You took the risks, you worked the long hours, and you built a business – when do you make the move to sell something you worked so hard to create? You may think the best time to sell is when the market is paying the highest price, and you could be right. Selling at the right time depends on many factors other than price alone. If you jump in too quickly, you may end up with a “fire sale” sales price; instead, you need to take time to “get your ducks in a row.” How long it takes to gather those ducks depends on several factors. The following is a checklist to help you know which ducks you should be organizing so that you are ready to sell the practice when the time is right.
If you want the best-case scenario, the time to start planning to sell your practice begins five years before putting it on the market. Worst case, you are experiencing a sudden and dramatic personal challenge that requires a faster time frame to sell the practice. In either case, you must consider the 3-Ds – decisions, documents, and data.
- Decisions are notoriously tough, and the questions presented are no different. You don’t want to enter the market unprepared, or you may end up on the short end of the stick. Take the time to nail down your answers to determine your best exit plan.
- Documents - what you have and don’t have can play a role in how you sell your business. Dust off that binder of documents you created when you first established the business, find those associate contracts you filed away (and make sure they are signed!), talk to your business consultant, financial advisor, attorney, accountant, etc. (or hire the ones you don’t have), and work through the financial and legal paperwork.
- Data from your PIMS and accounting software can become messy over the years. Data errors can include faulty data entries, wrong categories, omission errors, skipping bank reconciliations, improper record-keeping, and the list goes on. These errors can undermine credibility and hamper decision-making when presenting your practice to a potential buyer. Spend the time and resources to clean up your data and work with a trusted professional to do the job correctly.
The decision to sell your veterinary practice is a significant one and requires careful consideration. Several factors can influence this decision, and the timing of the sale can vary from one situation to another. Here are some factors to consider when deciding when to sell your practice:
Why do you want to sell, and when?
- Retire and shift to PT for work/life balance
- Poor health or family crisis
- Financial issues
- It is time for a change, follow new interests
- You no longer want the management/owner headaches
Who do you want to sell to?
- One or more associates - Depending on the purchase price and the associate's financial position, you may be required to hold a portion of the note. You could consider financing the entire amount, but you assume a great deal of risk in doing so. Before making any decisions, talk to your financial advisors and tax professional.
- Corporate consolidator
- Merge with another local practice
- A third-party veterinarian who is not an associate
Do you want to sell the real estate if you own it?
- Sell to the new buyer
- Sell to a veterinary real estate group
- Lease to the new owner
(Please note that all of these have income tax consequences, so before making any firm decisions, consult with your tax advisor).
Is the practice profitable and attractive to a buyer?
- Have the practice valued by a reputable veterinary practice valuator three to five years before you plan to sell so you have time to address any problem areas. When you are ready to sell, there is very little time to fix problems.
- Are you offering the services that your clients want and need?
- Are your facility, technology, and equipment up-to-date?
- Could you make changes right now that would increase business appeal to buyers? Do you know what those changes are?
How do you want to exit?
- Do you want to exit in stages or all at once? Be available to fill in as a relief doctor or cover for vacations? Stop practicing, but remain an owner?
- What portion of your ownership interest should you initially sell?
- How do you determine a price that is fair to both the buyer and seller? Work with a credentialled veterinary valuation analyst who knows the industry.
- Can an associate get outside financing to buy a piece of a practice? FYI, you, as the seller, may be required to pledge the practice assets as collateral.
- What are the income tax consequences for both the buyer and the seller?
Who do you need to help you sell the practice?
- Attorney to handle all the legal documents
- CPA to be involved in the actual sale and record the transaction
- Practice Consultant to work with the team leading up to the sale
- Appraiser to conduct the practice valuation - Like Summit Veterinary Advisors
- Owners’ agreement or the existing agreement
- Facility lease, if one exists
- Eventually, documents specific to the negotiation process, such as
- Letter of Intent outlining the sales agreement between the seller and buyer
- Non-disclosure agreement (NDA) to protect your confidential data
- Sales agreement
- A "valuation" is an unbiased determination of the business value to determine fair market value
- Please note - a broker, on the other hand, acts as an advocate to get the highest price for the seller. That’s what they are paid to do. The buyer needs to have their own expert look at the price on their behalf to make sure it is fair.
Tax Planning and Personal Financial Plans
- Personal tax plan/implication
- Business tax plan/implication
- Clean up your PIMS data (especially since it is important for understanding profitability)
- Clean up your accounting software (e.g., QuickBooks)
- For practice valuation, it is important to have revenue and expenses match between the tax return and accounting software. Also, ensure payroll numbers match W2s on your tax return and accounting software.
- Closing Journal Entries - If your accountant doesn’t give you closing journal entries after the tax return is complete, your books won’t match the tax returns. This is one of the first things the valuator will look for, and it can make record-keeping appear sloppy. Ask your CPA for those entries, as well as how to enter them into your accounting software.
- P&L and Balance Sheet - The valuator will want to see both the profit & loss statements and balance sheets. If your accountant doesn’t prepare a balance sheet for you, ask them for one, or switch to an accountant who understands the importance of this report. You cannot get a valuation without a balance sheet.
Ultimately, the decision to sell a veterinary practice should be based on a combination of these factors and should align with your personal and professional goals. It's important to plan ahead, seek professional advice, and carefully evaluate your options before making a final decision.
RESOURCES - Additional reading