By Katz, Sapper & Miller’s Veterinary Services Group
This article originally appeared on ksmcpa.com
In the past year, we’ve continued to see increasing activity in veterinary hospital transactions. Veterinarians nearing retirement or feeling the stress of hospital ownership are considering what the current market for hospitals will bear to determine whether it’s time to begin the retirement phase.
With more U.S. households adopting pets, the demand for veterinary services has been at an all-time high. These conditions work favorably for veterinary hospital owners thinking of retiring or selling. But before you take the initial steps toward a sale, it’s important to consider the many variables that can impact the ultimate value you receive for your hospital. Three major components of a sale that can vary based on the buyer are how the value will be paid on closing, the employment terms post sale, and the building lease terms (if you own the real estate).
Payment at Closing: A buyer may present various options to a seller on how value will be paid at closing. The most common options include cash, seller financing, buyer stock, and/or earnouts. Each of these methods of payment will have differing levels of risk that you’ll want to understand when determining what forms of payment you’re willing to accept.
Employment Terms: If the terms of your transaction include a length of time you’ll be required to maintain employment with the buyer, it’s necessary to understand and iron out all the details. Some key areas of consideration are terms of employment, length of contract, hours expectations, compensation details, and your expected contributions as an employee.
Lease Terms: Owner-occupied real estate will require a fresh look at lease terms and renewals. It’s important to understand how the lease agreement impacts the value of the real estate. Additionally, make sure to understand whether any bank debt will require you to pay the note in full if the building is no longer owner-occupied. Depending on the bank’s requirements, you may need to consider refinancing the building or evaluate the impact of a reduction in your net cash flow if you are not able to refinance.
There are so many complexities and considerations when planning for a veterinary hospital transaction. It’s important to align yourself with a team of experts that can help you navigate the issues and understand their impact on value. While this list isn’t exhaustive, here are 18 more tips for a healthy veterinary hospital transaction.
Learn more about KSM’s Veterinary Consulting