The road to veterinary practice ownership can be short or long, depending on the level of preparation on the part of the buyer who is considering a practice purchase. A potential buyer needs to take steps to position him or herself for loan approval three to five years before the practice ownership quest begins. These steps include:
- Developing personal cash reserves for a down payment when the time comes
- Maintaining a clean credit history with a score of 675 or above
- Maintaining a conservative lifestyle with limited consumer debt
- Educating him or herself about business and understanding cash flow
- Building a strong resume that reflects production success, business and personnel management experience, and contributions to the practice and community
Once the above framework is in place, it’s time to assemble a team of advisors1 to support the buyer through the purchase process (timeline – one to two months). Multiple, reputable options are available, so a buyer must complete his or her due diligence to find the most comfortable partners and the best fit.
An attorney with expertise in veterinary practice sale transactions is essential and can save time and money for the buyer – they know what to look for in purchase agreements, how to protect the buyer, and draft fair and reasonable terms for both parties to move the sale forward.
The buyer also needs a veterinary practice appraiser/valuator that has the experience to determine if the asking price is reasonable. Depending on the situation, this could entail reviewing a valuation report prepared by the seller’s valuator, or completing a cash flow analysis to determine if the available cash is sufficient to cover the purchase loan payments, or preparing a practice valuation report.
Identifying potential lenders to finance the purchase is next. Veterinary practice purchases are attractive investments to banks and financing companies, and student loan debt doesn’t disqualify a practice purchase loan applicant. Buyers must research the options to find the most attractive loan terms (variable or fixed interest rate, required collateral, and down payment), determine which lender is the best fit, and be prepared to share their personal financial history.
A broker is valuable for buyers who want help finding a practice to purchase, potentially expediting the timeline for the purchase.
Now the practice hunt begins (timeline – two to twelve months). The buyer’s purchase “requirements”, commitment to the process, and available practices for sale will determine how long this step takes. For example, a buyer who will only consider a companion animal practice within a 30-minute radius of his or her home town could significantly narrow the available options and extend the timeline. Buyers should also consider the potential for ownership in the practice where they’re currently employed. Broach the subject of co-ownership or outright purchase opportunities with the current practice owner – he or she may be open to the idea.
The buyer will work with his or her team to determine if the available practice is a good fit – is it located in a desired community, is it near quality schools and cultural and recreational activities, what’s the quality of the human healthcare system, is a professional valuation report available, is the asking price right, will it provide for the buyer’s family, do the community demographics support growth of the business, etc. 2
Once the buyer agrees the practice meets the desired parameters, he or she will prepare an offer, provide the required financial documentation and business plan to the lender for loan approval, ask the attorney to provide a letter of intent to purchase, and secure the financing. The lender will review the buyer’s proposal, professional experience, personal and business financial reports, review the buyer’s existing debt, complete a credit check, and submit the loan application to underwriting to determine if they will approve the loan. Once approved, the closing takes place and the loan is funded (timeline – two to four months).
Developing a plan of action well before the purchase process begins helps ensure success. Buyers – be prepared for a six to twenty-four month process depending on the circumstances. Use these guidelines and the additional resources listed below to craft a blueprint for successful practice ownership.