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Selling your hospital can’t be your only retirement plan

Too much can change over time for you to count on a top-dollar sales price and comfortable post-career life.

Selling your hospital can’t be your only retirement plan
Retirement planning should begin well in advance of a potential sale.

As the equity partner or sole owner of a veterinary practice, you have put many hardworking years into the growth of your craft and business. Your practice is likely your life’s work.

When you evaluate your retirement plan, the practice can be a major asset and cornerstone for your golden years. However, relying on the sale of your hospital to fund your entire retirement is a risk, and variables can derail even the best-laid plans.

Here’s why.

1. You Encounter the Endowment Effect

The endowment effect is the phenomena in which you overvalue your practice because you believe all your hard work makes the clinic proprietary. Unfortunately, prospective buyers do not value the behind-the-scenes work that went into developing your business and making it unique. You likely are overestimating the earnings you will receive from a sale.

2. You Don’t Realize the Value You Bring

The client relationships you established are everything. Clients trust you, and most have been with you for many years. You serve an important role in your community and are well-respected in your field.

When it comes time to sell, however, you cannot be replaced. Trust takes time, and clients might not be receptive to a new veterinarian. If you and the buyer agree to an earnout —additional payments if the practice continues to do well — you might be disappointed. Revenue could decline without you there, or the new owner could be incompetent.

Do not underestimate the importance of you working at the practice. Without you, the business is not the same and, consequently, might not produce nor operate the same.

3. A Plan to Sell to a Colleague Collapses

A common approach is to sell your hospital to an associate veterinarian you believe has the means and ability to take over. This tactic can ensure that longstanding clients are comfortable with the new owner. For many reasons, your intentions can fail. You must have a backup plan.

4. You Fall Ill Before You Sell

This event can be catastrophic for practice owners who lack a contingency plan for themselves and their business. The practice will not be valued as high if you become ill. You own a service business, and you and your employees are the value drivers.

Disability insurance can protect you if you no longer are able to work due to illness. An insurance expert can outline options tailored to your unique circumstances. Exploring insurance can help to mitigate this glaringly serious risk.

5. The Marketplace Is Not What You Anticipated

Nobody can predict the future, but it’s possible that your practice will not sell or will sell at a much lower price. As the economy fluctuates, the number of potential buyers changes. Prevailing interest rates for financing mergers and acquisitions, along with the supply of available practices, will have a direct impact on your practice’s price tag.

Unless you are selling in the near future, the price you will fetch is impossible to know. This uncertainty means it is always prudent to be conservative with your forecasts. Your retirement planning should begin well in advance of a potential sale. This will help you set a general retirement goal and determine what you need to do to achieve it.

Experts in veterinary transactions will be able to identify what’s most important to a potential buyer and will coach you through the process of creating the most appealing financials. The process can take years, so be sure to start too early rather than too late.

6. Your Nest Egg Is Too Small

Running out of money during retirement is a real possibility. Current market data suggests that around 78 percent of Americans are extremely concerned about not having enough money to live out their retirement.

Depending on the structure of your practice sale, you might receive only a one-time payment. Cash flow and budgeting become crucial for a retired veterinarian accustomed to years of consistent paychecks.

The solution could be as simple as delaying the practice sale so that you maximize Social Security benefits or as complex as agreeing to a post-sale cash flow well beyond the date you stop working.

Planning for your retirement years is of the utmost importance. The sale of your practice should be only one piece of an overall retirement plan.

For most veterinarians, selling the practice is how they intend to fund their retirement. You must analyze your practice, assets and income-producing investments to generate a complete financial picture.

An experienced and knowledgeable sales firm can help with the structure and legalities of a sale practice. Working in conjunction with a lawyer and accountant can help to assimilate all the moving pieces and help you decide the correct way to structure a sale.

Miles Saunders is the founder of Westport, Connecticut-based MNS Wealth Management. Learn more at www.mnswealthmanagement.com.