ANSWER THIS QUESTION: Do you view practice ownership as job security or as an investment?
When this question was asked of both general and specialty practice owners who attended recent seminars, the answers were
mixed. Those who saw ownership as job security praised the autonomy and control they gained by becoming owners. Those who
viewed practice ownership as an investment reported varied expectations. Some said they were content to break even (i.e.,
just get the bills paid every month), while others said they expected returns on their investment as high as 25% or 30% each
Most owners want their practices to provide them with more than mere job security. They want practice ownership to act like
an investment and to build wealth for their retirement or for their heirs. But for ownership to act like an investment, owners
have to view their practices as investments. See Figure 1 to learn how.
If you own or you plan to own a veterinary practice, you owe it to yourself to keep reading. The steps you take now can have
a significant impact on your practice value and your ability to attract a qualified buyer. Even if your practice generates
enough money to meet your personal and practice cash flow needs, would a potential buyer find that sufficient? Your needs
are different from what a buyer may expect from your practice. After all, a buyer will be making payments on debt to acquire
your practice and will expect the practice to generate those funds.
Figure 1. How to view practice ownership like an investment
Just as you recommend regular exams for your clients' animals, you need to conduct a self-exam on your practice's health.
In particular, you need to examine your true profit, which is an important component of practice value. Unfortunately, that
hasn't been easy to do. The accounting principles that drive the reports you see are largely tax-driven (i.e., your financial statements are designed to minimize your profits to reduce your income taxes, not to give you a snapshot view
of your practice's financial health).
In the absence of a reliable method for knowing if your practice is financially healthy and thus building value, you may own
a practice that has little or no value. In the last few years, the number of practices with no value or low value has increased—
to the point where the VetPartners coined the term No-Lo Practice to describe these businesses.
This insidious disease is particularly dangerous because owners are often caught totally unaware until they try to sell the
practice and a qualified practice appraiser gives them the bad news. That's much too late—by then the practice may be too
infected and too diseased for short-term treatments to cure the illness quickly. As valuators, we don't like giving owners
bad news, so we want to help you self-diagnose if you have a problem and show you how to fix it before it's time to sell.