Goodwill Transfer In Practice Sales06 Jul 2017 - Simon Palmer - Business Broker Vet Practice Sales
One of the greatest fears buyers of veterinary practices have is that they will pay significant money for goodwill and there will be a mass exodus of clients when they take over. To mitigate this risk, any buyer needs to seriously look at the reasons why a client frequents the practice, and give them no reason to want to change their behaviour.
The first thing to realise is that (with the exception of an owner’s family) most clients don’t give much thought or care about who owns equity in the practice they frequent. Do you as a consumer know or really care who owns the business where you buy your coffee? Or shoes?
Clients usually come to a practice for one or more of the following three reasons:
1. The Location. Many clients obviously go to their vet because it is convenient to do so. The practice is near their home, work, children’s school, etc. A practice that moves location significantly will lose clients, regardless of whether the practice has new ownership or not. This is why it is paramount that a practice has strong security of tenure by way of a long lease, when a purchaser takes over.
2. The Price. Some clients go to their practice because they are price-sensitive and the fees of the practice are low. As tempting as it may be, the purchaser of a low-fee practice would be unwise to raise the fees significantly in the first year of owning a practice. New owner-vets should give their clients a chance to get to know them first, build up their relationships, and realise the value that they represent.
3. The Personality. Many clients go to a practice because they have built a familiarity, rapport and trust with their vet and team. Often they have been going to the same place for many years, where the team knows them and their family, so loyalty exists between the clients and the team. The incoming vet needs to respect this relationship and work on ways to leverage off this relationship, rather than sever it. If you are buying a practice that you feel has a lot of patient loyalty, due to the personality of the vet and the team, a series of implied and explicit endorsements can help maximise a transference of trust.
Implied endorsement can be achieved by having the vendor work in the practice post-sale. If the clients can walk into the same premises, see the same person/s behind the front desk and see their long time veterinarian still working there, even in a reduced capacity, it reduces client attrition dramatically. Seeing the vet that they trust work side-by-side with the new owner is an implied endorsement.
It also means that clients that won’t transfer easily (like the family of the previous owner) will stay in the practice post-sale.
Most post-sale commitments by owners start off being for a short period of time (6 -12 months), and thereafter by compatibility and negotiation.
Explicit Endorsement (By retiring veterinarian)
Explicit endorsements can be done verbally by the retiring vet, one-on-one, by introducing the new vet to clients, or by way of a letter, newsletter or flyer in the waiting room. This endorsement can incorporate the following points:
- It really doesn’t have to outline the sale/transaction that has occurred.
- It can mention that, after many decades of working hard, you (the vendor) have decided that you will be scaling back your days/hours at the practice and may take a sabbatical in the near future.
- It can say that you will be introducing a new vet to the practice, and highlight their education, background and any clinical specialty or other skills (e.g., speaking another language) that they will be adding to the practice’s services.
- It should say that you (the vendor) take their trust and loyalty seriously, and wouldn’t introduce them to a vet who you didn’t feel was up to the job. It would ask the clients to join you in welcoming the new vet to the practice, and encourage them to see the new vet when your availability is limited.
Explicit Endorsement (By the practice team)
When a new vet joins the practice, clients will often ask reception staff at the front desk for their opinion. Don’t leave their answer to chance; help them out by preparing a cheat sheet of bullet points about the new vet’s age, experience, background, history, clinical strengths, etc.
If the incoming vet leverages off the existing trust that a patient base has with the practice, the vast majority of clients will at least give the new vet a try. It is then the responsibility of the new vet to make a good first impression and win over the clients. You may only get one opportunity to win over each client, so make it count.
A good broker should be able to help you with a transition plan for your practice.