David King, DVM – Simmons SouthCentral
WHY BUY MEDICAL RECORDS?
“Why should I buy them when I can get them for free?” is the routine question we hear. True, if a practice closes its door, you will get SOME of the records for free, but not all, unless you are the ONLY other practice in the area. Assume, for the moment that a practice is in the center of four surrounding practices. On average, each practice will get 25% of them for free. But what about the other 75%? Why should you care? Because the profit is so large.
The typical small animal practice has a profit margin of 12-18% after all expenses. With a records-only purchase, the profit on THAT new stream of income is at least twice as much or often 40-45%. Why? It is primarily due to the fact that the hard costs (rent, utilities, other facility costs) do not travel with the records. They are already paid by the acquiring practice.
So, what are the costs that WILL remain? Included would be the cost of additional DVM compensation, Drugs and supplies, some additional administrative expenses, and some additional staffing and misc. costs. It looks something like this:
|Drugs and supplies||18%|
|Extra support staff, misc.||12%|
*As compared to the normal 12-18% in a regular practice
But does this always work? Not by a long stretch. In short, “all the stars need to line up” just right. The questions that need to be asked are:
- 1. Does the acquiring practice have the excess capacity to absorb the new business without incurring major capital costs (additional space, etc.)?
- 2. Do the demographics work?
- a. Are the trade areas very similar?
- b. What are the drive times between the two locations? Are there any barriers such as a freeway?
- c. Are the practice cultures similar?
- d. Will the selling owner help with a transition and, preferably, work in the new location for a period of time?
- e. Can the phone number of the selling practice be transferred? This is CRITICAL!
If all of the above fits, this acquisition/merger strategy can be an excellent opportunity, and one that is largely overlooked by the veterinary profession.