Dr. Smith makes a phone call to get a practice appraisal. The Smith family is excited about the possibility of dad being home
more. Everybody understands that his new career might not be as lucrative, but it will be worth it—as long as he can get at
a reasonable price for the business he worked so hard to build. He submits several years' worth of business financials to
the practice appraiser, and shortly thereafter he gets a phone call. The appraiser is concerned about whether the practice
will sell. Its financials reflect that after Dr. Smith takes his reasonable salary every year, the business shows a negative
cash flow and declining gross revenue.
Dr. Smith has explanations, naturally. The economy has been bad for a while, so gross is down a little—for four straight years.
But over that slow period, payroll has still increased substantially. And nobody seems cognizant of the fact that drug, supply
and equipment costs have been rising by double-digit annual percentages, even as revenue is dropping. To the appraiser, the
picture is becoming clear. Dr. Smith has been so busy trying to institute short-term fixes for his burnout—more helpers means
less work for him, and abdicating drug ordering authority to others means getting home earlier sometimes—that he has left
his practice in a virtually unmarketable condition.
How can a practice that's grossing seven or eight figures and has multiple associates be impossible to sell? Here's a hint:
ask any stockbroker about the price of public companies that have years of falling top-line revenue but are burning through
cash. The result is inevitable: the stock price tanks. Veterinary hospitals are capitalist enterprises too, and value lives
and dies by growth and profitability. Nobody wants a business, no matter how big or how pretty, if in the final analysis it
amounts to nothing more than a not-for-profit.
When Dr. Smith puts down the phone, he is paralyzed by the sudden reality: on an emotional level he needs to leave, but financially
he isn't even close to being able to do so. What should he have done differently? Here are some things to keep in mind.
It's OK if the economy is bad
You can successfully sell a practice in a bad economy and after several years of declining gross. The question is, what measures
did you take to accommodate for the faltering economy? Did you adopt more aggressive marketing tactics? Did you consider a
move to a new location? Sometimes opening a satellite location can boost revenue and referrals without you having to leave
the neighborhood where your practice traditionally draws its clientele.
Someone must steer the ship
If Dr. Smith wanted more time off, he needed to delegate, not abdicate. There's no reason why he couldn't give another staff
member the responsibility of ordering—or even hiring and firing, for that matter. But you can't delegate to someone else without
proper training and setting clear parameters for the team member to use in carrying out the tasks. That sort of transfer of
responsibility must also be made clear to the entire staff. Everyone needs to know who's responsible for selecting and buying
supplies or reprimanding staff members. The team must know that the designee has the support and authority necessary to function.
Numbers must control the practice
A depressed or overworked practice owner needs to become more focused on the bottom line, not less. As mentioned above, buyers
can understand and live with a temporary or even protracted drop in gross revenue, but not a drop in profitability.
Business is about the returns
Veterinary practices will not sell for a palatable price if profitability is not demonstrable. Folks just don't want to buy
a private business for the purpose of providing paychecks to employees and healing ill animals. There must be a pecuniary
return, it must be predictable and it must be worth the effort and headaches involved or there won't be a sale.
If a disenchanted practice owner has neglected business management, profitability will begin to suffer immediately. If employees
need to be furloughed and are not, costs begin to run ahead of inflation. If drug inventory is left to run itself, the shelves
will spill over with every pill from every obscure manufacturer any of the associates has ever heard about in a CE meeting.
While there may be enough left to pay the practice owner a salary, there will not be enough left to satisfy a buyer. Especially
not when there are so many other practices and alternative investments out there for a seller to compete against. And, it
bears mentioning—being desperate while also being detached is a sure recipe for a practice owner to receive disappointing
offers for his business.
Dr. Allen is president of the Associates in Veterinary Law P.C., which provides legal and consulting services to veterinarians.
Call (607) 754-1510 or visit email@example.com