Key Challenges of Buying a Veterinary Practice

Let’s face it: identifying a veterinary practice, determining its value, and navigating the related legal, regulatory and tax issues can be complicated. This is why it is essential to have proper legal representation. An attorney with the right experience can help a buyer identify a suitable veterinary practice and also determine a proper valuation. You can also rely on your lawyer to structure the transaction, negotiate the deal terms, and prepare the transaction documents.

Do Your Due Diligence

A typical purchase is initiated with a letter of intent, a non-binding legal document that states the parties’ mutual intention to enter in the transaction. A letter of intent typically affords the buyer the right to conduct due diligence by examining the veterinary practice’s financial and patient records. As such, the seller will likely require the buyer to sign a confidentiality agreement. In any event, it takes a skilled attorney to conduct a thorough due diligence investigation, one who is particularly adept at uncovering potential legal liabilities as well as assessing the value of the veterinary practice.

Negotiating the Deal

With an experienced veterinary attorney in your corner, you will be better equipped to negotiate the purchase price, which is based on a combination of tangible assets (e.g. equipment, inventory, furniture, premises, land) and goodwill — the practice’s client base, employees, and reputation.

Other factors must also be considered, such as whether real estate is included in the deal, whether the deal will be structured as an asset sale or stock sale, and the extent to which you, as the buyer, are assuming liabilities.

Because acquiring a veterinary practice represents a significant investment, it takes a skilled attorney to negotiate the payment terms, which may involve a combination of cash, a promissory note, and earn-outs (deferred payments based on revenues). Your attorney can also help to secure financing from a reputable lender with working knowledge of the veterinary space. It is worth noting that loan terms are largely determined by the purchase price, the cash flow of the practice, and collateral — typically a percentage of the practice’s tangible assets.

The Takeaway

Buying a veterinary practice can be a lucrative venture and an exciting experience, but a successful transaction requires careful planning. The best way to protect your interests is to consult an experienced veterinary attorney.

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Identify an Established Practice

Unless you’re launching a new practice in an underserved community, the best way to gain entry to the veterinary field is to become an associate of a veterinarian looking to retire or buy into an established practice. This is because the costs associated with launching a new practice —  securing space and buying equipment — can be prohibitive, and establishing a new client base from the ground up can be a lengthy process. By acquiring an existing practice, you will have access to income and cash flows that are vital for steering the business through the transition.

Do Your Homework

Once you have a practice in mind, it is crucial to conduct proper due diligence. This includes reviewing the necessary financial statements and tax returns (at least 3 years), checking the veterinarian’s complaint history, if any, as well as claims against the practice such as liens, unpaid back taxes, bills, lawsuits, and any other potential liabilities.

Structuring the Deal

The sale and purchase of a veterinary practice is typically initiated with a term sheet or a non binding letter of intent. The first consideration is the purchase price, which depends on whether you are only buying the practice, or both the practice and the real estate. It is important to remember that the seller’s price will be based not only on the assets, but goodwill as well.  Goodwill includes intangible assets such as the practice’s client base, employees, and reputation. Meanwhile, the tangible assets are comprised of the equipment, inventory, furniture, as well as the premise and land if you are also buying the real estate.

While the purchase price in the primary deal term, the payment terms are also crucial. This is typically a combination of cash, promissory note, and earn-out — payments made over time based on the practice’s post-closing performance. Another important consideration is whether the deal will be structured as an asset sale or a stock sale.

Securing Financing

Because buying a veterinary practice is a significant investment, you must be able to prepare for and secure financing. Obviously, qualifying for a loan requires having a good credit rating, but it is also important to work with a lender who has expertise in the veterinary space. The lender will consider your personal finances, as well as those of the target practice and loans, may be based on either cash flow of the practice or collateral — a percentage of the tangible assets.

Talk to An Attorney

Given the complexities involved in buying a veterinary practice, you are well advised to consult with an attorney that provides legal services to veterinary practice. An adept attorney can negotiate the deal terms, conduct due diligence, prepare the transaction documents, and assist with arranging financing. By engaging the services of LaMaster Law, PLLC, you will have confidence knowing that your best interests will always come first.

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