Leslie A. Mamalis
MBA, MSIT, CVA
Leslie A. Mamalis is the owner and senior consultant at Summit Veterinary Advisors. She provides practice valuations, profitability assessments, feasibility analyses, and financial consulting to veterinary specialists and general practices. She is co-chair of the VetPartners Valuation Council. Learn more at summitveterinaryadvisors.comRead Articles Written by Leslie A. Mamalis
Creating a successful veterinary practice takes more than a veterinarian. It takes a team to engage the pet owner, schedule appointments, provide veterinary medical and surgical care, assure a safe work environment, keep inventory stocked at appropriate levels, and find the best suppliers of everything from gauze to controlled drugs to appointment cards.
When you have one or more strong leaders on your team, be sure to keep them engaged and intellectually stimulated so they continue to grow and thrive in their positions, and help them make a career out of veterinary medicine.
For many, veterinary medicine is much more than a career; it is a calling. I am not talking just about veterinarians, but about veterinary nurses and managers, too.
A Different Approach
In a profession where we wring our hands over the number of veterinary nurses who leave for better-paying jobs in human health care and over managers who lack the opportunity for professional growth and the salaries that go with it, there should be more discussion about ownership models that include these dedicated team members.
While non-veterinarian practice ownership is legal in some states, provided a licensed veterinarian makes decisions related to medical care, other states prevent non-veterinarians from owning a clinic. The opposition to non-veterinarian ownership arises from a legitimate concern over animal welfare.
Veterinary practice acts were written to ensure that medical treatment options were decided by a veterinarian who had the patients’ needs foremost in mind and not by someone who might be more concerned about profits than patient care. In this day of widespread corporate ownership and consolidation of veterinary hospitals, more options are needed for those without veterinary licenses to direct the activities within veterinary hospitals.
Consider a MSO
In states where ownership by veterinarians remains a requirement, management services organizations (MSOs) can be created to allow non-veterinarians to own a business that manages the practice. Common in human health care, MSOs are businesses that provide management and administrative services to the practice itself. The MSO owns the facility, equipment and inventory, while the veterinarian owns the patient records and hires and manages other doctors and, in some states, the veterinary nurses. The MSO leases the facility and equipment to the practice, hires and manages the non-veterinarian staff, markets the practice, handles vendor relations, and provides other administrative services for a fee.
There is no restriction on MSO ownership, giving managers and nurses the opportunity to have an ownership stake in the business. While there is legal work to do on the front end to ensure that the structure is set up correctly, this isn’t the hurdle it once was.
Managers and nurses often become minority owners. When managers and nurses wish to buy 100 percent of the business, a bigger hurdle is financing the deal. Traditionally, business loans were given only to those who could generate sales for the business. This makes perfect sense because banks want assurance that the loans will be repaid by the borrower. In a manager-owned practice with a single doctor, if the doctor becomes ill or quits without notice, there is a risk that practice revenue will not be replaced quickly. This scenario has more inherent risk than many banks are comfortable assuming, even though any manager worth her salt has a bank of relief doctors in her contact list.
Given the reluctance of some lenders to consider these deals, many of the sales to managers and nurses have been seller-financed. Since outside financing has become more available, most sales have been primarily cash deals in which the buyer acquires a bank note and the seller receives most or all of the purchase price in cash.
An SBA Loan Might Make Sense
Other lending options exist for managers and nurses. Sometimes the loans available from a lender’s practice-acquisition department require a short-term payoff, often after seven years. Depending on the purchase price, the buyers may not have sufficient cash flow to make large payments, particularly in the first few years of ownership. Some banks will consider engaging their commercial loan departments to allow a longer payback, perhaps 15 years.
Government-backed Small Business Administration (SBA) loans are another option. SBA lenders are less concerned about who owns the business and more interested in whether the cash flow is adequate to meet loan payments and operate the business. Although SBA loans include substantial borrower-paid fees, these might be a small price if they allow a nurse or manager to own a practice for several decades.
So often we hear that a veterinarian sells to a consolidator long before retirement age because the doctor wants to go back to being “just a veterinarian.” After all, the reason he became a veterinarian in the first place was to care for animals. Few felt equally impassioned by the idea of negotiating with vendors, managing employees, marketing the practice or developing a standard operating procedures manual.
Many Qualified Individuals
This is where other veterinary professionals excel. Veterinary managers have taken a big step forward in capability and professionalism. The Veterinary Hospital Managers Association, founded in 1981, helps managers grow and develop into industry leaders. Some of the best and brightest manage huge referral centers, and experienced managers are highly sought after by consolidators. Fortunately, this leaves hundreds of capable managers who love managing smaller practices and who often run the business by default when the veterinarian owners are too busy to do so.
The more capable and ambitious that managers and veterinary nurses become, the more it makes sense for them to be practice owners. Even someone who is highly compensated is limited in what she can earn as an employee. Owners not only receive compensation for working in the practice, they receive the profits.
Business owners should earn much more than employees because the owners are taking the risk. Employees can go home at night without worrying whether the woman who slipped on the ice in the parking lot will sue the business, whether an employee is abusing drugs or whether bullying is taking place in the practice. At no point does an employee risk losing her home if the business takes a downturn. One of the main reasons business owners are willing to assume such risks is the opportunity to make substantially more money than they could as employees.
Money isn’t the only driver of hospital ownership. Owners also have the opportunity to lead their practices in the direction they choose, to make the final decisions on services offered and products sold, and to create a business culture that fosters the expression of their values.
The practice of veterinary medicine should allow doctors and the teams that support them to have lifelong careers doing what they love. With the number of practices for sale as the baby-boom generation moves into retirement, let’s encourage valuable team members to think outside the box and contemplate ownership.