1 Sept 2013

Best price practice – the essential guidelines

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Mark Harwood

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Hazlewoods uses its regular contact with the associations to anticipate developments in veterinary practice, and advises more than 150 practices throughout the UK. Mark Harwood gives his informed take on the state of the vet practice property market.

OVER THE PAST few years, some practices have continued to experience low, zero or even negative growth in turnover and profitability.

This is not the case for all practices, as indeed some are thriving although, generally, the market remains fairly tough. When the recession hit a few years ago, sale activity continued. While, in some cases, potential private owners found it more difficult to purchase or set up their own practice, corporates continued to acquire.

One of the biggest challenges for those looking to buy, whether as an internal buy-in or external purchase from a third party, has been the ability to raise finance at the right price. For those looking to sell, it has frequently been a case of practice owners questioning whether they will achieve a better outcome if they wait until the market is more buoyant. It is interesting to note that the past year has seen an increase in buying and selling activity, with both sides realising great opportunities do exist, despite the doom and gloom suggested in some media.

I consider below some of the key considerations if you are looking to sell, buy or set up a practice. These are not exhaustive lists, but in general, when you are taking advice on goodwill and business valuations, it pays to use a veterinary specialist who understands the specific intricacies of the market.

Planning to buy or set up a practice

Many of the key considerations when you are looking to buy apply equally whether you are buying into a practice where you already work (an internal sale) or whether you are looking to buy from a third party or set up your own practice.

Particular areas to think about include the following.

• Location.

• Your ability to raise finance.

It pays to get your banker on board at an early stage before committing. It may be that your accountant helps, for example in the preparation of your business plan, including financial projections.

• Level of sales and profitability including trends.

• The level of due diligence, including financial, legal and commercial, you and/ or your advisors may wish to undertake. Due diligence is an investigation into the affairs of the practice you are buying – this will be driven partly by what you are buying and how it is structured.

• How to best structure the purchase – taking into account both commercial and tax considerations.

Planning on selling

Plan early as many practice owners leave the planning far too late. Getting the best deal is not just about getting the best price, it’s more about the overall “package”, rather than focusing on one particular area, including:

• the capital from the sale, including whether you will receive it in one go or whether there will be any form of deferred payment;

• the rent you will receive if you own the properties from which the practice trades following the sale;

• the length of any transition if you stay on following the sale;

• your salary, holiday and any benefits if you continue to work at the practice following the sale;

• how you will extinguish any liabilities you may have – for example, under leases or security on any loans.

The financial performance of your practice in the run up to the sale can greatly impact on the overall package you may receive. Keeping a close eye on sales, costs and profitability and spotting trends early through the use of management information will help you to take steps to ensure you keep things heading in the right direction. Your accountant can help here, as well as ensuring you time and structure your sale appropriately, taking into account both commercial and tax considerations.

Two golden rules

If you are committed to buying or selling a practice, firstly, plan early and secondly, ensure you take the best advice so you can maximise the opportunities available.

The author welcomes questions from readers. Telephone 01242 680000 or email mark.harwood@hazlewoods.co.uk