Counting Chickens15 May 2019 - Simon Palmer - Practice Sales
Despite the best of intentions, even once the framework of a practice sale is agreed, it is often still very hard to predict the exact date that a deal will settle. Even with the buyer and seller doing all that they can to prioritise and expedite the deal, a transaction can be at the mercy of the availability and circumstances of many other people’s lives, including:
- The buyer and seller’s lawyers
- The landlord and the landlord’s lawyer
- The buyer’s financier/bank
- Advisers (accountants, etc.) for all of the above
- Signatories (spouses, partners, etc.)
The input and approval of all of the above are usually needed for a transaction to run smoothly, and the rate at which a deal can be done will be dependent on all of the above acting in a timely manner when needed.
In order for the deal to go smoothly and expeditiously, you need all of the above to share the urgency of the buyer and seller and for no one to have an illness, holiday or overloaded schedule when they are needed for the deal. Unfortunately, some link in the chain will often take longer than expected and, even with the best of intentions, the date that the deal will actually complete can be unpredictable and blow out unexpectedly.
This presents a challenge for vendors looking to make business and lifestyle decisions after the transaction is supposed to have finished. “Should I continue to book patients in as if nothing is happening? Do I continue to order the consumables that I like? If a staff member resigns or equipment breaks, do I ask the purchaser for their input in the replacement?”
There is a well-known saying, “don’t count your chickens before they hatch”. It is meant to illustrate that one shouldn’t make plans that depend on an outcome that may be uncertain.
Here are some tips for veterinary practice vendors so they don’t “count their chickens” too early:
1. Don’t book a celebratory holiday … just yet
Selling a business is an exciting milestone and, after decades of hard work, it is natural to plan a dream holiday as the first order of business post sale. However, planning the holiday before the deal is unconditional and dates are final could mean that you are away at a time when you are needed for a decision, a signature or information regarding the practice.
2. Don’t work less
Now that the deal is negotiated, many vendors will feel like the pressure is off and they can start to take it a little easier, work fewer hours per week, or not start treatments that they otherwise would have done. An unexpected delay in the finalisation of the deal could mean that these decisions can be significantly detrimental to the fortunes of the practice, right at a time when the buyer may be looking to reinforce their confidence in the practice’s financials.
3. If a staff member resigns, replace them (especially clinical staff)
It is often difficult taking someone on at a time when you are in the process of selling. You aren’t sure if the new owner will want the new hire; you aren’t sure if you can offer job security.
A vendor has to weigh this off against the increased burden of continuing to work short-staffed for an indeterminate amount of time, and the impact that this might have on them and the business.
While it may seem right to inform the buyer and ask them for their input in the selection criteria, at the same time it is important to realise that until the transaction completes (and if the transaction doesn’t complete) it is you who will need to live with the hiring decision.
4. Stock Management
With stock and consumables:
- Don’t order excessively. Your favourite brand of endo instruments or composite may not be the same as theirs, and they won’t want to pay extra for stock that you ordered that they don’t want to use.
- Don’t try to run the stock down to nothing. There are two reasons for this:
- There is a general expectation that when you buy a practice and walk in on day one, there will be a week or two of stock left in the cupboards.
- You don’t want to run short of something if the settlement date is delayed.
5. Cancelling Accounts
Don’t cancel electricity or other accounts the practice may have with suppliers until you have a firm unconditional transfer date.
6. Rebooking patients
Many vendors are concerned about how to act around patients when they are in the process of selling. Do they rebook them for a check-up and tell them “see you in 6 months” if they know this may not be the case? What do they say?
My advice to vendors is to act as if nothing is happening until you have a signed contract that is unconditional, and you have a date of transfer.
- There is no need to tell patients about a transaction that isn’t 100% locked in.
- Even if it is… how do you know you won’t be seeing those patients when they come in? Your sale may come with post-sale work commitments that mean that you will see them anyway.
- When selling a practice, the purchaser will often ask to see the appointment book to gauge busyness. If the books start to look empty because you have stopped rebooking, it will lead to reduced confidence in the ongoing fortunes of the practice.
Having treatment planning as part of a vet’s job description often trains them to be naturally detail-oriented people who like to think three steps ahead. There is nothing wrong with this, but selling a practice is a process that can have an unpredictable timeline, due to the many moving parts and people involved. As frustrating as it may be to sit on your hands and continue to act as if nothing is happening, the alternative involves making changes to your practice that can be to the detriment of the sale and ongoing health of the practice. When in doubt about a planned change in the practice, your lawyer or broker can let you know when it is safe to proceed.