Are you thinking about selling your veterinary practice to exit from ownership or as part of your retirement? If so, taking a concerted effort to prepare the practice for a sale can help maximize the business’s value, allowing you to enjoy the benefits of your hard work. This process involves the following steps.
Step 1: Assess the Legal Structure of Your Practice
First, you should consider how you have legally structured your practice. You may have set up as a sole proprietorship, a partnership with other veterinarians, or as an LLC or corporation by yourself or with other veterinarians. The legal structure of your practice may affect the allocation of liability after a sale, the options for structuring the sale, and your potential tax obligations from the sale. Having a formal entity that operates your practice, such as a registered partnership, LLC, or corporation, may make your business more attractive to buyers.
Step 2: Review and Organize Business Documents
Next, review and organize your practice’s legal documents, including state and federal licenses (such as those for veterinary practice or the handling of controlled substances), business permits, vendor contracts, insurer agreements, and financial records. Organizing your records can help identify missing or outdated paperwork, allowing you to create a more comprehensive record for a buyer to review during due diligence. Furthermore, having complete and accurate financial records can improve a buyer’s confidence in purchasing your practice. Organized business records can streamline the due diligence process and potentially increase your practice’s valuation by making the business a more attractive target for buyers.
Step 3: Address Employment and Contractor Agreements
You should also review your practice’s employment and associate agreements with staff and other veterinarians. Having documented employment or associate agreements with everyone who works for or with the practice can help during due diligence in a purchase transaction. You may need to focus on whether restrictive covenants in the agreements, such as non-compete, non-solicitation, or confidentiality agreements, remain up-to-date and enforceable. By reviewing your staff agreements, you and the buyer can determine which employees or associates will stay with the practice post-sale and how their compensation and benefits will transition to ownership under the buyer.
Step 4: Evaluate Your Leases or Real Estate Interests
A sale of your veterinary practice may also involve a sale of the practice’s location if you own the real estate or a transfer of the lease for your location. If you lease the location, you should review your lease’s provisions, especially your ability to assign the lease to a new owner of your practice (including whether you need the landlord’s approval), as well as the new owner’s renewal options. If you own the location, you should consider the possibilities of selling the real estate with the practice or keeping the property and leasing it to the new owner.
Step 5: Protect Client Data and Records
You should also confirm that your practice remains in compliance with state veterinary record-keeping laws and other data privacy laws, including the safeguarding of clients’ financial information and personal identifying information. Consider how you will transfer client information to the new owner in compliance with applicable regulations.
Step 6: Structure the Sale and Negotiate Key Terms
Finally, the planning process should involve evaluating your options for structuring the sale, whether as an asset sale or an equity sale. An asset sale involves selling your practice’s assets, including real estate, equipment, supplies, accounts receivable, client files, and goodwill. An equity sale involves selling ownership of your LLC or corporation to the buyer.
You should also consider your preferences and dealbreakers for key terms, including purchase price, payment structure, earnouts, transition period, and allocation of liability. An attorney can help you determine your priorities and negotiation objectives.
Contact a Veterinary Lawyer Today
If you’ve decided to exit your veterinary practice or retire from veterinary medicine, it’s important that you take the time to prepare your practice for sale. Contact Mahan Law today for an initial consultation to discuss the steps you should take as you prepare to sell your veterinary practice.