Sipping piña coladas on the beach is the dream many practice owners hold as they think about selling their clinics. While this idyllic vision can indeed become a reality, it is important to recognize the process might not unfold as swiftly as most owners anticipate. Practical realities come into play, contingent upon factors such as practice size, owner revenue generation, and the buyer’s profile that affect the ultimate answer to, “How soon can I enjoy the beach?”
Retirement timeline for small practice owners
Let’s first delve into the scenario of small practice owners who often sell to fellow veterinarians due to their practice size (generating less than $1.5 million in revenue) or location (small towns and rural areas typically not of interest to corporate groups). In these instances, the original owner can usually retire soon after the sale, as the buyer typically assumes the primary role as the practice’s veterinarian. However, the challenge for an owner’s timeline to the beach lies in finding a suitable buyer.
Finding a veterinarian interested in purchasing a small practice with just one or one-and-a-half doctors is increasingly challenging, particularly in smaller communities. The sale process can stretch anywhere from one to three years, and, occasionally, owners are even compelled to close their practices. For those contemplating selling, the advice is to initiate the sale process 18 to 24 months prior to retirement. While a fortunate few might secure a buyer sooner, there is no guarantee.
In small towns where the community is strong, long-established veterinarians often have strong connections with local residents who plan to attend veterinary school. Recent or aspiring veterinary school graduates with local ties are one of the best sources of potential practice purchasers. Nurturing these relationships (student mentoring, externships, etc.) with individuals who have grown up in the community can evolve into effective exit strategies for veterinarians. The core reality is small practice owners can often retire shortly after a sale. However, the pivotal concern remains the duration required to finalize the sale.
Timing for large and midsize practice owners
Progressing to midsize practices generating over $1.5 million in revenue, generally with at least two-and-a-half veterinarians, the retirement process becomes more complex when selling to corporate buyers. Often, individual veterinarians are reluctant to buy these practices because of the significant amount of debt required to purchase the business. On the other hand, many veterinary companies will have interest in practices of a mid-to-large size, but will also place restrictions on an early exit. In such cases, owners can exit earlier post-sale if they are producing little to no revenue.
The less integral, less revenue-generating, an owner is before the sale, the sooner they can leave. This is rarely the case in midsize ($1.5 million to $3 million revenue) or even larger practices, where the owner is usually central to the practice’s operation and culture.
In most midsize and larger practices, the veterinarian owner remains a significant revenue contributor and often the leading producer. Additionally, the owner tends to shape the practice’s culture and acts as the linchpin maintaining a robust work environment. Presently, most corporate buyers stipulate a three-year commitment post-sale from the selling veterinarian. In regions where recruiting is challenging, the requirement might extend to four or five years.
In the frothy days of 2021, high-producing owners could exit in as little as 12-18 months. However, the landscape has shifted. The current veterinarian shortage and recruiting difficulties, coupled with the performance of deals concluded during the valuation boom of 2021 (most corporate buyers have experienced at least one situation where a seller left after their one-year commitment leading to a drop in revenue), prompted buyers to reassess post-sale work requirements, favoring longer-term involvement from sellers.
Stipulations: Leaving early, shorter timelines, and specialization
With a three-year plus work requirement, what happens if a seller decides to quit after just 12 months? Buyers recognize this is a genuine risk, so they institute safeguards or “hooks” to ensure sellers have financial incentives to stay.
In 2023, deal structures typically encompass 50-70 percent of the purchase price paid in cash at closing, while the remaining purchase price consideration—comprising seller notes, equity in the parent company, or joint venture interests—features terms retracting deferred payment if the seller fails to fulfill their contract. These safeguards are now commonplace due to instances of sellers backing out before honoring their full contracts, leading to consequences for today’s sellers.
However, in many corporate transactions today, the selling veterinarian retains an initial ownership interest in the business. This acts as a strong financial incentive to continue positive practice performance; otherwise, it could impact the final sale price.
Sellers often ask: What if I agree to a one- or two-year post-sale work commitment? The answer is nuanced: there will be fewer potential buyers (and sometimes none), and valuation will invariably be lower than if the owner commits to three to four years. Buyers are unwilling to pay full value when there’s greater risk to the deal, and an early exit by the owner increases that risk of complications. Buyers seek to foster growth in revenue and profits, not stagnation or a decline. A key producer who has owned the clinic for years is pivotal in facilitating a transition and ensuring future stability. This is why the terms of the employment agreement are so crucial to buyers.
An additional “wrinkle” arises when the owner specializes in procedures others at the practice don’t offer. This type of situation demands a solution before the sale even begins. If a high-producing owner excels in complex surgeries, acupuncture, exotics, endoscopy, and other niche services, their departure could create a void and these higher-revenue, specialized services would disappear. The buyer would be left to grapple with recruitment challenges. In preparing a practice for sale, the owner must recruit and train other doctors capable of providing the same services to mitigate any perceived risk from buyers.
Why planning matters
Being a practice owner takes determination, motivation, and arduous effort to build a thriving business. Ownership brings rewards including autonomy, the final say in business decisions, and financial gains. Selling a practice is typically a once-in-a-lifetime milestone that not only marks the culmination of ownership, but also ushers in a new beginning. Today’s reality on retirement timelines can be summed up as follows: Unless you are selling to another veterinarian, the sale is not going to be a quick end to your days as a practicing doctor, but rather the beginning of a new chapter where you are helping transition leadership and control over the business you built to a corporation. This transitional phase requires preparation, contemplation, and understanding of expectations, ensuring one is ready to “make the best” of the new situation for a bit before eventual retirement. Therefore, it’s fundamental to engage seasoned advisors and agents who can represent and guide you throughout the sale process and beyond, up until your departure from the practice.
You should initiate consultations with advisors several years ahead of your potential sale. Why does that matter? By getting input early, owners can identify (and rectify) any business areas that could negatively impact their sale. Taking proactive steps will not only increase your sale price, but it also ensures a seamless transaction process. Addressing potential issues well in advance of the proposed sale is far more advantageous than discovering concerns during the sale itself, especially if they are challenging to resolve within a limited timeframe. By taking this approach sooner, you’re likely to achieve a more favorable transaction aligned with your personal goals and preferences. With all this to consider, we ask: When do you want to retire?
Rich Lester has over 14 years of experience in the veterinary industry helping veterinarians achieve financial success. He founded Veterinary Practice Partners (VPP), a group that exclusively co-own hospitals with local veterinarians. Lester is now a CEO at Ackerman Group.