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Follow the Money

Is practice ownership right for you? If it’s time, consider three options.

Follow the Money
Practice ownership only pays off financially and in other ways if you have the right practice at the right time and at the right price.

It’s 3 in the morning, cold, dark and rainy. I’m 3 or 4 years old and sitting in the backseat of my dad’s truck as he heads out to deliver another calf or fix another prolapsed uterus. Fast-forward a few years and dad has traded in the life of a mixed-animal practitioner to build a small-animal hospital. My new memories are filled with me running around the clinic, locking myself in cages, and playing with puppies and kittens. Another year or so goes by and dad grows the hospital to the point that he has time for “Ice Cream Thursdays” in the afternoon with me and my sister. He still works most Saturdays, but we are able to run our family’s cattle operation and, during the summers, load the camper and explore the country.

Not knowing any better, I assumed that all practice owners and their families enjoyed a similar lifestyle. I thought that veterinary medicine, while a passion, was just a career and that all practice owners built sustainable, profitable businesses that allowed them to enjoy the fruits of their labor.

Unfortunately, the more immersed I became in our profession, the more I realized that what I saw growing up was more of an outlier than the norm. Whether it’s practice owners I meet at conferences or veterinary students and friends interviewing for jobs and relaying their experiences, I’ve seen the other side of the coin. For many veterinarians, practice ownership means long, grueling hours of managing a business and its employees, a responsibility for which practitioners tend to receive minimal, if any, formal training. They pour their heart and soul into a hospital, only to find that when they’re ready to retire, their practice, because of years of poor financial management, isn’t the nest egg they expected.

Are You Ready?

For an article about practice ownership, I realize I’m off to a dismal start. I’m not doing the next generation of owners any favors. My point is that ownership is what you make it. It can be:

  • A gateway to practicing a level of medicine of which you are proud.
  • A step toward financial security.
  • A vehicle for the work-life balance of which you dream.

Alternatively, it can be the pursuit of a passion that drains you, burns you out and leaves you holding an empty bag at retirement.

Success, happiness and fulfillment come down to preparation and the decision to work on the business and not just in the business. The choice is yours.

Speaking to a group of Veterinary Business Management Association students, I asked why they were interested in practice ownership. Readers, please take a moment to reflect on where you are in your career, what you love about it and what you feel is lacking. If you don’t own a practice, think about what ownership could mean for you personally and professionally.

The VBMA students listed these reasons that practice ownership is appealing.

  • I can be in charge.
  • I can practice a certain level of medicine.
  • I can build my team and formulate a clinic culture.
  • I can enjoy the freedom that comes with successful practice ownership.
  • I can reap the financial rewards of successful practice ownership.

Most of the reasons are self-explanatory, but let’s examine the last one. I’ve rarely met anyone in our profession who got into it for the money, but that doesn’t mean money isn’t an important result. In other words, the financial reward of being a veterinarian might not be why we do what we do,  but it is often a tangible benefit.

Multiple Paydays

The 2018 Well-Managed Practice Benchmarks Study showed that practice owners earned almost 25% more than associate veterinarians and that an associate with six to 10 years of experience and earning a median income of $93,000 took home $213,611 less a year than a practice owner. Where does all the money come from? I love walking practice owners through an exercise to convey just this.

Start with this question: What do you get paid to do as an associate veterinarian? I’m not asking how you get paid — salary, ProSal, straight production or hourly — I’m asking what you get paid to do. The answer: You get paid to show up and practice medicine. When you’re not working, you’re not getting paid. When you retire, what happens to your paycheck? It stops the day you stop.

Now, think about a practicing hospital owner. How does she get paid? If she’s running a profitable business, she should be getting not only biweekly checks but several more. As a practice owner, you should be able to pay yourself through the following means:

  • Compensation for your role as a producing veterinarian. You’re on the payroll.
  • Compensation for your role as a manager. Even as a practice owner who loves management, I still employ a practice manager at each of my hospitals. I recommend leveraging a manager, but that doesn’t mean you as the owner shouldn’t receive a small cut of management compensation when you take an active role. From 3% to 5% of gross revenue should be shared with anyone involved in management. In my hospital, the manager usually gets 3% and my partner and I each take 1%.
  • A return on investment (ROI) check. In most cases, you’ll need to put money into the hospital. With any such investment, you should expect a return. Don’t confuse your production paycheck with your ROI. I target a 10% return on my investment each year under the rationale that the stock market, on average, returns about the same. I don’t go higher than 10% because I want to make sure I can reinvest in the hospital and offer profit-sharing to team members.
  • A rent check. If you own the real estate, I suggest that you create a legal entity to hold the real estate and another legal entity for your clinic. Your real estate company charges your clinic fair-market rent, just as if you were paying a landlord. Your real estate company then covers the mortgage. The spread between the mortgage and rent payments flows to you as the owner.
  • Equity in the practice and the real estate you own. When associates quit working, the money is gone. When the owners of a well-run hospital sell, they should receive a chunk of change for their equity.

How to Get Started

At this point, you’ve hopefully reflected on what practice ownership could mean for you. To those of you ready to take the next step, let’s blaze a trail.

I suggest to veterinary students, and say the same to experienced practitioners, that they consider these steps:

  • Determine your values, mission and vision (your North Star). If you don’t know where you’re going, the odds of getting there are slim.
  • Define your practice ownership goals. Take the SMART (specific, measurable, action-oriented, realistic, time-based) approach. Written goals help keep your eye on the ball.
  • Build and hone your business, leadership and communication skills. Jumping in without them will position you to miss many of the benefits of ownership.
  • Learn the economics of veterinary medicine. This is connected to the previous point, but I’m talking about interpreting financial statements, practice management information system reports and key performance indicators.
  • Assemble a network of advisers, such as a consultant, broker, attorney, practice valuator, lender and mentor. People in your network might tell you about a hospital that has not yet been listed publicly.
  • Study models of practice ownership and practice types. Identify what would best align with your values, mission and vision.

As you map a path to ownership, realize that there is no rule of thumb as to a right or wrong time to act. Some associates practice for five or 10 years before leaping. I’ve known a few who jumped into ownership the day they walked out of veterinary school.

Winding our way along the path to buying or starting a practice, let’s explore three options: the startup, the buy-in and the buyout.

The Startup

When many of my veterinary mentors graduated in the 1980s, the traditional path was to work for a couple of years and then create a startup. This remains a valid path. I’m in the middle of doing it myself, so I can speak about the positives and negatives from experience.Let’s begin by reviewing five advantages of a startup.

  1. You need a business plan. I put this in the advantage column because skipping or skimping on a business plan is easy when you’re buying an existing practice. You more than likely need one to get financing. When done right, a business plan will lay out concrete steps for success before you gamble hundreds of thousands of dollars or more.
  2. You pick the location. You’ll want to practice where the patient need and client demand warrant a new clinic. I’ve seen veterinarians choose a certain area because that’s where they wanted to live. Unfortunately, their failure to analyze demographic data came back to haunt them. In addition to studying the demographics, consider simple things like street visibility and parking. My clinic partner and I ran into this issue early in our startup journey. We loved several locations, but the parking was so limited that we worried about not having enough foot traffic. Ultimately, we chose a location that could support clients who walked or drove.
  3. Build what you want. I’ve toured a lot of beautiful, well-laid-out veterinary hospitals. I’ve also seen some that left a lot to be desired. One of the fun but time-consuming aspects of doing a startup is that you can lay it out as you want — a veterinary architect comes in handy — with the main limitations being money and space.
  4. Practice the way you want. When you buy out an owner, you’ve got staff and clients trained to do things a certain way. With a startup, the only limitations to how you practice are your knowledge, team and client demand.
  5. Get a clean start. Unlike buying an existing hospital, there is no staff culture to adjust, no bad reputation to mend and no outdated equipment to replace.

Now, here are some hurdles if you opt for a startup.

  1. Financing can be difficult to find. I’m not saying you can’t get a loan for a startup. My practice partner and I have several letters of approval sitting on our desks. However, I’ve found that not having an existing practice’s financial track record makes things more difficult when you approach a lender.
  2. You might not start as soon as you’d like. Two friends of mine pushed back their grand opening by a month because of unforeseen delays in the build-out of their mixed-animal hospital. Expect delays with contractors and leases. You’re setting yourself up for frustration if you don’t set a realistic timeline.
  3. Initial income is absent. Unlike buying an existing hospital and having its projected monthly revenue and expenses, with a startup you’ve got nothing but a business plan and financial expectations. It’s nerve-wracking when your financial success depends only on projections.
  4. It’s all on you. Depending on the size and type of startup, you might wear more hats than you ever thought possible — CEO, medical director, manager, receptionist. The list goes on. No one can do all these jobs well. You might have to do it for a while, but your saving grace lies in your ability to leverage your business plan and support network to eventually hire the team you need.

A startup can be a thrilling ride, but if you’re looking for something a little less risky, the next option might be for you.

The Buy-In

For the purpose of this article, when I write about a buy-in, I’m talking about acquiring a minority or majority stake in an existing hospital. You have at least one other partner. The appeals of a buy-in are:

  1. Less risk. Assuming you understand the clinic’s financials and you have partners with whom you share similar medical, leadership and management philosophies, a buy-in tends to be less risky.
  2. Your investment should pay for itself assuming you have the practice valued correctly. I am pretty good at determining the fair market value of a hospital, but I still hire an outside valuator just to be safe. I’ve seen veterinarians overpay by tens or hundreds of thousands of dollars after trying to save a little money on a valuation. Your investment should pay for itself through ROI checks. Of course, the return on investment and an increase in the value of your equity only happen if the practice is profitable and structured appropriately.
  3. You can be creative with the financing. When students or associates tell me they want to be an owner but don’t have the money, we talk about a buy-in. Bank financing aside, which can be a good option, I’ve had friends buy in to hospitals without money down or a loan. This can be accomplished through sweat equity or by forgoing the production component of your compensation.
  4. Mentorship. If you’re worried about not having the knowledge to run a hospital, buying in could allow you to be mentored by someone more experienced.

Here are the potential downsides of a buy-in.

  1. The process can be slow, from obtaining financing to working with attorneys on critical legal agreements.
  2. Until you own the majority, you’re not in charge. I’ve heard countless times about practice owners who tell a potential partner how excited he or she is to entertain fresh ideas and new protocols. Unfortunately, old habits die hard. Unless you are the majority owner or stipulate something in the operating agreement, you don’t get the final say.
  3. Beware the golden handcuffs. Imagine this: A veterinary practice owner is starting to think about his transition. He partners with you and commits to selling the clinic to you at some point. You buy in, the clients love you, the staff respects you and you’re a top producer. The primary owner, now able to work less, watches the money pour in and the value of his hospital grow. All of a sudden, he thinks that keeping you handcuffed to the hospital through a minority stake is better. The scenario doesn’t describe every practice owner but beware of the possibility. A side note: If you get fed up, decide to sell your share and jump ship, be mindful of any noncompete agreement you signed.

If embarking on a startup or buying into a hospital isn’t up your alley, consider the last option.

The Buyout

A buyout, also known as a turnkey deal, refers to purchasing an existing veterinary practice in its entirety. You could do this as the new sole owner or in partnership with someone. Here are the positives.

  1. It’s like the buy-in in that you’re buying something with a foundation. Even if you haven’t been working at the clinic and don’t know its culture and clientele, the financial documents and reports gathered during the due diligence should provide a fairly clear picture of what you’re buying. You’ll know about revenue, expenses, client trends, staff numbers and tenure, equipment, and facilities, to name a few.
  2. You’ll have instant income. Assuming the clinic forward-booked clients, you’ll have appointments on the schedule when you take over.
  3. The investment should pay for itself. (See “The Buy-In.”)
  4. You’ll have more autonomy. If you’re the sole owner, you make the decisions. You’re ultimately responsible for everything.
  5. Financing should be easier. Assuming that the practice has value and is priced fairly and that you’re not a financial risk yourself, banks should jump at the opportunity to help you achieve your dream.

As for the negatives, the market for veterinary practices is cut-throat. Three associate veterinarians who took jobs at clinics where the owners were committed to selling to them called me to report that the owners reneged and instead decided to sell to corporate consolidators. As a private practice owner, I know the difficulty of buying a hospital at fair market value when a corporation is ready to offer a price you can’t match.

Also, assuming you can land a hospital you want, know that investing in a buyout tends to cost more than when you buy in. Unless you’ve got a partner, you’re responsible for everything, so make sure you’ve got the money to cover the monthly mortgage payment.

Another potential risk of buying a hospital outright is client and staff turnover. If you’re like me, one of the reasons I love buying a hospital is for the challenge and reward of watching what happens when we improve the culture, quality of care and management. Unfortunately, if change happens too fast or is implemented incorrectly, you risk losing staff and clients. I’ve never seen an ownership transition where some of that doesn’t happen.

When to Partner

Regardless of your path to ownership, I encourage you to examine the value of partnering with a colleague. Just like practice ownership isn’t for everyone and everyone isn’t right for ownership, the same rings true with partnerships.

A mentor once told me that a partnership is like a marriage. I’ve found it to be true. When you approach a commitment like marriage, you’d be wise to explore shared values and philosophies. It’s the same way with a business partner. From medicine to management to communication, the conversations with a partner should occur before you sign on the dotted line. Getting into most partnerships is easier, friendlier and cheaper than getting out of one.

If you decide you can do more with a partner than alone, you will enjoy a host of benefits. These range from complementary strengths, shared responsibilities, shared financial risk and more upside potential in growing the hospital when two or more people are working not just in the business, but also on the business.

On the other hand, having the wrong partner is just as impactful. Working with a maverick, a control freak or someone who doesn’t value you and what you bring to the table will create a nightmare for everyone.

What’s Your Path?

Whether you choose to pursue a startup or purchase all or part of an existing practice, due diligence is paramount. Consider the practice team, the market, the local demographics and the hospital’s financial health. Practice ownership only pays off financially and in other ways if you have the right practice at the right time and at the right price.

Making an educated business decision and preparing for the demands of ownership can be among the most rewarding decisions you make professionally and personally. Practice ownership can deliver freedom, flexibility and fortune.

Stith Keiser  is the CEO of Blue Heron Consulting (bhcteam.com) and an adjunct faculty member at several veterinary schools. His passion for the veterinary profession extends into his role as managing partner in a handful of private hospitals. In his free time, Stith and his wife enjoy the outdoors with their dogs and horses.


Veterinary and non-veterinary resources abound for the aspiring and current practice owner. I recommend these books and websites:

  • “The E-Myth Veterinarian,” by Michael E. Gerber and Peter Weinstein
  • “101 Veterinary Practice Management Questions Answered,” by Amanda L. Donnelly
  • “If Disney Ran Your Hospital: 9½ Things You Would Do Differently,” by Fred Lee
  • “Good to Great,” by Jim Collins
  • “Built to Last,” by Jim Collins and Jerry Porras
  • “Start With Why: How Great Leaders Inspire Everyone to Take Action,” by Simon Sinek
  • “The Five Dysfunctions of a Team,” by Patrick Lencioni
  • “The Advantage,” by Patrick Lencioni
  • “21 Indispensable Qualities of a Leader,” by John C. Maxwell
  • “Rich Dad, Poor Dad,” by Robert Kiyosaki
  • AAHA Press Practice Ownership Series: bit.ly/3rsHKRz
  • Partners for Healthy Pets: bit.ly/3f2s6ZR
  • Catalyst Council: catalystcouncil.org
  • Society for Human Resource Management: shrm.org
  • Harvard Business Review: hbr.org