7 must-do’s before you sell
Potential hospital buyers want to see everything, from contracts to liens. Your advisers will play key roles in the process.
When the time comes to sell your veterinary practice, the most important part, of course, is finding a buyer who is willing to pay the right price. But before the “For Sale” sign even goes up, follow these seven steps to position yourself for a smooth sales process.
1. Get Tax and Legal Advice
One of the biggest mistakes sellers make is involving lawyers, accountants and other advisers too late in the process. Ideally, the discussion of a potential sale should begin months or even years before the transaction might occur. Your advisers can educate you on what to expect and help you make critical decisions that might minimize tax consequences and future liability.
2. Update Your Corporate Records
One of the most basic matters in any practice sale is determining whether the corporate records are complete and up to date. This is particularly important if you end up selling the practice in a stock or limited liability company membership-interest sale. Full records also are important in an asset sale. The key documents include articles of incorporation or organization, bylaws, operating agreements, resolutions, minutes, licenses, ownership records and business registrations.
To update your records, gather your corporate books, any meeting minutes or consents, and any secretary of state records available online or in your possession. Make sure the practice has complete records for each year of its existence. Seek legal assistance if any records are missing or inconsistent.
3. Organize and Review Your Contracts
Since a contract is both an important asset and important liability, prospective buyers will carefully review any contracts that would be assumed in the purchase.
To prepare, begin by compiling a complete list of the contracts the practice has signed or otherwise agreed to. These include advertising contracts, cleaning contracts, web development contractors, adviser contracts, equipment leases, loan agreements, employment contracts, software and licensing contracts, supplier contracts and vendor contracts.
Next, see if the contracts are assignable to a buyer or whether you need third-party consent. While asking for consent is not necessary until you are certain you will sell the practice, it is wise to know the level of effort needed to allow the buyer to assume your critical agreements.
4. Clean Up Lingering Liens
Many sellers are surprised to find recorded liens on their assets. These are sometimes related to debts or other obligations that have been long satisfied. A buyer will almost certainly require that the business be transferred free and clear of any recorded liens. To prepare for a potential sale, you should run a Uniform Commercial Code (UCC) search to make certain of no surprises. If you discover a lien that needs to be removed, ask the secured party to file a release with your state’s secretary of state.
5. Leasing Property? Think Long Term
Leases are often a major issue in a practice sale. A buyer who agrees to assume the lease wants assurance of a preferred term and rate, including renewal options and rent-escalation clauses. Do yourself a favor by negotiating lease terms long before a potential sale. In addition to anticipating terms a buyer might favor, a savvy seller will negotiate favorable terms that allow assignment of a lease to a third party under certain conditions.
6. Protect Your Intellectual Property
If the veterinary practice has any important inventions, trade names, logos or copyrights, a buyer will want assurance that the business has done everything possible to protect them. This might include filing for protection with the U.S. Patent and Trademark Office and asking employees to execute assignments of any intellectual property they have developed during their employment.
7. Address the Retention of Key Employees
Although not every team member is critical to the success and overall value of the veterinary practice, certain employees might need to be incentivized to remain for a period of time after a sale. Consider implementing long-term incentive plans such as deferred compensation or retention-bonus arrangements, but be careful not to overpromise future compensation to non-critical employees. A practice buyer could see those agreements as a liability rather than as a value enhancer.
Legal Lingo columnist Nicole Snyder is a partner at Holland and Hart, where she advises clients on mergers, acquisitions and complex employment matters. She is a member of the American Veterinary Medical Law Association and co-chairs Holland and Hart’s Animal Health and Pet Products Industry Group.