Today's Veterinary Business

APR 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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10 Today's Veterinary Business Business a veterinarian who had the patients' needs foremost in mind and not by someone who might be more concerned about profits than pa- tient care. In this day of widespread corporate ownership and consoli- dation of veterinary hospitals, more options are needed for those with- out veterinary licenses to direct the activities within veterinary hospitals. Consider a MSO In states where ownership by vet- erinarians remains a requirement, management services organiza- tions (MSOs) can be created to allow non-veterinarians to own a business that manages the prac- tice. Common in human health care, MSOs are businesses that pro- vide management and administrative services to the practice itself. The MSO owns the facility, equipment and inven- tory, while the veteri- narian owns the patient records and hires and manages other doctors and, in some states, the veterinary nurses. The MSO leases the facili- ty and equipment to the practice, hires and manages the non-vet- erinarian staff, markets the practice, handles vendor relations, and provides oth- er administrative services for a fee. There is no restriction on MSO ownership, giving managers and nurses the opportunity to have an ownership stake in the business. While there is legal work to do on the front end to ensure that the structure is set up correctly, this isn't the hurdle it once was. Managers and nurses often be- come minority owners. When man- agers and nurses wish to buy 100 percent of the business, a bigger hurdle is financing the deal. Tradi- tionally, business loans were given only to those who could generate sales for the business. This makes perfect sense because banks want assurance that the loans will be repaid by the borrower. In a manag- er-owned practice with a single doc- tor, if the doctor becomes ill or quits Money Matters columnist Leslie A. Mamalis is the owner and senior consultant at Summit Veterinary Advisors. Learn more at www.summitveterinaryadvisors.com. without notice, there is a risk that practice reve- nue will not be replaced quickly. This scenario has more inherent risk than many banks are com- fortable assuming, even though any manager worth her salt has a bank of relief doctors in her contact list. Given the reluc- tance of some lenders to consider these deals, many of the sales to managers and nurses have been seller-fi- nanced. Since outside financing has become more available, most sales have been primarily cash deals in which the buyer acquires a bank note and the seller receives most or all of the purchase price in cash. An SBA Loan Might Make Sense Other lending options exist for managers and nurses. Sometimes the loans available from a lender's practice-acquisition department require a short-term payoff, often after seven years. Depending on the purchase price, the buyers may not have sufficient cash flow to make large payments, particularly in the first few years of ownership. Some banks will consider engaging their commercial loan de- partments to allow a longer payback, perhaps 15 years. Government-backed Small Business Administration (SBA) loans are another option. SBA lenders are less concerned about who owns the business and more interested in whether the cash flow is adequate to meet loan payments and operate the busi- ness. Although SBA loans include substantial borrower-paid fees, these might be a small price if they allow a nurse or manager to own a practice for several decades. So often we hear that a veter- inarian sells to a consolidator long before retirement age because the doctor wants to go back to being "just a veterinarian." After all, the reason he became a veterinarian in the first place was to care for ani- mals. Few felt equally impassioned by the idea of negotiating with vendors, managing employees, marketing the practice or develop- ing a standard operating proce- dures manual. Many Qualified Individuals This is where other veterinary pro- fessionals excel. Veterinary manag- ers have taken a big step forward in capability and professionalism. The Veterinary Hospital Manag- ers Association, founded in 1981, helps managers grow and develop into industry leaders. Some of the best and brightest manage huge referral centers, and experienced managers are highly sought after by consolidators. Fortunately, this leaves hundreds of capable man- agers who love managing smaller practices and who often run the business by default when the veterinarian owners are too busy to do so. The more capable and ambi- tious that managers and veterinary nurses become, the more it makes sense for them to be practice own- ers. Even someone who is highly compensated is limited in what she can earn as an employee. Owners not only receive compensation for working in the practice, they receive the profits. Business owners should earn much more than employees because the owners are taking the risk. Employees can go home at night without worrying whether the woman who slipped on the ice in the parking lot will sue the business, whether an employee is abusing drugs or whether bullying is taking place in the practice. At no point does an employee risk losing her home if the business takes a downturn. One of the main reasons business owners are willing to as- sume such risks is the opportunity to make substantially more money than they could as employees. Money isn't the only driver of hospital ownership. Owners also have the opportunity to lead their practices in the direction they choose, to make the final decisions on services offered and products sold, and to create a business cul- ture that fosters the expression of their values. The practice of veterinary med- icine should allow doctors and the teams that support them to have lifelong careers doing what they love. With the number of practices for sale as the baby-boom gener- ation moves into retirement, let's encourage valuable team members to think outside the box and con- template ownership. Business MONEY MATTERS So often we hear that a veterinarian sells to a consolidator long before retirement age because the doctor wants to go back to being "just a veterinarian."

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