transition was successful.
Regardless of the business type, without a strategy toward better profitability, young owners are not motivated or able to invest their time and money. Viewing your practice as an investor and focusing on increased profits may spawn the need to remodel, expand, or relocate your practice.
Simple updates to the exterior of this hospital created a fresh, clean, professional look. (Melrose Animal Clinic before)
(Melrose Animal Clinic after) (Photos credit to Ethos and J A Greene Construction Services, LLC)
Nothing in construction is less expensive than a gallon of paint. A fresh coat of paint and some new art and signage can make a tired old hospital look better. It matters! As the original owner, you no longer see the old salmon-pink walls, but your associates do. Invest a reasonable amount to make your hospital look less tired and dated. Purchase some new equipment as well, because equipment can be depreciated. Think face-lift, not major remodeling. It’s amazing what a minor upgrade can do for morale and for the look and feel of your hospital. Your clients will love it too.
Since the beginning of human civilization, older generations have complained about younger generations and their lack of work ethic. The truth is these complaints are often unfounded. It is more difficult for Generation Y and upcoming Generation Z veterinarians to support their lifestyles the way previous generations could. Expenses are high, demands are many, and life
is very, very complex. As a working parent and second-generation architecture practice owner, I understand some of these demands. So how do you focus on supporting those who will run your practice in the future?
It’s hard to let go of your practice. You spent a tremendous amount of your life there. You raised your family around your practice. It is sentimental and painful to move on. But regardless of whether you’re turning over the reins internally or externally, letting go is part of a successful transition. Here are things you should consider:
In the end, no practice sale is like any other. You may not want to take on any personal risk, and you may wish to sell your practice as is. Or the real estate investment group may not be on board with any hospital upgrades or may be unaligned with the practice ownership group.
Regardless of the situation, ask yourself whether investment in your physical building may make sense for your ownership transition. In some cases, it can help you sell a more profitable practice to an investor or make that successful sale of stocks to associates. Consider this your last effort toward hospital design, part of your legacy to yourself and to the practice you built and love.
Heather E. Lewis, AIA, NCARB, AAA is a partner at Animal Arts, an architecture firm in Boulder, Colorado, and a frequent conference speaker on hospital design. She’s a devoted advocate for minimizing pets’ stress and anxiety during veterinary visits. She has designed practices and shelters that range in size from 1200 square feet to 110,000 sq ft.
Reference
Why are so many veterinary hospitals selling to corporate? Ackerman Group. April 4, 2022. Accessed September 1, 2022. https://eval.ackerman-group.com/ why-are-so-many-veterinary-hospitals-selling-to-corporate/
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