The purchase or sale of a veterinary practice can be an overwhelming journey. Even seasoned clinicians will encounter numerous potholes — emotional, financial and legal issues — on the road to closing what in many cases can be a multimillion-dollar transaction. Here are eight gaffes that frequently occur in the veterinary world and suggestions for overcoming them.
8 Mistakes You’ll Regret
You must check all the boxes when buying or selling a practice. Skipping a step could leave either side unhappy.
1. Failing to PlanSelling a practice takes time. Not adequately planning for the sale can cause you to miss valuable opportunities to find the right buyer. To avoid this mistake, sellers should continually update their records and keep a sales portfolio on hand. Buyers and brokers notice when a seller has been diligent, giving them confidence in the purchase, not to mention assurance that the sale was not driven by desperation.
2. Rushing into NegotiationsRather than immediately incurring the expense of drafting a contractual agreement, both parties should consider entering into a letter of intent. An LOI is not a legally binding contract; it’s a document that outlines the preliminary agreements and understandings. It should describe the deal’s essential terms, including the timing, monetary provisions, financing, contingencies, risk allocation, transition, form of documentation and which party will prepare the documentation. A well-drafted LOI increases the likelihood that a contract will be signed and that the transaction will close.
3. Not Enough Due DiligenceA deal should not close until the buyer is satisfied with the due diligence conducted. A thorough due diligence process should include:
- A detailed accounting of the practice’s assets and liabilities.
- An inspection of the premises, assets, inventory, records, tax returns, financial statements, client charts, accounts receivable, personnel files, employment agreements, leases and contracts, list of creditors, insurance policies and benefit plans, and any government approvals required to operate the practice.
4. Delaying Lease TalksA tremendous amount of goodwill is attached to the practice’s physical location. The buyer should not assume that a lease is sound simply because of longevity. Buyers should request a copy of the lease upon taking an interest in a practice and begin a dialogue with the landlord. The seller should be upfront with the landlord, especially if the lease will expire soon.
5. Ignoring Accounts ReceivablesThe most common ways to manage accounts receivables (A/R) are:
- The seller keeps A/R, and the buyer collects it as a courtesy or for a fee.
- The seller collects and keeps A/R.
- The buyer pays a negotiated amount and collects A/R after closing.