Listen in as VIN Foundation Executive Director Jordan benShea has a conversation with Dr. Bree Montana and Dr. Jose Pla in the next episode of the podcast series, The Future’s So Bright, the ins and outs of selling a veterinary practice. Jose takes us through the important aspects of sharing the story of your practice. What financial documents do you need? Do you need your tax records? And how important is production? What are minority partnerships? He also does a deep dive into the below five big categories of what needs to be considered when you are getting ready to sell your practice:
Top 5 categories to have when considering selling your veterinary practice:
- Lease information
- Financial records, make sure they are clean
- Make sure that practice management software is able to print out financial reports
- Think about your exit plan, are you willing to work and for how many years?
- Pay to have a professional evaluator ahead of selling, ideally 2 years
Most importantly, we want to hear from YOU our listeners, to know what topics YOU want to hear about from experts. Please email us to share your thoughts: [email protected].
GUEST BIOS:
Dr. Bree Montana
Bree Montana, DVM, CCFP graduated from the University of Cincinnati with a Bachelor of Science degree focused in the field of Biology followed by a Doctorate in Veterinary Medicine from The Ohio State University’s College of Veterinary Medicine. After graduation from veterinary medical school, Dr. Montana worked exclusively in small animal outpatient and emergency hospitals while pursuing additional medical training in the latest technologies. Dr. Montana has advanced training in ultrasonography, echocardiography, chemotherapy, dentistry, emergency medicine and surgery, transfusion medicine, class IV laser therapy, pain management and rehabilitation. A past member of UC Davis’ College of Veterinary Medicine’s External Advisory and Admissions Boards, and a past Board member of the VIN Foundation, Dr. Montana is the Director of the VIN Foundation’s Vets4Vets® programs. When not practicing medicine, Dr. Montana will generally be found playing with her daughter Ember and their ponies, hiking with her huskies, and skiing or snowboarding with her husband.
Dr. Jose Pla
Dr. Pla obtained his DVM degree from Cornell University in 1995 and his MBA from Rutgers University in 2018. As a practicing veterinarian he has a special interest in feline medicine, behavior, nutrition and gastrointestinal diseases. As a businessman he has been the owner or co-owner of five veterinary practices and a founding partner of Companion Animal Practices North America. Since obtaining his MBA, Dr. Pla shifted his focus to entrepreneurial ventures, practice management education and private practice transition consulting. He is an avid sailor, scuba diver and wanna-be photographer. Activities he shares with his wife and two sons.
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TRANSCRIPT
Intro
Jose Pla, BS, DVM, MBA: For veterinarians who are really thinking about selling, spend three, four or five hours with somebody who can give them counsel and really explain the options so that they get a better idea of what is truly possible out there, especially if they find themselves limited in their ability to see an exit strategy that is beneficial and desirable.
Meet the Host and Guests
Jordan Benshea: That is Dr. Jose Pla, joined by Dr. Bree Montana, both veterinarians, practice owners, and so much more.
Overview of the Podcast Series
Jordan Benshea: This is the VIN Foundation’s Veterinary Pulse podcast and another episode of The Future’s So Bright series on the ins and outs of selling a veterinary practice. I’m Jordan Benshea, VIN Foundation’s executive director. Join me and our cohost and VIN Foundation board member, Dr. Matt Holland, as we talk with veterinary colleagues about critical topics and share stories. Stories that connect us as humans, as animals, as a veterinary community. This podcast is made possible by individuals like you who donate to the VIN Foundation. Thank you. Please check the Episode Notes for bios, links, and information mentioned. Welcome back, Bree! We are excited for our fourth installment in The Future’s So Bright series, the ins and outs of selling a veterinary practice. Today we have with us Dr. Jose Pla. He is a veterinarian, a practice owner, holds an MBA, and so much more including he is currently in the midst of looking at purchasing a practice. He is our other perfect test case along with Bree looking to potentially sell a practice. We now have someone that’s in the midst of purchasing the practice. Welcome, Bree and Jose! Thanks for being here.
Bree Montana, DVM, CCFP: I have to tell you, I was so excited to invite Jose to join this effort that you’re helping us get out there, Jordan. When I saw Jose’s posts on the practice management boards on VIN I said, “Oh my gosh, we have to get this guy.”
Jose Pla, BS, DVM, MBA: And on my behalf, I want to thank you both for having me and having invited me to your podcast.
Jordan Benshea: Well, we’re thrilled that you’re here, so thanks for being willing to be a subject for these test cases.
Deep Dive into Financial and Legal Aspects
Jordan Benshea: Jose is here to help us do a deep dive into the financial and legal aspects of selling a practice. As always, we’re going to put in the Episode Notes and you can also find on the message boards on VIN through the VIN Foundation Center the podcast transcripts, etc. Jose is a phenomenal wealth of information, and we have very detailed bullet pointed lists. You will find all of those in the Episode Notes and in the message boards etc. What we’re going to focus on today is sort of a general idea of these different concepts. If you are on a treadmill, if you’re driving, if you’re walking, you don’t need to write this stuff down, you will have access to all of it. Another quick recap. We’ve shared with the audience some insights on different types of practice sales with Dr. Lance Roasa, and then with him dived into helping colleagues identify their ‘why’ for selling. From there, we began to explore the mental and emotional aspect of selling a practice with Dr. Susan Cohen. You can find those episodes where you can find the podcast at VINFoundation.org/podcast, but those will also all be in the Episode Notes. Today we are doing a deep dive into financial and legal aspects of selling a veterinary practice. Jose, I am sure that if there is somebody that’s considering selling a practice like Bree, and you can tell me, Bree, if you feel this way, but I’m sure one of the main questions is, what documents am I going to need? Like what financial documents, what kind of legal documents, what do I need to do as a practice owner to get myself set up for success to potentially sell?
Bree Montana, DVM, CCFP: That’s the scariest question, right? What do I need? How do I find it? Where do I find it? What does it mean?
Jose Pla, BS, DVM, MBA: To that point, one of the overarching concepts that I want buyers and sellers to think about is you’re telling a story.
Key Financial Documents for Selling
Jose Pla, BS, DVM, MBA: You’re telling a story about your practice, so from a document standpoint, we’re going to start off that the buyer really wants to know about the real estate, the physical real estate. They’re going to want to see the lease. They’re going to want to know what the layout of the practice is. Generally speaking, the layout itself doesn’t necessarily impact the overall value, but what they want to see is, is there potential for continued growth. So how many exam rooms that you have? Do you have parking, do you not have parking. Ultimately, the buyer is purchasing an asset and they need to minimize risk, so on the real estate side, they want to make sure that there’s no hidden problems that could prevent them from capitalizing on what they’re purchasing. On the financial side. The gold standard is your tax returns. Your tax returns are legal documents, they have the signature. They provide the overview of what this practice is doing financially, and they’re also going to want to see profit and loss statements. Sometimes they’ll request serial profit and loss, which means that they want to compare first quarter, let’s say of 2021, with first quarter of 2020. They’re going to want year-to-date profit and loss. The profit and loss, a lot of the information does flow into a tax return, but there are some things that are on a profit and loss that don’t actually show up on a tax return. It gives them snapshots of periods of time, so they can compare periods of time within a year, for example. I’ve seen companies want month to month profit and loss. Typically, these are very easy to produce from your booking platforms, but different companies want to see snapshots and compare those snapshots with previous years to see if there’s aberrations in the incomes and the revenues. It permits them to understand how stable the revenues are over time. Moving forward, the companies are going to want to know who’s producing what. So, if you have three doctors, are all three doctors roughly producing the same amount of money, a lot of revenue, or is there a weakness that varies where you have one doctor that’s producing, let’s say 50, 60, 70% of the revenues and some other doctors are producing less. They’re just trying to understand how the practice works, because that may influence on what kind of negotiations are going to happen with each of the professionals that works the practice. Now, every practice, once again, they’re buying risk and we understand that veterinary practices are providing a service and you need to have staff. So, they’re going to want to know are the veterinarians going to continue post purchase within the practice? What is the management? This can be more of a problem with smaller practices where maybe the practice owner has had a dual role, maybe it’s a doctor and spouse where the spouse is the manager. Continuity of management will absolutely affect the value of the practice, because ultimately, if the management continuity is not there, then they’re going to have to either put somebody in that role or assume that responsibility. Then they’re going to want to see the payroll. They want to know how and what each employee is being paid, are there are there any roadblocks. Anybody who’s tried to buy multiple practices, understands that sometimes payroll has employees that are not actually working the practice. They can be family members, they can be the children, they can be spouses, so they’re going to want to look at the payroll, and make sure that the payroll truly reflects how the practice is operating. Those are the four big categories that I would say where the financial documents fall, and most of these are readily obtainable. Most practices will use a payroll system, a payroll company, like an ADP or Paychex. Most of these payroll reports can be downloaded very shortly. Leases typically are readily available. The one problem with leases is where the owner of the practice is also the owner of the real estate and sometimes, I’ve seen practices that actually don’t have a lease. That can be both a benefit or a hindrance for a company that is considering purchasing a practice.
Jordan Benshea: Wow, Jose, that’s a great rundown. I really like what you said in the beginning that you’re really telling a story with these documents. You’re trying to give a potential buyer an overall view of your story as a practice owner.
Bree Montana, DVM, CCFP: It’s really helpful to hear what a company that’s purchasing or what an individual purchaser is looking for when they’re inspecting these documents. They’re looking for a manager, they’re looking for continuity, they’re looking for the stability and growth factor in the practice.
Jose Pla, BS, DVM, MBA: Yeah, they’re trying to make an assessment of how risky is this investment, and how would that affect what I’m willing to pay for that investment?
Bree Montana, DVM, CCFP: Exactly. Yeah, that’s huge.
Jordan Benshea: Well, I know one of Bree’s favorite financial questions. Bree, I’m going to let you ask it because she just loves asking this one.
Understanding EBITDA and Multiples
Bree Montana, DVM, CCFP: I just got to, I got to know what the hell is an EBITDA? Yeah, I mean, where did it come from? It seems like, it seems like a mythical magical creature that can be anything to anyone.
Jose Pla, BS, DVM, MBA: Sure, so honestly, it’s an acronym and it stands for earnings before interest, taxes, depreciation, and amortization. By removing those four categories, you’re removing expenses that are not typically transferable to a buyer. Depreciation and amortization have more to do with how the practice is maneuvering or putting expenses onto their books to compensate them for buying a practice. Taxes are variable by state. They’re variable by corporate structure. They’re variable by the way that the practice was financed. Interest, similarly so. So, those four categories do not typically transfer to the new buyer. Therefore, we’re removing them and only looking at the earnings and by looking at the earnings, then you can benchmark a company, be it a veterinary practice, be it a hair salon, be it a donut store, whatever it is, within similar companies within the industry.
Bree Montana, DVM, CCFP: Got it. Back in the day, like when I bought my practice in 2003, I just said, “can I afford the practice?” I really didn’t do a lot of deep diving. I just said this practice is barely open, the practitioner that owned it is barely, barely present and I didn’t even realize that the sewer would overflow every year. I think people are a lot more savvy than I was. How are people deciding how to buy practices? We always talk about multiples. How do they pick the multiple where it seems like multiples for a private purchaser are different from a consolidator. What is a multiple mean? Help us understand that weird semi not really mathy more also EBITDA magic key?
Jose Pla, BS, DVM, MBA: Yeah. So yes, the multiple is kind of this mythical number that is applied onto the value of EBITDA. If a practice, for example, has an EBITDA of $200,000, then you’re going to apply a multiple, because what you’re buying is the ability to obtain the continuity of the cash flows. You’re paying money on cash flows of $200,000 in perpetuity, or $200,000 that hopefully is going to grow every year into a larger amount, so you have to apply a discount rate. Basically, it’s what is the value of $200,000 in 5 years, 10 years, 20 years? That’s where the multiple comes from. The bigger question is, where did the initial numbers come from? I’ve done a deep dive with other consultants in the industry to try to determine where did that number come from? Typically, what we’re finding is that we actually don’t know, but somewhere around five times EBITDA, which for a lot of practices was roughly, if a practice is 20% profitable, about a year’s growth was where the banks started to feel comfortable that the veterinarians were able to afford this practice, were going to be able to afford a living and make their payments. The traditional numbers come from underwriting in banks, and what is the way the banks are willing to assess risk as it pertains to an owner, but even then, that number pertained to an owner who followed the traditional model of I’m going to buy a practice and work the practice myself. Now when different ownership structures arose, for example, when I buy a practice, my goal is not to work the practice. I’m willing to work it if I have to, but I don’t want to be an owner operator, or I want my involvement to be a minimal amount of working in the practice, because I want it to be an asset that’s producing money for me. When corporations started to come in, they have a very different structure of what their long term plans are, so they’re able to mobilize and reap benefits at valuations that are much higher. For example, if a corporation is looking to eventually go public, then they’re able to pay 10, 15, 20 times a multiple over EBITDA, because ultimately, what they end up selling in shares may have a multiple that’s 50, 60, 70 times dollar for dollar on asset. So, if they buy a million dollar assets in shares, they may be selling 50, 60, $70 million worth of shares for what they’re buying. The way that EBITDA is calculated truly is based on who the buyer is, and what their long term plans are. So, somebody who is looking to work the practice themselves is looking to be able to pay a loan on a month to month basis is not going to be able to afford paying anywhere more than six, seven, maybe 8% of the yearly earnings of that practice. Otherwise, they can’t afford it.
Bree Montana, DVM, CCFP: Right, that’s kind of the dilemma that we have in our industry right now, and we’re all going to have to put our heads together about that in the future.
Jose Pla, BS, DVM, MBA: Yes, I mean, there are solutions to the problem. It’s just our industry has been slow in accepting the solutions.
Improving Practice Valuation
Bree Montana, DVM, CCFP: As we’re figuring out all those things that affect the multiple, is there anything in your mind that a practice owner can do to improve their multiplicity? I’m making it worse as I go.
Jose Pla, BS, DVM, MBA: Yes, there are a lot of things. There’s about 12, upwards of 14, maybe even 15 different factors that can change the valuation of a practice.
Bree Montana, DVM, CCFP: Jordan, can we list those on our…
Jordan Benshea: All this? Yep, all of this will be listed in the Episode Notes. Absolutely.
Bree Montana, DVM, CCFP: Give us your top three.
Jose Pla, BS, DVM, MBA: My top three, I would say number of doctors.
Bree Montana, DVM, CCFP: Okay, yeah, 100%.
Jose Pla, BS, DVM, MBA: Two would be the management. Jordan, you mentioned that I was in the process of buying a practice, but I’m also in the process of selling a practice.
Jordan Benshea: You’re the perfect test case, Jose! Little did we know!
Jose Pla, BS, DVM, MBA: So, one of the things that I identified in the sale of one of the practices and getting this practice ready to be sold, because, for me, it’s a multiyear process is that I needed to change the management and divest myself of being the driver of management and empowering my hospital manager to be basically the sole person who has the responsibility of the day to day operations of that practice. So, management style, number of doctors, and last is, is there growth. What are the growth potentials of this practice, and where does this practice sit within its competitive landscape within a geographical area?
Bree Montana, DVM, CCFP: Right, which they can’t change. You’re not going to be able to change where that house is that you’re buying, but you can change the way you’re optimizing and utilizing the house?
Jose Pla, BS, DVM, MBA: Yeah, absolutely, and within a geographical area, for example, every practice owner has to decide who is their client. By that, I mean, are you going in a niche practice? Are you going low end? Are you going in the middle? Are you trying to cater to everybody? Where are there opportunities for growth? Sometimes, when I talk about an area there’s just a mismatch between what they’re offering and what the competition is for what they’re offering within their geography, and that’s what’s limiting their ability to grow.
Bree Montana, DVM, CCFP: Right, right. So those are three things that I feel like people can really dig deeply into.
Strategic Management and Growth
Bree Montana, DVM, CCFP: I really want to take a moment to encourage each of us who are practice owners to take some time, maybe carve out a couple of weeks every year to look into how we’re running our practices. We’re so busy, we’re deep in the trenches, and we’re so busy dodging asteroids, growing the strawberries and picking them, and doing all the things we’re doing every single day. Let’s take a time each year and dedicate that to looking at how we’re running our practice. Who’s managing our practice? What’s our plan for the future? Even if we just started owning our practice, we want to make sure that we’re developing a practice that’s going to go on.
Jose Pla, BS, DVM, MBA: I would agree wholeheartedly. When I look at, and reading management books and business books, one critical habit of successful people is taking time to think, taking time to analyze, and really prioritizing the fact that if we are the drivers of our companies, we have to put energy into that management and not expect it to just develop on its own.
Bree Montana, DVM, CCFP: Right. Jordan, since you’re the driver of this world here, can you please give me a time machine, so I can go back about 15 years, and set some practices in place. So, I have more time to do just one more thing.
Jordan Benshea: I think setting yourself up for success is challenging. I like that idea, Jose. It’s so easy in our really busy world, to just go, go, go, go, and get so focused on going. I think I just read yesterday that Bill Gates takes two weeks a year, one week each, where he goes and just reads and thinks and has ideas. Maybe that for some people is five minutes a day, or 10 minutes a day, whatever it is that’s tangible and feasible for you, I think that there is a lot of value in creating that sort of whitespace in your mind to allow free thoughts to come, to do the reading and to explore different ideas. It’s so hard when we’re so in it because we’re so in the midst of everything. It’s so hard in every aspect of our life to get some visibility and to get some perspective on it. Once we do that, I think things become a little bit more manageable, and if you’re looking at how you want to take your business to the next level, and from a selling perspective, or potentially purchasing as Jose is doing both, there’s a lot of value I would say in doing that. I think that’s a great tip.
Jose Pla, BS, DVM, MBA: Yeah, and not to digress into, because it’s an important topic, but for me also, and I tell other veterinarians is we have a tendency to look inward into our industry, and want to get ideas from other veterinarians, but ultimately, this is not the most business savvy industry out there. When I’m looking for ideas, I’m looking outward, I want to see what other industries are doing.
Identifying Opportunities in Various Industries
Jose Pla, BS, DVM, MBA: It can be almost anything. It can be the hotel industry, it can be restaurants, it can be service. There’s a lot of really intelligent people in other industries, and you can pick and choose what works for your own practice. We just have to learn to look, realize there’s an opportunity, and then bring that opportunity into your practice.
Roadblocks in Selling a Veterinary Practice
Jordan Benshea: Jose, clearly, you’ve got the most experience in selling and buying a practice on this podcast today, so what would you say are some of the roadblocks that you find in selling a veterinary practice?
Jose Pla, BS, DVM, MBA: I think I’m going to talk about that from the buyer’s perspective. The biggest roadblock is a seller that is not committed. Somebody who hasn’t done their due diligence. They are kind of treading the water, they don’t have a solid plan, and that could be a financial plan. It may be a life plan with their family. They don’t understand the process, and in doing so they have an expectation that somebody else is going to do that work for them. What ends up happening invariably, is they start conversations, a lot of money is spent in negotiations with lawyers to find out that what the seller may have wanted was not realistic for their economic stability.
Importance of Due Diligence for Sellers
Jose Pla, BS, DVM, MBA: Or maybe their accountant comes in and puts a roadblock and says, “I know that you want to do, let’s say owner financing, but you can’t do that because of XYZ”, or their lawyer says, “I know that you initially negotiated for this, but I’m going to advise that you don’t do that because these are the risks to you.” So truly, in order for a practice to be sold, and to minimize the time, the stress, and certainly the cost, is that the seller has to do due diligence and get things in order. Their house has to be in order. I’m going to start off with their taxes and their tax returns have to reflect the operations of the practice. We need to eliminate all personal expenses. We need to eliminate the car that we’re paying, the weekend home, the family members that are maybe on our insurance, everything that is not a real expense needs to be cleaned up. That may take over a year. They need to understand and have meetings with their accountants and their financial planners to understand the tax implications of a sale. A lot of people don’t understand what capital gains are, or what the flow down of the proceeds of the sale of the practice and what’s going to be due and when is it due. It could change how a practice owner decides to sell their practice. They also need to have a conversation with their legal team to say, “what risk am I willing to accept and what risk am I not willing to accept”, so that the legal team does not put roadblocks that hamper the transition, and the progression of a negotiation.
Engage in Message Board Discussions
Bree Montana, DVM, CCFP: I want to encourage everyone to join us on the message boards to discuss these. This is a deep dive stuff that individuals are going to have specific questions about. When’s it time to get a valuation? What kinds of places should I look for a valuation? What’s a reasonable price for a valuation? All those questions? Let’s drive those to the message boards so that we can have that there for perpetuity for everyone next year that comes along with this question. Super valuable information.
Understanding Practice Valuation
Jose Pla, BS, DVM, MBA: Yeah, so when talking about negotiations, I always revert to the term BATNA. It’s an acronym and it stands for the best alternative to a negotiated agreement, and it’s the realization that we all have things that are of higher priority than others. If you can identify what your top priority items, what things are either a go – no go, what things you’re willing to negotiate, then you can try to make that assessment to the opposite party. The sale of a practice requires a seller and a buyer. Find out in your best assessment, what their top priorities are, then you can use that knowledge to help you move along the negotiation. It’s very interesting to me, because I’ve encountered this on more than one occasion where I start a negotiation to buy a practice and the seller doesn’t know what they want. They’re relying on me to make that decision for them, and it just becomes drawn out and very stressful, and unfortunately, frustrating and expensive, because a lot of these these back and forth go through lawyers and the lawyers are charging by the hour.
Bree Montana, DVM, CCFP: Are you bumping into people who don’t know if they want to work for a couple years? Are you bumping into people that don’t know how much money they want? What things do people not tend to marshal and have organized before they start walking this path?
Jose Pla, BS, DVM, MBA: For practice owners that also own the real estate, they don’t understand that these are two separate negotiations, and you can maximize your future value by prioritizing one versus the other. You can change your tax liabilities by how you maybe move value between the real estate and the lease and the price. They don’t. Oftentimes, I’ve encountered more than once where the seller initially is considering financing the practice themselves, but then finds out that that’s not feasible because their financial planner has given them information that they weren’t thinking about. More importantly, some of the sellers just don’t know the value of the practice and they don’t understand what’s affecting the value of the practice or why it is being brought down.
Bree Montana, DVM, CCFP: The real estate thing and the value of the practice thing those seem like really turning points for folks. I’m hoping we’ll have a dynamic conversation about that on the boards. I think that’s something that I don’t know, my real estate, but I think that folks do. I understand there’s a huge value in positioning yourself properly with that. I think we should chat about that on the boards because that’s an important topic.
Real Estate and Practice Value
Jose Pla, BS, DVM, MBA: For some practices, especially here in northern New Jersey where the value of the real estate has outpaced the value of these small practices, there may be more value in the real estate and how that is negotiated could be a huge windfall for the seller. Sellers oftentimes look at the value of the real estate as what’s the comparable value for this property in my geographical location. What they really need to be looking at is what are the value of the cash flows moving forward, because it’s all about cash flows. It’s stability of cash flows. I just had one of my practices, one of the buildings appraised, and the simple fact that if I negotiate with the tenant an extension of the lease ahead of time, two years ahead of their automatic five year term renewal, then I can increase the value of that real estate on the open market by hundreds of 1,000s of dollars, because I’m transferring continuity of close to the buyer.
Bree Montana, DVM, CCFP: It’s guaranteed.
Jose Pla, BS, DVM, MBA: Whereas some may say this lease has a renewable five year term in 18 months, that’s a risk that they have to assume. If I assume the risk for them, then I can transfer that in value to the buyer.
Preparing for Practice Sale
Bree Montana, DVM, CCFP: So, Jose, if there are five things that you would say a person should really stay on top of and get organized before they start irritating you with their practice offer for sale, what are those five things?
Jose Pla, BS, DVM, MBA: Let’s start with the lease. Do you have a lease, do you not have a lease? What are the terms of the lease? If it’s a third party lease, is it transferable? What kind of limitations are in that lease for your ability to sell your business and have somebody else assume that? You’re going to want, once again, your financial records have to be clean, they just have to be clean. I cannot tell you the horror stories I’ve gone through of trying to look through pages of credit card monthly bill statements, trying to determine what was a personal expense at Costco versus what the practice purchased. That can take a huge amount of time, so your financial records have to be clean. You need to make sure that your practice management software is able to print out the financial reports. There are still a lot of veterinarians out there that are not computerized. It’s interesting.
Bree Montana, DVM, CCFP: It’s a nightmare when you get their church.
Jose Pla, BS, DVM, MBA: It’s a nightmare out there.
Bree Montana, DVM, CCFP: I know, I hate that. Like don’t send it if it’s handwritten.
Jose Pla, BS, DVM, MBA: Let’s go back, we talked about what is your exit plan. Are you willing to work? For how many years? What is it that you want? Are you looking to have a lot of free time so you can travel? Do you want to work in chunks of time? Work hard and then play hard. Do you want stability? What is it that you want is critical because that’s going to be part of the negotiation. Do you want to walk away after the transition, or are you willing to stay 18 months, 2 years, 3 years? We talked about the practice valuation. Pay to have a professional evaluator tell you what your practice is worth ahead of time. Ideally, I would do it at least two years ahead of time and in that same report they should be able to tell you where the weaknesses are. Then you should start to address those weaknesses. Once again, you can have the practice valued, and yes, you’re going to pay 4 to $8,000 to have the practice valued, but this is oftentimes your biggest asset, what’s going to guarantee your retirement. Spend the money. Get a professional to do it. Don’t try to do it yourself.
Jordan Benshea: Those are great. Those are great. That’s a great five things.
Jose Pla, BS, DVM, MBA: When I buy a practice, I do my preliminary valuations myself. However, now that I’m considering selling a practice in a couple years down the road, I paid a professional evaluator to give me their perspective. I want to make sure that my narrow mindedness doesn’t reflect what is important to somebody else. So, I paid somebody and said, “Give me a valuation of this practice.” Also, you want to eliminate roadblocks and roadblocks can come in many ways. It can be a family member, it can be a spouse that says no, it can be sickness, it can be employees that are critical employees that are not willing to transition. It can be a partner that has a different idea. It can be zoning. I’ve been approached to buy practices for sale, practices that I would have loved to purchase. They didn’t have the zoning to have a practice in that location. There was a handshake agreement between officials and the practice may have been there for 30 years, you don’t have to zoning. All these roadblocks need to be identified, and they need to be remedied or be able to find a solution around them, so that when you decide that you’re going to start paying money for lawyers and accountants, everything goes smoothly.
Bree Montana, DVM, CCFP: Make it easy for somebody to buy your practice, make it easy for them.
Jose Pla, BS, DVM, MBA: Exactly. Make it easy. That story that you’re telling should be short and sweet.
Bree Montana, DVM, CCFP: Yeah, here we are, we’re stable and we look like we’re growing.
Jose Pla, BS, DVM, MBA: That’s correct. Yes.
Bree Montana, DVM, CCFP: Our future’s so bright.
Jordan Benshea: Wow, way to end that, Bree! I like it!
Bree Montana, DVM, CCFP: Thank You!
Jordan Benshea: Well, thank you so much Jose, for your time and just all of your information. I think this is going to be extremely helpful for our colleagues. Again, check the Episode notes, we will have links to the message board discussion as soon as the transcript etc., is done. Thank you both so much. Is there any last bit of advice or comments that you want to have for our listeners?
Exploring Minority Partnerships
Jose Pla, BS, DVM, MBA: Yes, I’m a huge proponent of minority partnerships. Don’t overlook or forego the value of minority partnerships as an exit strategy. Also, for many practices, looking at opportunities to merge the practice into another may be a very good option, especially if it’s a practice that doesn’t really have a lot of profits, or if it’s below the target acquisition for corporates. Some rural practices may benefit from this, also. Don’t think that selling has to be the typical traditional route. Making a practice, a small practice a satellite of a larger group may be a great way to be able to sell a practice that may be very hard to market otherwise.
Jordan Benshea: Awesome. That’s a great piece of advice. Yeah. That there are multiple, and I think that touches on what you said earlier, that there are multiple options out there. It doesn’t need to be just as we see and as so many, as you were saying, look internally within the veterinary profession. If you look externally at other businesses and different professions, you see that they have setups like that, so why couldn’t that be an opportunity within veterinary practices?
Jose Pla, BS, DVM, MBA: Yeah, and one of the hardest things for me and most of what I do is in partnerships, and on the VIN platform I disclose I’m probably in 8 to 10 different partnerships, always as a minority and there’s a tendency to be very skeptical about minority partnerships. To me, it adds a lot of value because it really reduces my risk.
Bree Montana, DVM, CCFP: It strengthens your base.
Jose Pla, BS, DVM, MBA: I’m not the sole decision maker, but it gives me the opportunity of doing other things because I am part of groups of people that are overseeing a practice, so looking at minority partnerships to me is a great way for a practice owner to transition to a veterinarian and still potentially obtain in the three to five year window the same type of money as if they were selling corporately. They just need somebody that’s..
Bree Montana, DVM, CCFP: Looks like we need another episode.
Final Advice and Encouragement
Jose Pla, BS, DVM, MBA: Yeah, and the last but not least for veterinarians who are really thinking about selling is spend three, four, or five hours with somebody who can give them counsel and really explain the options so that they get a better idea of what is truly possible out there, especially if they find themselves limited in their ability to see an exit strategy that is beneficial and desirable.
Bree Montana, DVM, CCFP: And what kind of person would we be looking to give us that counsel?
Jose Pla, BS, DVM, MBA: You’re looking for somebody that by nature, typically they are consultants.
Bree Montana, DVM, CCFP: Like a practice broker?
Jose Pla, BS, DVM, MBA: I think that my issue with practice brokers is I think that they have the ability to do it, but they also have a bias. They’re looking to do your business, and they’re looking to sell it. You’re looking for somebody who hopefully doesn’t have a bias. They’re just telling you; how can I structure this? What kind of conversation can I have with my partners? What are possibilities? Especially if you’re looking to transition a practice, and keep it outside of the corporate aggregator space, then by nature you’re probably not working with your traditional broker that you’re paying them a fee to market your practice. So, you’re looking primarily at consultants and the question to ask is, “How often do you help people structure these deals?”
Bree Montana, DVM, CCFP: That’s great advice. Like a coach, you want to lift more weight, get a coach.
Jordan Benshea: There you go. Thank you both so much for your time. I really appreciate it. I think this will be really helpful to our listeners. Again, we encourage you to ask questions. Look at the Episode Notes, engage on the message boards, and let’s continue to have this conversation. Let’s not let the discussion end here, but let’s continue it. I am sure that everybody has questions and wants to know more. We want to hear from you. That’s the most important thing because we are here to help. Thank you, Bree. Thank you, Jose.
Jose Pla, BS, DVM, MBA: Thanks for having me. Have a good day.
Bree Montana, DVM, CCFP: Bye bye.
Outro
Jordan Benshea: Thank you for joining us for this episode of the Veterinary Pulse. Please check the Episode Notes for additional information referenced in the podcast. If you enjoyed this podcast, please follow, subscribe, and share a review. We welcome feedback and hope you will tune in again. You can find out more about the VIN Foundation through our website, VINFoundation.org, and our social media channels. Thank you for being here. Be well.