Rural woes don't reflect overall practice sales market, brokers say

NATIONAL REPORT — Kanab, Utah, just got its second stoplight. And most people living in the community leave their doors unlocked.

Scenic and idyllic, the community is nestled in the shadow of Zion National Park making it a regular tourist stop during peak season.

And it is still not helping 42-year-old veterinarian Kathy Backus sell her mixed-animal veterinary practice. She bought the 23-year-old practice a decade ago and listed it two years ago, planning for a move to Salt Lake City to be with her new husband, whom she will marry later this year. She hasn't aggressively been trying to sell the practice but is ramping up her efforts now after having only one nibble and with time running out.

"I could close it down, literally, and board it up, or rent it out as a non-veterinary practice," Backus says. "The only thing keeping me from doing that is it feels bad to leave these people without access to veterinarians. I'm not totally ready to do that. I feel I need to make a much bigger effort."

But all effort aside, the quiet town Backus loves might be the very thing keeping potential buyers away. She made $75,000 last year and works alone, seeing an average of 12 patients a day during the four 10-hour days she is open. But the nearest veterinarian is about two hours away, and while she doesn't take emergencies, and 95 percent of her patients are companion animals, there aren't many buyers in this market.

"Are you where buyers want to go?"

That's the first question David McCormick, MS, of Simmons & Associates, a national veterinary practice sales firm, asks sellers.

"If you're a small-animal practitioner near an urban or suburban area, your practice will sell in a year or two," he says. "The farther away you get from there, the longer it will take."

"I'm selling everything I have listed," adds McCormick, who represents the mid-Atlantic region. "I have more than 450 people waiting to buy a practice."

Buyers are very particular about what they want, he says. The ones who are willing to go anywhere want a practice that will gross $1 million. Others don't want to relocate and may be restricted by non-compete agreements.

More programs are being initiated to help draw new veterinarians to reported shortage areas, like rural communities, but those programs target veterinary students and many lenders won't take a chance on a new graduate.

"Many lenders feel they don't have enough experience to buy a practice. Most want them out working three to five years," he says. "Any good consultant or adviser is really going to challenge them and say, 'Are you really ready?'"

Readiness was the problem keeping Backus' one nibble from buying her practice. He was fresh out of veterinary school with two young children and wanted a mentor. She's willing to stay on for a few months, but not the amount of time many new graduates would like to learn the ropes of practice ownership, Backus says.

And without veterinarians who are willing to work in "no-man's land," Backus says she is worried about the future of rural veterinary medicine.

"It's going to leave rural areas with no vets," she says. "I really think that's going to be a huge problem all across the country."

While Backus' story might not be uncommon in rural America, McCormick says her situation is not indicative of the market overall. Veterinary practice sales brokered by Simmons & Associates are up over last year, he says. McCormick says the firm has closed on seven practices already this year in the mid-Atlantic region, compared to four last year and six in 2009. He expects to have another three or four practices sold by the end of the year.

The market is improving, McCormick says. Veterinarians close to retirement who saw their savings take a hit in the recession are starting to recover and think seriously about selling. But this means that sellers in less-desirable areas might have an even harder time selling because there will be more practices available in places where veterinarians want to be.

In fact, if you decide to open up or purchase a practice in a rural setting, make certain you have a viable exit strategy.

"I think every practice needs to have at least a three- to five-year exit plan that begins with an appraisal," he says. If the practice's value is down, that gives the owner time to increase it if it's in a less-than-desirable area.

From that point on, a seller has two choices:

• He or she can put the practice up for sale early. While it might sell earlier than originally planned, this option gives the owner an advantage if it sits on the market longer—he or she can keep the practice, and its value, up.

• The owner could also hire an associate and groom him/her for eventual ownership. This option gives an owner a timeline, but makes a successful transaction riskier because the transaction is delayed.

As for Backus, she is giving it until 2012 to sell her practice, during which time she and her new husband will commute six hours to see each other. Once she does sell (or just packs up), Backus says she plans on taking it easy for a while, maybe working as a relief veterinarian.

"I'm not really enthusiastic about opening another practice," she says.