What Buyers Look for: 5 Common Red Flags in Veterinary Clinic Acquisitions

The most common clinic acquisition red flags don’t surface until a buyer is deep in the diligence process — and by then, deals can fall apart fast. At DVMmatch, we want veterinary practice owners to know what buyers are watching for long before a transaction begins.

Article Written & Provided by Blue & Co., LLC

Let’s set the scene. A buyer has narrowed their focus and deemed your veterinary clinic potentially worthy of acquisition. Though all seemed to be progressing smoothly, red flags appeared after the initial investigation, sending the once hopeful buyer on a quest to find a more reliable prospect. This scenario is quite common. Certain red flags often appear late in the valuation process and cause deals to unravel at the seams, leaving both parties in grief over the loss of what could have been. In no order of importance, the following list includes a brief overview of the most common red flags buyers are likely to encounter once the real diligence of acquiring your veterinary clinic has begun.  

5 Clinic Acquisition Red Flags That Derail Deals

Red Flag #1 Staff Turnover

Despite attractive financials, a vet clinic that has experienced routine staff turnover can cast concern into the mind of a buyer. This red flag leaves them doubtful as to their ability to manage the nuances of staffing. The issue can be compounded if a practice manager plans to exit alongside the selling veterinarian or if a long-time associate veterinarian has recently departed, altering the dynamics of the clinic.

Red Flag #2 Weak Client Retention

An enthusiastic buyer can quickly become discouraged upon discovering a declining active client base, weakening client retention, or unreliable reporting of patient and client activity.

Red Flag #3 Declining Revenue

Not always apparent at first glance, a downward trend of productivity and revenue could indicate a host of issues, the least of which may cause a buyer to question the future potential of the clinic. 

Red Flag #4 Sudden Revenue Increases

Contrary to expectations, a sudden increase in productivity or revenue could signal to a buyer (or buyer’s bank) an unsustainable one-time event. Perhaps an increase was caused by an unsustainable expansion of hours by the seller in attempt to maximize value, or maybe an increase was an anomaly due to unforeseen consequences of global and regional events, such as the aftermath of the Covid-19 pandemic. Specifically, if the increases in productivity were delivered by relief veterinarians, the profit margin of the Clinic may have decreased. In most cases, consistent annual revenue or a slight upward growth rate of 3 to 5 percent is preferred by buyers.  

Red Flag #5 Secretive or Combative Seller 

If at any point during the acquisition process a seller becomes secretive with information they are willing to share, or combative in the answering of questions, alarm bells will be sounding to a potential buyer. Lack of transparency is guaranteed to prevent the closing of a transaction. While not an exhaustive list, these are the most common red flags that we find buyers encounter far into the diligence phase.  Many days of frustration and heartache can be avoided if you give these red flags careful consideration before beginning the process of selling your veterinary clinic. 

Serving as trusted advisors to hundreds of veterinarians per year, we highly urge all owners to work closely with an experienced industry professional in the years and months leading up to a potential transaction to avoid deal breaking red flags. Working with an experienced DVMmatch Professional well in advance of your sale is the best way to get ahead of these clinic acquisition red flags before they cost you a deal.