Byron Farquer, DVM, CVA
Simmons Pacific and Simmons Southwest
Click for a PDF of this article: Your First Six Weeks – Triumph or Tragedy
In order to drive home the gravity of the situation, the author has chosen to start out with the single most important piece of advice in veterinary practice ownership transition; don’t change anything! It is exciting to buy a practice and there is energy in the air, so tangible you can almost feel it! But there are also significant mistakes lurking in the shadows and you can chose to blindly plod through the early days of ownership or tread carefully and wisely. Bottom line, you will more likely make a mess of the practice changing things too soon than waiting for a couple of months. If you think you can relocate Sally’s desk in the office, think again. Going to change shift schedules, pay rates and hours of operation? Don’t do it yet. Raise fees, change the wall paper, cancel employee insurance coverage? Wait a bit longer. Too often buyers casually or blatantly dismiss the advice of experienced brokers regarding transition plans and protocols. It’s as though the last 30 or more years of observing veterinarians doing it very right or horribly wrong counts for nothing. How you prepare for your first six weeks of ownership can mean the difference between success or a very painful ownership transition and can lead to problems that may extend for years.
Here is the golden rule: Don’t change anything at first! It’s really hard to walk into a practice as a new owner and leave things alone. You want to assert your creativity and authority. After all “you are the boss”. There is one real deficiency you may be overlooking. You have not built sufficient trust or sufficiently bonded with the staff. Until you have gained their trust anything, and I mean anything, you try to implement will be met with resistance. With the exception of safety or malpractice issues, leave things alone for awhile. Get to know the practice and its staff. Listen twice as often as you speak, build trust, build a team and then and only then should you implement any changes.
Getting the seller to provide a transition is important. The seller should at the very least agree to provide some management advice and assistance for at least 45 days after the sale. In some cases, especially practices that involve single species or a “personality” approach to the practice, the buyer may want to procure at least 8 weeks or more of transition from the seller, whereby the seller is actively seeing cases. Yes, this is a paid position. If you ask a seller to work, the seller should be compensated. It doesn’t need to be a long period, but a smooth transition is more cost effective than costly advertising needed to recapture the clients that left initially out of confusion, so put a little post-sale seller compensation in your working capital budget. Be clear with the seller regarding authority. The staff may initially turn to the seller for counsel out of habit or respect, but you can’t have the seller calling the shots. You should communicate before the sale about how post-sale employee and business related decisions will be handled. It can be very disruptive if a seller fails to give up the ownership mentality. Usually that can be prevented by careful planning prior to the sale date between the buyer and seller. As important as a transition is to a successful sale, a bad behaving former owner is worse. If necessary, graciously thank the seller for agreeing to a longer transition, stop the employment, and release the seller. Do this only if pre-sale planning and post-sale problems fail to create a positive buyer/seller work environment, and do carry out the decision kindly. Transitions are important so be careful dismissing the seller simply because you are frustrated but admittedly haven’t really put the time in to try to work things out. On the other hand, if it’s broke, don’t waste any more time trying to fix it. The termination of employment should be handled professionally, without emotion. Even if the situation became untenable, consider providing a letter of recommendation for the seller to use elsewhere. Certainly there had to be a few things that you liked about working with the seller?
The following checklist should help you get a good start on preparation prior to the closing date and getting to really know the practice and its staff.
Employee and Employee Related Due Diligence List
Personnel: Obtain copies (or on-site access) for review
• Obtain a list of all employees, their current compensation, and compensation for the prior year, date of hire, date of birth, race, sex, and job titles.
• Obtain a list of all inactive employees, stating the reason for their inactive status and the prognosis for their return.
• I-9 forms for all active employees.
• All employment agreements.
• Performance evaluation criteria and bonus plans.
• Any non-compete, intellectual property, and/or confidentiality agreements. Also obtain copies of non-compete agreements that currently apply to terminated employees.
• Contract-labor compensation agreements.
• Review balance sheet for any loan amounts and terms owed to or by officers, directors, or employees.
• Determine currency of payroll taxes
• Obtain a copy of the employee manual.
• Obtain record of employee trainings
• Conduct background investigations on principal employees (may require approval).
• Summarize the names, education, experience, and professional biographies of the retained associates.
• Obtain copies of support staff employee resumes.
• What has been the employee turnover rate for the past two years?
• Obtain a list of all involuntary terminations within the past year, stating the reason for termination and the age, sex, race, and disability status of each person terminated.
• Obtain a copy of the organization chart. (who reports to whom)
• Review accrued 401k (or other plan) benefits. What is the company contribution percentage? What is the level of employee participation?
• Obtain copies of all pension plan documents, amendments, and letters of determination if you are keeping it.
• Determine the funding status of the company pension plan, and the ten year projected cash expense associated with it.
• Itemize all fringe benefits, along with current and projected employee eligibility for and participation in each one.
• Obtain a list of all former employees using COBRA coverage, and the dates on which their access to COBRA coverage expires.
Policies and Procedures:
• Obtain the accounting or bookkeeping policies and procedures manual, if any.
• Review all key accounting policies to ensure that they comply with generally accepted accounting principles.
• Review OSHA and HAZMAT compliance, and presence of MSDS sheets
• Obtain the human resources policies relating to sexual harassment, background investigations, and drug testing. (Employee Handbook).
There is certainly more to do, but this will get you started on the right pathway. If you pre-plan the transition carefully, communicate effectively with the seller, get to know and understand the practice and its people and appreciate the uniqueness of some of the practice’s current policies (see what you can learn from them before implementing change) your success is almost guaranteed. Henry Ford said “If there is any one secret of success, it lies in the ability to get the other person’s point of view and see things from that person’s angle as well as from your own.” Sage advice for the soon to be practice owner.