Small animal practice for sale

RE: Small animal practice for sale

freddy — Tue, 09 Jan 2018 16:11:33 GMT

First of all Thank You to everyone taking part in this forum....very interesting and some eye opening points. I didn't realise that people would just sell on to corporates and it almost sounds a bit sombre...do I have a chance to avoid selling to a corporate? I guess I might or rather there is one factor coming into the horizon just tackled here by Anthony. My practice comes with a big property, lovely and very safe investment and hence perfect as a security or normal mortgage but corporates - I have been told- don't like big properties. Leasing sounds messy...I contacted Hazelwood today as I might be one of those practice with not a massive turnover but a very good profit, then again old equipment and of course there is a dream figure in my head. After all nobody wants to move back from the Caribbean and do anal gland fist thing Monday, haha (I wish it would be the Caribbean's). Happy for as much advise as possible- thank you again!

RE: Small animal practice for sale

Anthony Todd — Tue, 09 Jan 2018 15:31:23 GMT

[quote user="Arlo Guthrie"]That said, Tony, I think (stress think) that the more normal multiplier is of profit than revenue (turnover is vanity, profit is sanity).[/quote]

No, and I'm happy to be disproved, but turnover gives a ball-park, meaning a rough estimate of the practice size, and therefor potential whereas profit [as a percentage of turnover] gives a measure of business efficiency.

I can tell you that corporate buyers look at turnover then profit and then work out whether there is any more to be had, like ratio of staff to turnover, both vets and nurses, accommodation setup, and other ways of increasing profit based on that turnover. [cutting staff levels is one....]

They also realise that a single person practice with a good profit ratio may not suit them because the single vet has a dedicated following which probably won't continue and it is probably at the maximum potential and run very efficiently.

The last thing I should mention is what the vendor can do with this vast fortune he suddenly acquires from the purchaser?

Invest it?

In what, and at what risk or at what, 1.5%?

Buy a flash car, go on a cruise?

Then what?

What low risk investment gives a return anywhere near business loan interest rates?

But a private mortgage, easily secured if property is part of the sale, as I said, capable of all sorts of tweaking to the advantage of both parties and a pretty secure higher rate of return for any investment of a similar risk or even no risk [like a bank mortgage, from the bank's angle]

From the buyer's perspective the set up fees will be less, the loan tweaking can be perfect, there is no bank or lender requiring audited accounts, surveys and inspections at intervals, legals are less.

Makes sense to me, but it seems not many can see the logic and the advantages.

RE: Small animal practice for sale

Bob Russell — Tue, 09 Jan 2018 10:26:06 GMT

Sadly the value of some of the newer set ups appears to be linked to growth in turnover rather than profit. Pile em high, sell'em cheap works for a certain time then someone realises there is little or no profit.

At that point there is a mad scramble to find a mug buyer, put up prices to make a profit or the bubble bursts!

RE: Small animal practice for sale

Arlo Guthrie — Tue, 09 Jan 2018 10:07:17 GMT

I have about as much experience of buying and selling businesses as the average veterinary surgeon (none). But from what little I've picked up on ...

[quote user="Anthony Todd"]I can't emphasise the principal of "value" being the price someone will pay not some multiple of car-park spaces divided by the number of waiting rooms etc.....[/quote]

Everyone seems to be dismissing Tony, but I think his broad point is valid ... different buyers will place a different value on a business. Assets (including businesses) can rarely be valued strictly on the basis of mathematical formulae.

That might seem like stating the obvious and I am not sure anyone is actually disagreeing, still it's always good to be reminded.

I quite like this article:

https://www.entrepreneur.com/article/66442

In particular the quick and dirty T-Bill method. May be simplistic, but it's how I think. In other words, if profit is £100K, then your buyer would need to invest £8M in UK government bonds (yielding 1.25%) in order to achieve the same profit. But that's a pretty silly figure. Nobody shoves all their money in Gvt bonds.

More realistically, they could invest in a portfolio of shares yielding 3% dividend for which they would need £3.3M to produce £100K per annum.

They could do that at relatively low risk, and without any management to speak of (just hand to a stockbroker), whereas buying a small business has a higher level of risk and may require management. So what is a business with a higher level of risk and requiring management worth? A couple of people I've spoken to say they think they'd want 9-10% plus (valuing the £100K profit business at £1.1M or less), but that must vary wildly depending on the level of perceived risk, and the amount of management required.

Of course that is further complicated by growth potential (who wants to sell a business today if they think their company is going to be worth double tomorrow), assets (inc goodwill), additional reasons the buyer might have for wanting to buy the business (perhaps they could halve costs overnight, or buying the business could have a knock on effect on their own profit).

And ...

[quote user="Edward Jones"]External industry-accepted valuations are critical because few buyers are cash. Most require finance, and guess what the banks use to assess value? Industry-accepted EBITDA valuations.[/quote]

Yes, and I suspect this can be a real problem for sellers, because banks are very conservative.

And for that reason, it strikes me that Anthony Todd's idea of a private mortgage deal is not necessarily a bad one! I mean, banks just add an extra level of cost (both directly and indirectly through conservative valuations), so if I had a practice and you offered me a higher sale price provided I loaned some of it back (at a competitive interest rate), with a charge on property, I'd think that worth exploring.

That said, Tony, I think (stress think) that the more normal multiplier is of profit than revenue (turnover is vanity, profit is sanity).

Another thing about valuations. As I understood it, they tend to be made by companies that offer to sell your business, so they probably have a vested interest in valuing conservatively (ie easier for them to achieve a sale).

[quote user="David Mills"]Go and look up Warren Buffet's discounted cash-flow analysis.[/quote]

That's mentioned in that article I linked to, but I can't figure out how it is calculated!

But whatever Buffet thinks, for me personally it would come down to the T-bill calculation as the starting point, modified for other factors ...

RE: Small animal practice for sale

Anthony Todd — Mon, 08 Jan 2018 23:10:06 GMT

[quote user="Gillian Mostyn"](As far as setting up some private deal where they pay you back over many years....that is simply daft. If they go out of business you lose the lot....)[/quote]

Oh dear again, you, or the bank, will have the adequate security of the buildings and the practice so the buyer is not exposed and, be sure , the bank will make sure it is taking no risk, but for a fee and interest too.

How many vets go out of business?

I've done it and it worked fine [and with an Iranian carpet dealer....] but I had a charge on the property I was selling so I was well secured.

I'm only suggesting that the usual way of buying a practice by borrowing from a bank [which may not suit the seller, remember] is not the only way and "private" mortgages, adequately secured, can work and save both parties lots of money.

RE: Small animal practice for sale

Anthony Todd — Mon, 08 Jan 2018 22:29:51 GMT

[quote user="David Mills"]Out of most financial people, I think I'd trust Warren Buffet the billionaire, and to a lesser extent, my brother the millionaire than some shouting into the Internet blog. [/quote]

Fair enough, have you a got a decent link please, although it may be beyond me, others may have a look too though.

RE: Small animal practice for sale

David Mills — Mon, 08 Jan 2018 21:33:20 GMT

[quote user="Anthony Todd"]

[quote user="David Mills"]Go and look up Warren Buffet's discounted cash-flow analysis.[/quote]

So I did and got a cherry pick:

Discounted cash flow to us is sort of like the Hubble telescope - you turn it a fraction of an inch and you're in a different galaxy. There are just so many variables in this kind of analysis - that's not for us.

from this:

The Value Pendulum's Blog

so I dunno.

[/quote]

Ha. Out of most financial people, I think I'd trust Warren Buffet the billionaire, and to a lesser extent, my brother the millionaire than some shouting into the Internet blog.

RE: Small animal practice for sale

Gillian Mostyn — Mon, 08 Jan 2018 20:03:50 GMT

[quote user="Michael Woodhouse"]Maybe I'm mad but when we bought the practice we got a valuation done by an established vet accountant and the vendor did the same. The valuations were within £5K. [/quote]

Yes, sounds right.

Anthony lives in cloud cuckoo land where businesses are worth vastly different amounts to different people. Unfortunately, that doesn't happen in the real world. There certainly are variables in what different people / companies can earn from that business ( due to different fee structures, ability to reduce overheads, reduce drug costs and desirability of location) but, ultimately, it is still just a business. I agree that finding the person or company who most wants your business will get you the best price. But they still won't pay significantly over its value. Unless you find a poor businessman, I guess, but then the bank won't lend them enough anyway. Because the bank needs an independent valuation....

(As far as setting up some private deal where they pay you back over many years....that is simply daft. If they go out of business you lose the lot....)

RE: Small animal practice for sale

Michael Woodhouse — Mon, 08 Jan 2018 19:52:24 GMT

[quote user="Anthony Todd"]Of course not ,but all would agree, even on here, [well perhaps not some] that a practice with a turnover of £2million has a ball-park valuation greater that a practice with a turnover of £1 million.[/quote]

Erm, no. What if the £1 million turnover practice makes £200K profit and the £2 million practice £50k?

Maybe I'm mad but when we bought the practice we got a valuation done by an established vet accountant and the vendor did the same. The valuations were within £5K. I paid the lower of the two amounts. The bank was happy to lend against the valuations with the trading accounts.

Otherwise it would be plucking numbers out of the air.

RE: Small animal practice for sale

Evelyn Barbour-Hill — Mon, 08 Jan 2018 18:00:15 GMT

Having negotiated to buy a practice once that was being sold with the assistance of, um, a certain well-known agency; I'd say that if you are selling and you want to jack up the price, gloss over a few things and generally fudge and stall over questions from the purchaser that are pertinent but a little awkward, you would do well to engage that agency.

RE: Small animal practice for sale

Anthony Todd — Mon, 08 Jan 2018 17:46:18 GMT

[quote user="David Mills"]Go and look up Warren Buffet's discounted cash-flow analysis.[/quote]

So I did and got a cherry pick:

from this:

The Value Pendulum's Blog

so I dunno.

RE: Small animal practice for sale

Rob Loxley — Mon, 08 Jan 2018 17:46:15 GMT

[quote user="Anthony Todd"]I can't believe that intelligent folk don't accept that the value of anything, in terms of money, is only what somebody will pay for it, not a penny more![/quote]

But someone may not initially offer you what they are eventually prepared to pay for it, until pushed to up their offer, or indeed you may not initially get the interest of someone who might pay the 'market price'.
If you have no idea of the intrinsic value of something you are selling you cannot assess whether you are being offered the fair market price.
A buyer might also look at things such as future growth/expansion potential, or indeed the dilapidated state of the premises/equipment, to come up with an offer that might not correlate with just what the accounts say.

RE: Small animal practice for sale

Anthony Todd — Mon, 08 Jan 2018 17:41:45 GMT

[quote user="Bob Russell"]In the last year or so the turnover has jumped significantly[/quote]

Yup, clients love the face and staff [usually] who are "their vet".

Going in, surrounded by "corporates" would be my plan today.

RE: Small animal practice for sale

David Mills — Mon, 08 Jan 2018 17:29:33 GMT

Go and look up Warren Buffet's discounted cash-flow analysis. That will generally give you a rough idea of the maximum you should be willing to pay (or the maximum someone would be prepared to pay).

You can do it very quickly in an Excel spreadsheet. Brother uses it frequently when investing in small businesses.

RE: Small animal practice for sale

Bob Russell — Mon, 08 Jan 2018 16:58:27 GMT

I have little doubt that corporate buyers know precisely what a practice is worth to them. They are also not daft enough to pay more than they have to.

My practice was unattractive to IVC because as a one vet practice the turnover was not high enough to meet their threshold. They have bought pretty much every practice for miles around here so another 'branch' practice would make some sense. Had they bought it they might have had a bargain because turnover was depressed a bit by a 'cheap' practice opening not too many miles away.

In the last year or so the turnover has jumped significantly so I will be looking for another vet once I am happy the (new) bank is on my side.

RE: Small animal practice for sale

Anthony Todd — Mon, 08 Jan 2018 16:33:02 GMT

[quote user="Thomas Johnson"] If I were interested in buying this practice I would want to get my own independent valuation to give me a rough idea of what to offer.[/quote]

We were talking about selling, not buying, but the same principles apply.

[last time] Don't be surprised if the vendor just laughs at you and says, "sorry you'll have to think again".

But,and I've laboured this before, if you can negotiate a deal directly, which may suit the vendor better than the fixed terms you will get from a "corporate" buyer, and therefore get the vendor to accept your lower, but now more attractive package.

RE: Small animal practice for sale

Thomas Johnson — Mon, 08 Jan 2018 16:24:53 GMT

[quote user="Anthony Todd"]

I can't believe that intelligent folk don't accept that the value of anything, in terms of money, is only what somebody will pay for it, not a penny more!

All you vendors go on getting preconceptions of value and then find that the price you get will be the highest anyone is prepared to pay, no more.

[/quote]

Companies like CVS and IVC will probably have a good idea what they will pay for practices and be able to make a judgement themselves. However the OP has said that they would like to sell to a private person, and if that is the case the buyer will probably have no experience of buying a practice and limited knowledge of practice valuation. If I were interested in buying this practice I would want to get my own independent valuation to give me a rough idea of what to offer.

RE: Small animal practice for sale

Anthony Todd — Mon, 08 Jan 2018 15:31:46 GMT

[quote user="robloxley"]turnover is not profitability[/quote]

Of course not ,but all would agree, even on here, [well perhaps not some] that a practice with a turnover of £2million has a ball-park valuation greater that a practice with a turnover of £1 million.

And at the moment, I'm told by someone who knows, that the ball-park valuation is rising.

RE: Small animal practice for sale

Anthony Todd — Mon, 08 Jan 2018 15:23:59 GMT

[quote user="Gillian Mostyn"]Which is from how long ago?[/quote]

Last week actually!

[quote user="Gillian Mostyn"]I'm curious...just how many people have to disagree with you before you consider the possibility you might be wrong?[/quote]

As many as want to.

I can't believe that intelligent folk don't accept that the value of anything, in terms of money, is only what somebody will pay for it, not a penny more!

All you vendors go on getting preconceptions of value and then find that the price you get will be the highest anyone is prepared to pay, no more.

Hopefully you will accept it and not some convoluted value based on some sort of formula.

At the moment, as I tried unsuccessfully to explain, the rough, ball-park value of a practice is a multiple of the turnover and this multiple is, so I'm told by someone who really knows, is rising, undoubtedly due to competition from corporates or venture capitalists.

Believe me and my opinion if you like, if you don't, and sell, don't blame me if you could have got more.

RE: Small animal practice for sale

Gillian Mostyn — Mon, 08 Jan 2018 14:14:11 GMT

[quote user="Anthony Todd"]I hope I'm not, and I doubt it, as I got the information from one of the biggest players, and I have my own experience.[/quote]

Which is from how long ago? Maybe other people have now gained the knowledge that you thought only you had??

I'm curious...just how many people have to disagree with you before you consider the possibility you might be wrong?

RE: Small animal practice for sale

Bob Russell — Mon, 08 Jan 2018 14:05:32 GMT

An independent valuation is a must!

How on earth do you know what to sell at without knowing its worth?

Presumably the valuer will be perfectly aware of the state of the market. No good otherwise. I would be more than pi++ed off to sell to someone only for them to cash in and profit from a sale to a corporate.

I understand there was a group buying up practices and appears to have done just this1

I would have to be very trusting of anyone claiming to want to remain independent in the face of some of the offers out there.

RE: Small animal practice for sale

Rob Loxley — Mon, 08 Jan 2018 13:40:37 GMT

[quote user="Anthony Todd"]tell any callers the turnover[/quote]

turnover is not profitability

RE: Small animal practice for sale

Anthony Todd — Mon, 08 Jan 2018 13:28:54 GMT

[quote user="Edward Jones"]I'm fairly sure you understand wrong[/quote]

I hope I'm not, and I doubt it, as I got the information from one of the biggest players, and I have my own experience.

I just hope that vets selling their practice take my advice and ask the big players rather than the traditional advice supplied on here by others.

They, practice sellers, are likely to lose a lot of money.

RE: Small animal practice for sale

Edward Jones — Mon, 08 Jan 2018 10:57:26 GMT

[quote user="Anthony Todd"]Just contact the big players or even put an ad on vetsurgeon.org and tell any callers the turnover and anything they ask they'll give you a figure over the phone....[/quote]

The whole point of a professional valuation is that you avoid the 'finger-in-the-air' valuation that you describe. T/O alone is entirely insufficient for any purchaser to make even a ball-park valuation.

Of course the value is only what somebody is willing to pay - that's the definition of value! In fact it's slightly more nuanced - in your example where you sold at auction, you sold for only slightly more than what the second highest bidder was willing to pay. The person who bought was willing to pay even more, but they don't need to go to their limit, only to everybody else's!

External industry-accepted valuations are critical because few buyers are cash. Most require finance, and guess what the banks use to assess value? Industry-accepted EBITDA valuations.

[quote user="Anthony Todd"]PS I understand that a "ball-park figure" is a multiple of turnover and this multiple is/was increasing annually by an alarming rate.[/quote]

I'm fairly sure you understand wrong. The multiplier is applied after the EBITDA calculation, turnover is only loosely related. Corporate buyers are increasingly willing to pay on higher multipliers - whether that's alarming or not is up to you. It does represent a change in the environment, but it certainly doesn't prevent de novo private ownership.

RE: Small animal practice for sale

Gillian Mostyn — Sat, 06 Jan 2018 15:44:07 GMT

[quote user="Anthony Todd"] tell any callers the turnover and anything they ask they'll give you a figure over the phone....[/quote]

We'll agree to disagree. (It isn't me awarding you 1 star by the way, so I guess someone else agrees with me too,!) But to the OP, please don't think the worth of a business to you can be calculated from its current turnover. You'll end up with all kinds of problems.