What’s your Escape Velocity?26 Sep 2023 - Simon Palmer - Practice Sales
What would happen if a terrible misfortune (health or financial) happened to you or a loved one? A misfortune that resulted in you needing to sell your practice in a hurry…
Your practice may provide a great income for you and your family while you are working in it. It may be worth a significant amount of money if it were to be sold under normal conditions. However, if you or your family ever need to realise the value of your business fast…a different kind of valuation kicks in, one where every delay could mean a reduced valuation and unnecessary financial hardship for you and your family.
As such, your Escape Velocity – the speed with which you could sell your business - is a concept that every business owner should be aware of and try to increase wherever possible, so that there aren’t avoidable delays if they needed to sell.
Here are 4 easy ways that every veterinary practice owner can increase their Escape Velocity from their vet practice.
1. Get a will
If you somehow disappeared tomorrow and your family needed to sell your practice in your place…could they? Could they hire a locum to keep the business going while it was sold?
The speed with which they are able to do either of these things lies in:
- you having a will AND
- them being able to find it.
I have frequently tried to help families going through the worst of times sell their practice, only to find that there were unnecessary and costly delays due to the legal process that needs to be followed if a person passes away without a will.
2. Make sure that you have a long, transferable lease on your premises at all times
Ideally, a veterinary practice buyer will want approximately 10 secure years on the premises lease when they buy.
Having at least 5-10 secure and transferable years on your premises lease at all times means, that if you need to sell unexpectedly, your practice sale will not be held up by a buyer negotiating a longer lease with the landlord.
3. Have a good commercial lawyer with veterinary practice experience
A veterinary practice sale is a complex transaction with over a hundred moving parts.
The speed and ease with which a lawyer works through these variables will have everything to do with their expertise and experience in this area.
This isn’t the time to use a lawyer that helped your family with immigration, conveyancing or divorce, who says, “they do a bit of everything”. This isn’t the time to use your cousin or brother-in-law who always gives you free legal advice. This is the time to use a commercial lawyer, preferably one that has handled veterinary practice transactions.
It isn’t uncommon for a lawyer who is inexperienced with business sales and/or the veterinary profession to waste time:
- investigating industry norms like remuneration, restraints of trade, appropriate zoning on premises, transfer of health fund status, radiation license, etc.
- asking for unreasonable or uncommercial terms because they don’t appreciate the intricacies of the vet industry.
4. Get regular practice appraisals
Getting regular appraisals of your practice will have several benefits if you need to sell quickly.
Firstly, and perhaps the most obvious reason, is that it will ensure that you are able to confidently ask for a price that is reasonable and achievable.
Secondly, and perhaps less obvious, is that it will ensure that your financials are clear. In our line of work, we see a lot of veterinary practice accounts and, unfortunately, probably less than 10% of those that we see are clear enough for a valuer, bank or buyer to assess.
We often find:
- Expenses put into non-specific/non-descript expense categories, which are a shorthand that makes sense to the person doing it, but not to outsiders (like prospective purchasers, or their financial advisers).
- Expenses unallocated and put into catch-all categories like “general expenses” or “miscellaneous”.
- Capital purchases mixed in with normal ongoing expenses diluting the profit (e.g., computers mixed in with internet and software subscriptions, equipment mixed in with consumables).
- Personal expenses may be mixed into the financials, diluting the profit of the practice (e.g., personal insurances mixed in with practice insurances, personal mobile phone and travel mixed in with those of the business). **
- Sometimes, other financial interests may be going through the same financial entity (investment property, other practices or businesses run out of the same ABN).
- The owner of the practice is also the owner of the real estate and doesn’t know what the market rate rent would be if someone bought the practice but not the real estate.
All of this takes time to clarify and get to the bottom of. Getting regular appraisals done by an independent professional valuer will flush out the above complications and eliminate weeks of work that your accountant, a buyer and their bank will need to do when they assess your practice.
5. Use a Vet Practice business broker when you sell
I think it is self-evident that someone performing a complex task for the first time is more likely to perform that task slower and with more mistakes than someone doing that complex task for the thousandth time.
Selling a veterinary practice is no different. Those that have sold a thousand vet practices are much more likely to know of the hurdles, common pitfalls and best practice that will allow your practice sale to the finish line on time and with an optimum outcome.