Being a veterinarian is more than just a job, its part of who you are; and as a practice owner this truism applies even more so. Many practice owners spend the best years of their career growing their practice. Leaving the practice that you grew and nurtured is more than just a business decision, it is a life changing moment. Unfortunately many practice owners fail to realize the maximum potential from all their hard work when they decide to transition from ownership, because they put little, if any thought, into how to approach this life changing event. However, with a little effort and planning a practice owner can create a plan of action that allows them to leave their practice at a time of their own choosing while obtaining the maximum after tax profit from the sale and the maximum peace of mind in moving forward with their lives.
Why Develop an Exit Plan?
Having an exit plan in place provides several benefits. First, it forces long term planning for both your business and your life. It is very easy to get caught up in the day to day practice of veterinary medicine. However, no business can function at its peak in this manner. You must have a clear vision of what you want your business to be if it is ever going to get there. Knowing what you want, and need, from your business before you exit will help identify these goals. In addition, by developing more sound business practices, you are creating a practice that is more appealing to potential purchasers and potential lenders. In other words, you are creating a larger market for your practice and increasing your practice’s value at the same time. Finally, by forcing you to explore what it is that you want to get out of your practice and what you want out of life after practice, an exit plan helps create a sense of accomplishment once your practice is sold.. This can help alleviate some of the feelings of a sense of a loss of purpose or direction that is often cited by “retired” vets as the reason for reentry into practice.
When should an exit plan be started?
The answer is simple, NOW. Why? The sooner you begin your exit planning the longer it has to work for you, the more your practice will be worth, and the fewer the risks to which you will be exposed.
Over the last few decades the value of veterinary practices has changed dramatically. Thirty years ago single doctor practices were the norm and the gross revenues of these practices was between $250,000 to $300,000. In 2013 the median number of veterinarians employed in companion animal exclusive practices was 6.0 and median gross revenues were $865,000. (American Veterinary Medical Association, AVMA Report on Veterinary Compensation, (2015))
In addition the manner in which practices are valued has changed as well. Gone are the days when practices sold for one year’s gross income. Practices today are valued based on net income and profitability. It takes a minimum of 3 to 5 years to maximize these factors in a veterinary practice. To maximize your practices value you must actually begin implementing your exit plan steps at least this far out from the sale date of your practice.
Finally, no matter how well you plan you never know exactly when you will have to exit your practice. Health and family issues can require an unexpectedly early exit from your practice. By having a plan in place before these event occur your reduce the negative effect a rapid sale has on the value of your practice. In short, it takes time to prepare a practice to be sold, if you have no exit plan in place, when the time comes to sell you will be a motivated seller. As a result you will receive a reduced sale price or be required to enter into a more risky transaction.
As a result of all of the above the need for practice owners to develop an exit plan is much greater today than in any time in the past. And yet, many veterinary practice owners have no idea how to take even the first step in this process. Next month we will discuss the steps in the exit planning process and provide you with the questions you should be asking yourself as you begin to develop your exit plan.
If you have more questions about exit planning, please feel free to contact us.