Today's Veterinary Business

JUN 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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26 Today's Veterinary Business Business Selling Assets Versus Stock While this is not the most interest- ing detail to discuss, it can have tremendous tax consequence to you as the seller. person in the practice. You might be required to ensure that other key employees remain with the practice, or if they leave you might have to accept a lower sales price. With any buyers, the more they can protect the practice's revenue, the better the investment they have made. The best way for a seller to guarantee revenue is to ensure that all associate doctors remain in place. The risk of one or all leaving to start a competing practice is more than most buyers are willing to accept. Current, signed employment con- tracts with each associate will go a long way toward mitigating this risk. While you can't guarantee that all the doctors and staff will remain af- ter the sale, you will be expected to do what you can to persuade them to stay. If employment contracts are not in place, do not expect top dollar for your practice. Owning an attractive veterinary practice that will command a high sales price carries certain bragging rights. While no one would argue that the sales price isn't important, it is only one factor in a complex deal. Here are some important considerations to ensure your ultimate satisfaction with a sale to a corporate consolidator. Timing and Method of Payment Will you receive the purchase price in cash or will you be asked to hold a note for a large portion of the price? Will part of the price be held back for some months after the sale to allow for unforeseen expenses? Is any portion of the purchase price contingent on the hospital's future gross income or profit? Are you willing to receive a lower price in exchange for shares in a consolida- tor's parent company? Each of these options has risks and potentially significant tax con- sequences. Consult with a tax advis- er before making a final decision. Guarantees to Associate Veterinarians and Other Key Employees Corporate players understand that the seller is not the only important By Leslie A. Mamalis, MBA, MSIT, CVA An asset sale — when the buyer forms a new legal business entity and transfers the veterinary practice assets into the new company — is the most common. The buyer receives tax advantages, namely the ability to take depreciation on those assets. Under this scenario, the business is acquired on a "cash free, debt free" basis, meaning the seller keeps all the cash in the bank and pays all practice liabilities from the sale proceeds. Occasionally, the buyer is willing to pay off an existing equipment loan or take on a relationship lease for laboratory equipment, but in most cases the seller pays the debt. During a stock sale, on the other hand, the buyer acquires the practice's assets and liabilities, both on and off the books. The buyer also inherits any skeletons, including those related to past events. Few corporate consolidators will consider buying a target hospital's stock. Those that will usually do not assume any of the practice's liabilities, requiring instead that the seller pay these from the sale proceeds. The biggest difference between selling assets and selling stock might be the seller's income tax liability, including a potential capital-gains tax. Always work with a tax expert when structuring and negotiating these details. Business MONEY MATTERS The real deal With practice sales and corporate offers, the devil is in the details. 3 2 1

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