David King, DVM, CVA – Simmons Southcentral
In the past, the recently graduated DVM had several options when deciding on a career path. Most of the time, the path led to practice ownership, but that may not be the case now. The reasons may include a fear of taking on even more debt, watching a window slowly close on starting a family, or maybe a lack of desire to take on the risks and responsibilities as a practice owner.
However, for those who still see practice ownership as the path to independence and financial security without the above reasons, the path has become more challenging. Read on to discover how.
How the Path Has Changed
The new difficulties in the path to veterinary practice ownership are primarily due to the ever-increasing market share of the Corporate Consolidators (CC). The CC actively pursues the more profitable, multi-doctor practices, and as a result, the options for the private DVM buyer are becoming more limited. Because of this, it is now vitally important to plan a strategy to obtain practice ownership. The path to ownership includes three choices – start a practice, buy into a practice over time or buy out a practice. Each option has its own challenges.
Because of the high costs and the lack of income in the initial period, this option is becoming less common than in years past. This is partly due to the financial pressures created by hefty student loans, which were not a factor for veterinarians 20-30 years ago.
As a result, it has become hard for young practitioners to have little or no income for an extended period. Also, keep in mind that a start-up has to compete with the CC for clients and staff. The CC can usually offer better pay and benefits than the new startup owner’s cash flow will allow. Starting a practice can still be done, but there is little room for any error.
Buying into an existing practice, especially one where the associate is already employed, was a common way a young veterinarian could acquire a sizeable profitable practice. This was low risk for both the selling owner and buying associate as each gained something as the ownership transitioned. Now, if the practice is profitable and desirable, it is in the crosshairs of the CC. The CC will often offer well above fair market value for the practice, effectively eliminating any hope of the associate DVM making a competitive offer.
As the CC makes start-ups more difficult and essentially takes the buy-in off the table, the only option left is to purchase a practice outright. However, the CC has even influenced this option. As with the buy-in, the CC has basically removed all the larger, more profitable practices from any consideration by the individual buyer. This leaves only the smaller grossing practices and practices not on the CC radar —mixed animal or less desirable locations — as options for the young buyer. Some might consider these as crumbs, but they should be looked at as diamonds. Many practices on the market are not CC targets but would still make a sound investment opportunity for an individual buyer.
This changing landscape of practice ownership now requires the young entrepreneur to start planning even earlier and stay alert to opportunities. If the buy-in path is chosen, ensure it does not result in a dead-end after several years of waiting. Too often, an owner is swayed by the big payday of a CC buy-out. No one can blame the owner for taking the money, but this is little comfort to the associate who now must fall back and make adjustments.
Consider a Smaller Practice
The best plan may always be to keep an option open to purchase a practice that is not on the CC radar. Considering the 1-2 DVM practice grossing less than $1.5M with average profitability can lead to a successful career. Of course, the definition of success is determined by the individual. Success may be defined as the rewards from acquiring this type of practice, serving the community, and providing for family and employees. Here, one may be able to compete with the CC on a field where they don’t match up well, the smaller, more intimate practice. Of course, success can also be defined as growing the practice to a point where one day the exit is with a CC and that large payday.
Simmons Is Your Partner on the Path to Practice Purchasing Power
There is no right or wrong answer and no right way or wrong way to pursue a veterinary career and the purchase of your own veterinary practice. However, it is best to look ahead and plan, thinking about path choices and potential outcome consequences. This becomes even more important to the possible practice buyer in this ever-changing practice ownership landscape. Practice ownership can be not only achievable but a rewarding and successful endeavor. Contact the experienced team at Simmons Veterinary Practice Sales and Appraisals today for more expert guidance and for all of your buying, selling, and appraisal needs.