Are You Waiting Too Long to Sell Your Practice?
Selling your veterinary practice may be the most important financial decision you make in your professional life. While many factors are involved in a decision to sell, one frequently gets overlooked: timing.
Is there a “best time” to sell?
Maximizing sale value is usually near the top of every owner’s list. So how do you pinpoint the “best time” to sell to command the best price for your business? The first step is to understand the components that influence valuation – as well as the extent to which you may be able to leverage them to your advantage. These variables include:
- The current economic environment and dynamics of the veterinary industry;
- The current conditions of capital markets; and
- The performance of the practice.
Keep in mind that factors outside your control, like current economic and capital market conditions, may have as large a bearing as more controllable factors, such as revenues or profits, on how the sale turns out.
We are currently in a “seller’s market”
Today’s economic environment of historically low interest rates and readily available capital makes it relatively easy and affordable for buyers to purchase clinics. Add to this mix another favorable dynamic: increased demand for clinics by corporate buyers. The result? Healthy valuations for some veterinary clinics.
However, like any trend, market cycles can and will change. If history is any guide, changes, when they occur, often happen without warning.
An increase in interest rates, tightening of the money supply, or downturn in the economy could have a strong negative impact on a clinic’s valuation. These variables all are outside a business owner’s control.
How to seize the “window” of opportunity
There are ways to help protect a business from value-influencing factors outside your control. Planning ahead to provide a window of opportunity to time the sale is one such management tool.
For instance, if you know you would like to retire or need liquidity in five years, now is the time to start positioning your clinic for sale and making any necessary improvements to the practice. At the two- to three-year mark, if things are going well, and you are able to obtain a good price for your business, you can sell a little early. Conversely, if the economy or business has hit a rough patch, you still have several more years until your original target date to ride out the down cycle and/or make additional improvements to the clinic. But if you wait until close to the five-year mark to start the sales process, you lose the flexibility to adapt to business cycle swings or unexpected events.
Recognizing common delay reasons for delaying
Owners may delay the sale of their practice for any number of reasons. Common ones we hear include:
- I’m too busy running my practice. I don’t have time to think about selling!
- I’ve made substantial investments in my practice. I want to wait to sell until after I realize the full value of those investments.
- My practice is going gangbusters! Let’s talk about selling when growth starts to plateau.
- I need to focus on some things that I am doing to make this practice more appealing to buyers before I sell.
- I don’t know the first thing about selling my practice.
These reasons all are understandable. However, since we know that delaying a potential sale may have a significant negative impact to the seller, let’s look further at each potential reason for delaying a sale:
“I’m too busy running my practice. I don’t have time to think about selling!”
An experienced corporate buyer understands the demands on a practice owner’s time and has the experienced team available to assist the seller at each step of the way without placing additional burdens on an already strained schedule. You want a partner in the process…a buyer willing to invest time and resources to guide you through the process, not only shouldering the workload, but also sharing information and advice along the way. Even if a practice owner chooses not to sell, he or she will gain valuation information about the value of their clinic, how potential buyers value practices, and steps to take to increase the value should they choose to sell at a later time.
“I’ve made substantial investments in my practice. I want to wait to sell until after I realize the full value of those investments.”
An experienced buyer can tell the difference between clinics that continually re-invest in the practice and those that don’t…and places a higher value on clinics that have invested for future growth. Keep in mind that a buyer is looking for a clinic that is positioned to continue growing in the future. If you have been making investments in your clinic, that benefits you when it is time to sell.
“My practice is going gangbusters! Let’s talk about selling when growth starts to plateau.”
A potential buyer wants a clinic that is both doing well today and has the opportunity to continue growing and do well in the future. A clinic with a history of growth that can demonstrate a strong likelihood of continued growth will command a higher price than a clinic whose revenue is flat or declining. Therefore, waiting to sell until your clinic has peaked is not a good strategy for maximizing its sale price.
“I need to focus on some things that I am doing to make this practice more appealing to buyers before I sell.”
Sometimes it does take some work to position a clinic to sell for the best possible value. However, frequently we find that practice owners do not fully understand what potential buyers value most in a potential sale and consequently focus on the wrong items. If you are considering a sale, speaking to an experienced buyer now can help learn the value of your clinic today, issues that may need to be addressed, and where to prioritize your time and efforts.
“I don’t know the first thing about selling my practice.”
Most veterinarians sell a practice at most once in their career, so the experience can be new and intimidating. You want to find a potential buyer that will be a partner in the process and willing to invest time educating you on the process and all of your options. The right buyer will have deep experience in helping practice owners with evaluating their options, completing transactions, and successfully handling post-sale transitions.
Ultimately, it is nearly impossible to predict the “best” time to sell, especially since only some factors that influence price are within an owner’s control. But taking steps to prepare for sale by planning ahead ultimately provides significant upside flexibility – especially if you run a strong, growing practice. Start a dialogue now to discover the value of your clinic. And, if you are able to obtain a good price, weigh the trade-offs of selling now versus the risks of unfavorable market changes that may cause you to miss your opportunity to get the most for your business.
About Innovetive Petcare
Innovetive Petcare owns and operates veterinary hospitals. Our clinics benefit from tools, resources, and a great support team dedicated to helping veterinary practices prosper and grow.
Our philosophy is to run a great business so veterinarians can focus on providing exceptional patient care. We want veterinarians and their staff to enjoy a better life, with more work-life balance, a strong supportive community, and ongoing training and career development.
If you are interested in discussing the potential sale of your clinic, or would like more information about Innovetive Petcare and the benefits we provide our hospitals, visit www.innovetivepetcare.com or call us today at 800-210-3695.