Reinvest or Divest: Treating your practice like Steve Jobs’ house08 Jun 2016 - Simon Palmer - Practice Sales Business Broker Vet Practice Sales
There is a famous story about an old house owned by Steve Jobs in Woodside California called Jackling House. Steve hated the house and wanted it torn down so that he could build a new house for his family that was more suitable. There was only one problem - the old house was a 1926 Spanish colonial-style house, loved by preservationists for its historical significance - they wanted it preserved for future generations.
After many years, Steve Jobs won the day. How? In the years that he had owned the house (and lived elsewhere), someone had removed windows and doors and not repaired any roof leaks; the house was suffering from mould and dry rot, and vegetation was growing into the building. The judge in the case deemed that “Wilful Neglect” had turned the house into a hazard to the public, to the point where the council had to allow its demolition.
I often think of the story of Jackling House when I am selling Veterinary practices. Unfortunately, “wilful neglect” is the only way to describe what I often see in many veterinary practices towards the end of a veterinarian’s practicing career. It is not that they do anything as blatant as to leave the windows and doors open; it’s that they start taking a very short-term view of their asset and start doing minimal maintenance on their practice, or at best, a patch-up job, rather than strategically reinvesting their time, effort and money. For example, they:
· Stop attending CPD
· Stretch the useful life of equipment to near breaking-point
· Fail to maintain buildings and facilities to a point where the practice looks dated
· Postpone installing widely accepted technology
A veterinary practice (just like a house), if cared for and reinvested in, has a value that can be maintained and hopefully grow over time. A practice provides an income for you while you own it and its sale should make a big difference to your lifestyle post-sale.
However, in order to do this, reinvestment needs to be ongoing - not just in equipment and aesthetics, but in time and effort as well. You need to have a passion for what you are doing and what you are turning up to work in every day. Sure, there can be transitory wanes in energy from time to time, however if this fatigue is starting to persist, you need to think about the impact that your ambivalence is having on your practice.
When reinvestment in a veterinary practice is compromised over a long period of time, it is akin to leaving the windows and doors open on Jackling House – it must lead to decline and depreciation in the long run as the compromises sink in. So, if you aren’t reinvesting in and bringing energy and enthusiasm to your practice (and your competition is), your asset will inevitably decline over time.
If any smart businessperson had a chance to sell a major asset before it depreciated in value, they would do it every single time. Yet many veterinarians often choose to retain their ownership of their practice long after lack of reinvestment has caused a decline. Not because they believe that the practice’s prospects will turn around, but because they don’t believe that there is an alternative other than retirement. They keep turning up to work every day, knowing that each year they will earn a little less than the previous year, until it either isn’t worth their while to do so anymore, or their health or their spouses tell them that it’s time to stop work.
What veterinarians often fail to appreciate is that the alternative to reinvestment doesn’t need to be slowly watching your asset depreciate till retirement…
A smarter, third alternative could be divestment without retirement… in other words, selling and working post-sale.
A smarter business strategy would be to:
· Mentally note the point at which you are running out of steam in the practice and when its fortunes start to plateau or wane.
· Sell your practice at close to the peak of its value
· Ensure favourable work conditions for yourself post-sale, either at your practice or elsewhere. Most purchasers of a client base would want to show some continuity post-sale to ensure low patient attrition.
By taking capital off the table, while continuing to have a high-income job (and much lower levels of stress in their working lives), many ex-practice owners have reported a resurgence in their energy levels at work, once the burdens of ownership have been taken away.
Don’t let a major asset of yours deteriorate in front of your eyes because of fatigue, neglect and a perceived lack of alternatives. There are always alternatives!
“Wilful neglect” may have been a smart strategy for Steve Jobs… but then his goal was to depreciate the value of his house to the point where it was dangerous and could be demolished. This is not a smart strategy for a veterinary practice owner who is trying to retire on his/her own terms.