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Buying a veterinary practice?

Here are some considerations related to purchasing a practice.

For many, buying a veterinary practice is a dream and for others, it is simply a means to increase their income above what could be made as an employee. Whatever the reason, here are some basic steps that you should consider when buying a veterinary practice.

1. Check your credit report. Before you even look, you should consider if you could actually obtain the financing necessary to purchase a practice. Annual credit reports are free by calling the credit bureaus; Equifax – 800-685-1111, Trans Union, 800-888-4213 and Experian, 800-831-5614. Check your score and look for derogatory notices. If discrepancies exist, get them cleaned up or corrected. Good credit will be required to get a loan with the best rates

2. Decide where you want to consider buying a practice and what type. Being more open to different geographic locations will likely increase the number of opportunities. There is a tendency for buyers to focus on the more heavily urbanized areas and to locate close to family. Rural practices can be very profitable and greater income can be associated with them because the acquisition costs may be much lower. Huge opportunities exist in large and mixed animal practices, if you are suited to that type of practice and rural lifestyle.

3. Decide what is most important to you in consideration of any practice. For many, the incentive to buy is more related to income or to wanting to be their own boss. There are many reasons for owning a practice. Decide what the important considerations are and rank them in order of importance so you can measure practice opportunities against your wish list of considerations. In other words, know what you want before you go looking and talk with your family about things they want.

4. Plan on gathering a professional team to assist you and do a business plan. At a minimum, you will need an accountant and an attorney. You can also hire a veterinary practice sales specialist or veterinary practice broker to assist you in finding and investigating a practice in your behalf. Buyer veterinarians are not generally trained in looking at financials, cash flow, whether the price makes sense, sale terms or other sale considerations. So get the help you need to make a good decision on whether the opportunity would be a good choice for you. For any opportunity you truly want to consider, you should do a business plan, which forecasts your success in that business….before you actually buy. The plan should be reasonable, flexible and financially allow for unexpected events.

5. Plan on getting insurance to collateralize your practice loan. Lenders will generally require life and disability insurance (or mortgage protection insurance) to secure the loans from events that would prevent you from practicing during the term of the loan. Figure in these costs as business expenses when you do your business plan.

6. Get pre-qualified with lenders that do practice acquisition loans and arrange financing in the early stages of the sale process. Pre-qualification is easy. Just contact a lender and fill out a basic application. They will generally check your credit and your general information to see if they are likely to be able to make a loan to you. Turn around time is generally 24-48 hours. Telling a seller you are pre-qualified with a lender makes a positive statement that you are a serious buyer and qualified to receive funding. Once you find a suitable practice, find out what the lender needs to assess the opportunity from a lending perspective. They often will do a cash flow analysis and see if the price contemplated is workable. If it is, then they often issue a commitment letter or promise to finance subject to various contingencies, like having a signed contract, supplying certain documents, doing certain searches, and obtaining certain things like insurances.

7. Understand the basic sale process. A sale often includes sale of a business and sale of the real estate. Get an understanding of the process and progression of the sale from due diligence investigation to offer to contract to closing. Your professional team is there to assist you, so use them.

8. Negotiate the contracts for purchase of the practice and associated real estate. Though you may make an offer or give a letter of intent to purchase, the terms of the contract spell out the terms of the sale for what you are purchasing. Understand every aspect of what you are agreeing to do and ask as many questions as it takes to know exactly what you are obligating yourself to. Again, use your professional team to assist you. This need not be overly complicated, but sufficient detail is necessary for the protection of all the parties.

9. Work diligently to close on the sale in the time frame agreed to. Have a good transition plan in place with your seller, when there is a significant amount of intangible value involved. The seller will need to sign a covenant not to compete (where legal) or there needs to be adequate protection from unfair competition after the sale completion. Employing the seller after the sale can be a very smart thing, if the practice cash flows will allow it.