WA Veterinarian Magazine
The idea of owning a practice beckons and beguiles veterinarians in all stages of their careers. For some the plan to pursue a career in veterinary medicine and the goal of someday owning a practice take root simultaneously. For others the idea arises more gradually or an opportunity to purchase an existing practice presents itself. What can we learn from our colleagues who have already built or bought their own practices? We asked a handful of current practice owners from both sides of the state to reflect on how they went about building or purchasing a practice and what they learned along the way.
Where does a potential practice owner start? Dr. Jim McCutchan has built several practices from the ground up, and the basic tenets of ownership apply no matter what the individual situation. Now CEO of Seattle Veterinary Specialists and Pilchuck Veterinary Hospital in Snohomish, Dr. McCutchan advises that the first crucial step is to research the area you would like to practice in and identify the demographics. How many local pet-owning households are there? What are the median age, income, and number of pets per household? A new practice must be able to grow and thrive where it is built, which means tailoring a business plan to fit into the local economic landscape. Buying or building a practice is not an impulse decision; a potential owner must have a business plan in place with a realistic projection, a working budget, and a cash flow analysis.
Alternately, practice ownership may become possible through a combination of research, preparation, and being in the right place at the right time. Working as an associate or relief veterinarian for an owner who is contemplating retirement or who wishes to sell his or her practice allows a potential practice owner to become familiar with the existing demographics of the practice and surrounding community. Dr. Jocelyn Woodd, who owns Mt. Spokane Veterinary Hospital in Mead, initially learned from a colleague that the practice she had worked for previously as a relief veterinarian was for sale. Knowing the practice and owner beforehand allowed her to determine that the practice location and variety of species seen could satisfy her both financially and professionally.
Current owners have ventured along several avenues to find a practice for sale, from word of mouth to listings in trade publications like DVM Magazine and newsletters from WSVMA. Third-party companies that specialize in the purchase and sale of veterinary practices received mixed reviews. In one such case, a purchasing veterinarian decided against enlisting a veterinary-specific company due to what he perceived to be exorbitant fees and instead contacted a commercial banker to determine the value of the business. Dr. Debra Nicholson, who owns Rainier Veterinary Hospital in Seattle, recommends approaching fellow veterinarians and owners directly instead. Dr. Woodd consulted with a well-known veterinary broker during the purchasing process.
Whether buying an existing practice or building one from scratch, a competitive edge is essential to set one potential owner apart from other buyers as well as other practices in the area. Dr. McCutchan stresses the importance of establishing a distinctive relationship between your practice and clientele, as well as amongst the staff themselves. What can your practice offer that no one else can? Knowledge of the local area can provide information regarding the influence of shelter and rescue organizations within the community, as well as opportunities for niche markets to explore such as catering to local breeders, fanciers, hunting enthusiasts or agility groups.
One veterinarian who is currently in the process of purchasing an existing practice recommends reaching out to the previous veterinarian’s clients – both active and inactive – as well as creating an attractive website to communicate with current patrons and draw in new clientele. Dr. Nicholson recommends getting finances in order and optimizing credit scores prior to approaching the bank. She also advises to never underestimate the power of community goodwill and word-of-mouth advertising; her hospital has thrived for nearly a century on a loyal client base.
Potential buyers must educate themselves on reliable sources of information relating to purchasing and financing a practice, for instance which banks frequently work with veterinarians. Dr. Nicholson recommends working with local or smaller banks that specialize in veterinary clinics and tend to offer rates as competitive as larger corporate banks. Dr. McCutchan has utilized various financing options over the years, using bank partnerships as well as some of the practice’s own equity. He also keeps his banker partners involved with ongoing business and business decisions. Half of the veterinarians surveyed arranged financing through the previous owner. In one instance, a veterinarian purchasing an existing practice in a building leased by a third party obtained financing for the business and equipment through the selling veterinarian, while at the same time taking over the existing lease with intent to purchase the physical practice in the future.
Veterinarians by nature tend to be independent problem solvers. The time for buying or building a practice, however, is not the time to go it alone. Dr. McCutchan routinely works with a handful of experts – including an attorney, a banker, and a network of vendors in order to explore all possibilities within a new practice. All new owners agree that attorneys and bank contacts are vital – as well as practice managers and fellow veterinarians. Multiple owners also agree that having an accountant on hand who is familiar with veterinary clinics to analyze profit and loss statements and to keep vendor accounts current is invaluable.
Dr. Nicholson, who took ownership of Rainier Veterinary Hospital in April 2014, experienced frustration when dealing with a broker. She cautions any potential buyer to approach each expert separately, and to make sure that no single person fills more than one role in the transaction.
“A new practice is more than just an investment in time and money – it is an expression of your personal vision for the practice of veterinary medicine.”
For a potential practice owner starting from scratch, the landscape resembles an intricate puzzle. Dr. McCutchan relates that two very important pieces to this puzzle are the knowledge of what unique services you will provide, and how to utilize staffing. Practice culture and communication are integral to the future of any practice, whether bought or built. When taking over an existing practice, it often makes sense to keep the current staff employed for continuity and to build trust with existing clients. If the current staff includes any previous owners in a multiple owner practice, Dr. Woodd advises to consider ahead of time any possible complications which may result from this arrangement.
Current veterinary students are fortunate to have several options when it comes to enhancing their veterinary curricula with leadership and business administration courses prior to graduation, such as through the Veterinary Business Management Association (VBMA.) Dr. Nicholson believes it is important for recent graduates to understand that practice ownership offers potential relief from the burden of educational debt faster than working as an associate.
Aside from a few who may have had experience in the business world or pursued additional education in another field before or after veterinary school, the majority of practicing veterinarians have relied too heavily on daily on-the-job training – or rather, trial and error – to form a working knowledge base in business administration. Dr. McCutchan highly recommends seeking out continuing education focused on practice management. It is also important to become familiar as an owner with monthly balance sheets, profit and loss statements, and cash flow statements, in addition to calling on financial advisors when necessary.
How long does it take to go from dreaming of the perfect practice to living the dream? Starting from scratch, Dr. McCutchan reports that it takes about two years – one and a half years to research and locate a practice site and build on it, and another six months to hire staff. Dr. Nicholson suggests a similar timeframe of two to three years. The process of purchasing an existing practice can often be completed in a matter of months. After three years of research to find the right practice, Dr. Woodd was able to complete the transaction in six months. Similarly, a relief veterinarian who decided to purchase an existing practice from a retiring veterinarian plans to officially take ownership of the business within six months of the start of negotiations.
We have all heard the saying that “hindsight is 20/20.” Perhaps no one would agree more than current practice owners looking back on their journey. Dr. Nicholson stresses the importance of seeking help or advice from other veterinarians who have been through the process; our own friends and colleagues can be our most valuable resource. If she had it to do again, she would have saved her money and not signed a contract with a broker. Dr. Woodd recommends taking inventory of and examining the condition of any equipment included in the sale beforehand to avoid any unpleasant surprises or buyer’s remorse.
As with learning any new technique or procedure, some wisdom can only be earned by doing. So what else can we glean from the prior experiences of current practice owners? Dr. McCutchan recommends that potential practice owners have realistic expectations as to when they will break even. In his experience it takes around three and a half years to become profitable – including an initial period of zero and even negative growth, when owners will rely heavily on a reserve budget. Owners should also expect an initial staff turnover of about 50% within the first year to year and a half. Dr. McCutchan cautions against completing any legal transactions, including signing a lease or banking transactions, without the presence of legal counsel. In addition, it helps to allow for more time and expense than you anticipate in your projections, and ensure a fair reserve of operating capital for the first 18 months.
Multiple owners suggest that potential buyers take time to consider exactly what kind of practice they would like to own before entering into any agreement. A new practice is more than just an investment in time and money – it is an expression of your personal vision for the practice of veterinary medicine.
In parting, current practice owners have this to say to anyone considering practice ownership – even new graduates: don’t wait. Once you can envision your dream practice – including a workable size, any species or disciplinary specialization you plan to pursue, and an ideal location – be bold, and don’t settle. Yes, it will be challenging, but it can be done with the right preparation and assistance from qualified professionals. At the end of the day, practice ownership – much like veterinary medicine itself – is a labor of love.
— Dr. Angela Lehman practices in Spokane as a relief vet and can be reached at [email protected]