Today's Veterinary Business

OCT 2018

Today’s Veterinary Business provides information and resources designed to help veterinarians and office management improve the financial performance of their practices, allowing them to increase the level of patient care and client service.

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20 Today's Veterinary Business Business With so many veterinarians considering a practice sale, either to an associate or a corporate consolidator, some owners wonder whether making further investments in the hospital or new equipment will yield a higher price. The answer? It depends. By Leslie A. Mamalis, MBA, MSIT, CVA Your Facility Is now the right time for new con- struction or a remodel? If you plan to retire in the next year or two, the answer is probably not. Buying or building a facility is a significant investment that should provide a strong return in the years to come. Generally, when a veterinary practice moves into a larger facility, the practice leaves space it has out- grown. Frequently, the old building has neared capacity for the number of patients who can be seen during normal business hours, typically be- cause of a shortage of exam rooms or no room to put a new doctor. Unless your practice is over- capacity to the point that your doctors see appointments in the parking lot, investing in capital improvements soon before you ex- pect to sell does not allow enough time to recoup the investment. While you might wish that you had extra space, your rent payment is likely near the bottom of the nor- mal percentage of income, or even below that level. When the prac- tice moves to larger quarters, the business might need time to grow into the new space. Although extra elbow room is nice, the facility costs will take a huge jump. Instead of being below industry norms, the rent will be above normal for a few years while the practice grows. The facility rent will have increased, and so will real estate taxes, utility expenses and insurance premiums. All these contribute to reduced profits in the short term. On the other hand, if the prac- tice is outdated, has non-function- ing equipment, isn't fully computerized or was last painted during the Clinton administra- tion, a minor face-lift might lead to a higher sales price or less time on the market. Start with a deep cleaning of every room, then move outside and rid the parking lot of weeds, and cigarette butts, and straighten the flower beds and other Business MONEY MATTERS Think twice Investing in your hospital shortly before a sale makes sense only in certain situations. Needless spending can depress the practice valuation. plantings. In other words, make things look like somebody cares. A coat of paint and updated pictures on the walls are part of a quick, inexpensive face-lift. Will You Remain the Landlord? If you own the building or land, one way to offset the costs of capital improvements is to retain owner- ship of the real estate. Becoming a landlord allows you to maintain an income stream beyond the sale of the practice. However, you also will be responsible for the property up- keep and any damage that might occur because of a storm, fire, flood or other natural occurrence. Buyers will want a long-term lease with at least one extension, and possibly the right of first refusal to buy the property. Long- term leases also protect you, the seller. You want to lock the buyer in as a long-term tenant so that your property does not sit empty. Replace your workhorse equipment as necessary, but don't buy new equipment just to have new equipment. If the equipment you purchase turns out to be something the buyer doesn't want, the practice becomes less attractive.

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