Many veterinarians dream of owning a practice, whether to escape their current job situation or pursue autonomy and affluence (or all the above). While their ambition is understandable, deciding whether to open a clinic or purchase an existing one is one of the many choices an aspiring owner must make. Assuming both options are reasonable, here’s what you need to explore.
Buying a Practice
One of the most significant advantages of purchasing an existing clinic is the immediate and predictable cash flow because you already have clients. Your first week will be busy, assuming the practice is teeming with patients, and you shouldn’t need much working capital. Your employees are familiar with the business and clients.
Suppose you are an associate veterinarian taking over the practice where you work. You know the clients, pets and team. You understand the practice management software and are familiar with all the equipment. Those are huge advantages. Hopefully, the practice has a solid reputation and brand recognition within the community.
Another advantage of buying a practice is you can negotiate with the seller to stay for a period to help with the transition. The assistance can be helpful, especially if you, the new owner, have not worked there before.
On the other hand, buying a functioning clinic has disadvantages. First, the purchase loan is considerably bigger than if you start from scratch. That’s because you’re buying the assets, goodwill (the practice’s reputation, client loyalty and community ties), and potentially the real estate.
Other potential disadvantages include:
- You inherit the employees and culture, which might not fit your style or vision.
- The clinic’s fees and services might not align with your expectations.
- You might lose staff or clients after the transition.
- A consolidator might beat you to the purchase by offering a price you can’t compete with.
De Novo Practices
One of the most significant benefits of launching a practice is that you work with a blank canvas. You decide the type of clinic you want, the services you will offer and the prices that align with your expectations. You choose the location, employees, practice management software and equipment. The loan you take on will be smaller because you’re not purchasing goodwill. If you lease the real estate instead of buying it, you likely have an even smaller loan. Another plus is no baggage from employee drama, a bad culture or a lousy reputation in the community. Also, new models of veterinary services are emerging year after year, meaning you can choose one that makes your practice stand out.
In contrast, starting a de novo practice is a lot of work. Every detail, large and small, is your responsibility. You need to design a logo, develop a brand, hire employees, enter data into the practice management system, establish reorder points, negotiate vendor contracts, and decide the color of the walls, doors and floors. And so much more.
For many entrepreneurs, opening a veterinary practice can be a lengthy and overwhelming process. Have you ever built a house? There are many similarities between the two. Some aspects of starting from scratch are so much fun, and some are not.
Depending on your marketing talent, you might open the door to just one patient on the first day or 20. You might hire a skeleton crew over the first few months to conserve your working capital, cover the weekly payroll and keep up with bills. Your practice might not be profitable for six to 12 months. You might need to forgo owner compensation or significantly reduce it during this time. You might also require additional working capital to sustain the business during the initial lean months of uncertainty.
Two Examples
Looking at real-life cases is a terrific way to learn about the possibilities and pitfalls of becoming a practice owner and understand what people did right and wrong.
CASE STUDY 1
Two successful veterinarians became friends. George was great with people, and Mary was organized and had a solid financial background. Both agreed on the medical services they would offer as practice co-owners. It was shaping up to be the perfect partnership.
George and Mary found a committed seller of an existing practice that matched their dreams. The parties shook hands and drafted a letter of intent. Everything looked fine, so the two partners thought they could move forward without an attorney.
However, the seller changed his mind and tried renegotiating the price and timeline. Mary was so mad that she told the owner to keep the practice. She is now a relief veterinarian who abandoned her ownership dream.
After stepping back for several months, George is trying to rekindle his dream without Mary and her strengths.
Lesson: Check your emotions during the decision-making process to ensure a more rational, less risky outcome. Hire veterinary-specific professionals who can represent and advise you. Be ready to walk away if the terms, timing or dynamics aren’t correct.
Have you ever had buyer’s remorse? Perhaps you regretted buying a new car or house. A Zillow survey reported that 75% of Americans who purchased a home during the pandemic wish they hadn’t. So, don’t be surprised when a practice buyer has regrets. Things might have turned out differently for George and Mary if issues had been addressed during the negotiations.
CASE STUDY 2
Jennifer’s dream was to own an existing veterinary practice with a positive culture and employees she could cherish and reward. She found the perfect one and signed a letter of intent with a closing set for July 1. However, the seller didn’t want his employees to know and insisted he would tell them “when the time is right.” On July 1, he refused to sign the paperwork. On July 2, he signed the documents and told the team members they had a new boss when they came to work.
Would you like to be the new boss that day? What do you think the clinic atmosphere was like then?
Lesson: Selling a practice is an emotional life event for everyone, particularly the outgoing owner. Sometimes, a seller will back out of a deal or try to renegotiate the terms or other considerations before or after a sale is finalized. Understanding the negotiation process and drawing up ironclad legal agreements helps prevent misunderstandings and failed deals.
Tips for Success
Here’s what you should consider if you’re thinking about starting a practice or buying one:
- Stay in your lane. Pay for veterinary-specific professionals who can help you, and outsource work you don’t like or understand, such as marketing. When everything is done correctly and ahead of time, you should have a full patient schedule during the first week.
- Hire a veterinary-specific attorney. Now isn’t the time to be a cheapskate. Early mistakes are costly and might take a long time to fix.
- Create a business plan and budget. I have seen practice owners who threw away their projections and hired extra people, only to find themselves overstaffed and dealing with a cash-flow disaster. Changing your business plan and adjusting the budget is OK, but run the numbers to ensure your decisions are realistic.
- Save for a rainy day. The loan a bank gives your practice is not meant to be exhausted to the last penny. Whatever the balance is, use it as working capital. Always expect surprise expenses or construction delays.
- Don’t let shiny objects drain your bank account. I suggest listing your must-haves, nice-to-haves and wish-to-haves. The list should include things like equipment, office furniture, drug supplies and overhead. When in doubt, stick to your list.
- Have a “change little, change often” mindset. People generally don’t like changes, but those who do can still get overwhelmed by them. If you are buying an existing practice, wait to implement changes. The employees you now have are often scared of what’s to come, and carrying out 12 changes on Day One might run off some of them. Start slow, implement one change, celebrate its success and consider another one. Also, remember that allowing team members to participate in developing your practice will yield their buy-in and support.
A structured, thoughtful approach will help new practice owners make better decisions and achieve long-term success. Follow your dreams and passion, know you are not alone on the journey, and most importantly, have fun!
DECISIONS, DECISIONS
When you’re choosing between starting a de novo practice and buying an existing clinic:
- Clarify your objective: Do you want more control over building a practice culture, which is easier when you start from scratch, or do you need the immediate revenue of an established practice?
- Gather data: Investigate local pet owner demographics, the demand for veterinary services, the financials of practices currently for sale, and startup costs and staffing needs.
- Evaluate risks and rewards: Consider the financial, emotional and operational perils of becoming a practice owner. What’s the payoff if you start a clinic or buy one?
- Use a decision framework: A SWOT analysis (strengths, weaknesses, opportunities and threats) might reveal that buying a practice has higher upfront costs but mitigates the risk of building a client base from scratch.
- Monitor and adjust: After your practice is up and running, track your financials, employee satisfaction and client retention to ensure you’re on the right path. Adjust if necessary.
DID YOU KNOW?
A 2024 AVMA report revealed that practice owners enjoy higher satisfaction rates than associate veterinarians in all the areas examined, including their job, lifestyle and compensation and the profession in general.