Whatever your motivation for selling your veterinary practice, you’ll only get one chance to maximize the return on your years of hard work. Do it the right way and you could get the price you want and reduce the impact of capital gains and estate taxes. Do it the wrong way and you might end up with a hefty capital gains tax bill, estate planning headaches and a feeling of regret.
You can increase your chances of a successful sale if you coordinate your efforts and work closely with a financial professional, ideally one well versed in business exit planning. A financial professional, with the assistance of a qualified appraiser or consultant, can help you place an accurate value on your business interest and provide the critical insight and expertise needed to steer you through a complex and time-consuming process.
Common Mistake #1 – What’s Next?
First, you have not identified what you’ll do in the “third chapter” of your life. I know the concept seems so simple but when it’s time to close the deal many will get cold feet because running the practice has been your identity. Determine what’s next and write it down.
Common Mistake #2 – How Much Is Enough?
Quantify how much is enough, after paying taxes on your sales proceeds. Prior to selling, you should have a comprehensive financial plan completed. Remember that your decision to sell the business is irrevocable. There are no do overs. Do you have enough money to account for inflation, taxes, a long-term care event, market volatility, extra expenses you were running through the business, etc.?
Common Mistake # 3 – Not Working as a Team
It is impossible for one advisor to have all the answers. Your CPA, wealth manager/exit planner, attorney and family should all be working hand in hand. It’s quite common that a single decision has legal, accounting and personal financial implications. A $4MM deal may appear better than a $3.5MM deal but what if one forces you to retain liability, causes double taxation, requires you to continue working for 3 years or is based on performance payments? Talk through such scenarios with your planning team; you’ll find that each advisor will provide a unique viewpoint.
Common Mistake #4 – Not knowing your options
You can’t make an informed decision unless you know all your exit options. Should the transition be internal (family, management, partners, etc.) or should it be external (sale to a 3rd party or a recapitalization of stock)?
Common Mistake #5 – I’m not planning to retire for a few more years
At the end of the day, exit planning is just good business planning. If you follow the proper steps to maximize the value of your business, growth will be an unintentional consequence. It is quite common for a veterinary practice to be sold based on a multiple, times Earnings Before Interest, Taxes, Depreciation and Amortization (commonly known as EBITDA).
In layman’s terms earnings are defined as your operating income adding back depreciateion and amortization.
What determines where your business falls in the range of multiples? Some examples include what’s the business’s dependence on the owner, number of veterinarians, customer demographics, competition, maturity of the staff, quality of your lease, etc. If you can improve the drivers of value, you can improve the worth of your business.
Finally, just be prepared. You never know when someone is going to make you an offer you simply cannot refuse.
About the Author
Scott Ida, CFP®, CEPA is a partner with Open Advisors, LLC. He has over 17 years of industry experience with a primary focus on business owner clients. In particular, Scott works with numerous veterinarian clients. CRN-3906959-110821