VMP 290: Maximizing Your Exit The Smart Way With Dr. Sheila Fitzpatrick

Brandon 00:00:02  Welcome to the Veterinary Marketing Podcast, where it's all about how to attract, engage and retain clients to your vendor hospital using digital marketing. My name is Brandon Breshears. Thank you so much for taking the time to listen or watch today's episode. I'm really excited about today's episode because a lot of the practices that I talk to, they are at some point in practice, owners in particular are interested in selling this asset that they've built. And, today's guest is an expert in both buying and selling veterinary hospitals. And so I thought it would be really cool to have somebody that has her level of experience on the podcast to help people get a lot of questions answered about exiting a practice. So today's guest is Doctor Sheila Fitzpatrick. The interesting thing about Sheila is that she ran a practice and grew it and sold it. So she's been through this, but she helps practices in not only sell to private individuals, but also corporate groups. So she kind of gets a good range of like who you should sell to if, you know, based on your goals and your outcomes that you're looking for.

Brandon 00:01:10  and I know that there's a lot of kind of resistance sometimes, especially for private practice, to feel like, you know, I don't I don't really want to sell to a corporate group if I don't have to. And so we explore that. We talk about the value of, having clients. We talk about what you should be focusing on, on growth. And I think it's a really good conversation. It's not solely focused on marketing, but we do talk a lot about marketing here. So I think you're going to really get some value out of this. If you own a practice or you're thinking of ever owning a practice. I think thinking about how you're going to exit and sell one day while preserving your legacy is something that you probably should consider even when you're starting. So I think you're really going to enjoy this episode. If you have any questions comments, need help with anything? Please let me know. But without further ado, here's my interview with Doctor Sheila Fitzpatrick from VP Veterinary advisors. So thank you so much, Sheila, for being on the podcast.

Brandon 00:02:01  I really appreciate you taking the time to talk.

Sheila 00:02:03  Thanks for having me.

Brandon 00:02:05  So for those who don't know you, can you just give us a little bit of background in how you got started in vet med, and we'll talk about some of the things that you're doing now too. But how did you get started?

Sheila 00:02:14  Yeah. Yeah. I'm a I got into veterinary medicine very early age, started working with veterinarians in the seventh grade. grew up in upstate New York and worked in the dairy industry as well as the equine industry. I went to Cornell University undergraduate and then went to Colorado State University for veterinary school, graduated in 1991, and then went on to do an internship in small animal orthopedics, then went on to work for the American Animal Hospital Association for approximately two years, working in veterinary benchmarking, benchmarking, meaning knowing how one practice is doing versus another, and knowing how the really well managed practices do things and controlling costs and expenses and things like that. And then I also got in early on valuation veterinary valuation working for.

Sheila 00:03:10  went on to do a startup practice in the Val Valley of Colorado and practiced as a sole owner with ended with three associates in 2021 and sold in 2021 to a consolidator. stayed with that consolidator for about a year, working with, sellers and acquisition and helping that consolidator, sell, acquire practices. And then, went on on my own. I went to a school called Nakba, which is the, an academy for veterinary valuation, went to certified exit planning adviser school and went to real estate school. And now I specialize in veterinary valuation Own practice, valuation practice, acquisitions and sales, and exit planning, helping veterinarians figure out how do we get to the next step.

Brandon 00:04:06  Amazing. So I think there's that's part of the reason I want to talk to you, because I think you have so much unique perspective, because you've owned a practice, you've worked in practice a bunch, and now you're on the other side of that, helping practice owners get more out of the assets that they create, which I think is really, really amazing.

Brandon 00:04:23  So right now, can you kind of describe the landscape for practices that are selling? I think a lot of practice owners are thinking about selling or like considering selling some point, but I think that there's probably a lot of misconceptions about what the market is like and then also who the buyers are in kind of today's market. So what is what is the marketplace look like in your opinion based on your experience right now?

Sheila 00:04:46  Right now, I think there's a market for both the private practices being bought by private sellers, private individuals, and there's a market for corporate purchases and acquisitions. I get a lot of calls. In fact, just got off a call. from very remote areas. and we're talking mixed practices. One doctor practices in remote areas. Those are very difficult to sell, and currently they're a difficult market. but what we encourage these practices to do is to find young associates that are from the area. Bring them back into the practice and do an associate buy in buyout. there is a very active corporate market for practices that are two or more doctors, three or more exam rooms with revenues of 1.2 million and up.

Sheila 00:05:36  Those practices are being bought out by Consolidators. The smaller practices are being more bought out by private individuals. There's lots of lending, lots of great lenders out there. And I still think the market is hot for the private practices. In fact, we're seeing an increase in the number of private practice sales over, say, 2021, when the the consolidator market was very hot. We're seeing a lot of individuals leaving corporate practice and saying, look, I want to have my own practice going out and starting their own, which is great. Or going out and buying individual practices.

Brandon 00:06:17  That's really, really interesting. So I think there's a lot of resistance in terms of selling to well, I feel like most of the practice owners that I talk to when they think about exiting and I'm not having, I'm sure, the same level of in-depth conversation that you are, but I think that there's definitely a feeling like selling to a corporate group or consolidator is kind of the only exit plan available. what are some of the things that I think you'd say are strengths for the corporate buyers versus like some of the private buyers that people might not be considering right now?

Sheila 00:06:52  Well, let's think about why are they resistant and what are the issues and why are people selling.

Sheila 00:07:00  To corporate right now. And and what does that landscape look like? I think the real issue here is that many veterinarians have not done proper exit planning, for example. They haven't met with a financial advisor five, even ten years before retirement to know how much money they need. And then they hire a person like myself to value their business, and they meet with a financial advisor at the final hour. Many people are in their 70s, even in their 80s, and say, look, I haven't saved a lot of money. 80% of most people's wealth is wrapped up in their business. And so most of the money they have is in that business, and they need to sell that business. Then they find out that corporates will pay a multiple 2 to 3 times what a private buyer will pay. So even if they're resistant to the change and resistant to consolidation of our of our veterinary market, they have to do it because financially they don't have a choice. So so what are the pros and the cons? I mean, I think with corporate groups they offer a lot of benefits, a very good wide range of benefits, disability, a lot of continuing education.

Sheila 00:08:22  They're very employee centric. So for the groups out there, the veterinary practice is really struggling, struggling to to provide benefits. I feel that corporations really step up to the plate and take care of the veterinarian assistants, the technicians, the receptionists and that. with respect to the doctors, they typically have a little deeper pocket. So they can they can provide a higher sign on bonus, more aggressive benefit package more aggressive see. And they can pay production bonuses. What are the differences though in a private practice, if a private practice is well run and they make some of the changes that I can teach them to make to allow them to compete with the corporate practices, they've improved their technology. They work with a very efficient staff so that they can leverage their staff with their doctors. those practices could try to compete and provide a better benefit package. They could join buying groups like veterinary management groups that allows them to increase their EBITDA, their value, and that would help them run more efficiently. But many veterinarians still love the mom and pop idea.

Sheila 00:09:39  They still love, as I loved knowing everybody in the community, having a personal relationship with the the clients and being able to have leadership opportunity and ownership opportunity. Those are big reasons why veterinarians are still being attracted to the private practices, because they like those opportunities, and it's getting veterinarians to step out of their shell and look at what life would be as an owner and allows them to get ahead more readily. So the private practices really still can offer that a lot of the things the corporations offer, but more, more ability to climb the ladder, ownership potential and leadership potential.

Brandon 00:10:25  Totally makes sense. I think a lot of practice owners are nervous about selling to corporate groups because they see certain groups sell. I'm sorry. By by practices. And then kind of the practice gets either run into the ground. The staff is kind of not taken care of. I think that might just be the feeling. I'm sure that there are good groups out there, but what is your current perception of that And do you think that that is super common, or is that just kind of like a horror story that gets thrown around every once in a while?

Sheila 00:10:56  I think that's a horror story.

Sheila 00:10:57  honestly, Brandon, I think that, the people that have had bad experiences are the most vocal, but then you have the people that are having good experiences, and I think it. I think there's over 48 groups now. Okay. There's bigger groups that provide more support in the field. They can have a bigger HR department. They have deeper pockets to buy equipment and provide benefits. And the bigger groups, pay more attention to their hospitals. The smaller groups that are more spread out, say they only have one hospital in that state, really aren't going to offer a lot of one on one support. And that's why a lot of this falls apart. Because when you sell all of a sudden, who's telling me what to do, who's giving me guidance, who's directing Traffic in my practice. The bigger groups are going to have that support in the practice and make those people happy. Listen to what they need. Meet with the doctors. Are they happy? What will make them happy? It's when that support isn't there.

Sheila 00:12:03  Things start to go south.

Brandon 00:12:04  It totally makes sense. and so when you're when you're looking at practices, it sounds like, one, one thing I heard that was pretty interesting is that when you have to sell your, your choices are kind of limited. But when you just would like to sell, you have more options. So especially if you're in a rural area or an area that probably would be more difficult, you have to start, I think probably much earlier, and that would be helpful in helping to get kind of your goals met and things. But, when do you typically like to start talking to practices in their process? Is it like five years before they sell.

Sheila 00:12:40  Five years, at least five years out? there's so many changes that can be made in the efficiency of the practice. Growing it with doctors and more staff. Good management practices. There's so many things that could be made from an operational level that are going to turn into greater profit. You also want to build your team morale.

Sheila 00:13:00  You want to build your client base, build your new client base, and be able to grow that practice so that in five years, you're where you need to be.

Brandon 00:13:08  Totally makes sense. I think that's that's probably a good time frame, even maybe a little bit earlier. If you're in a rural spot where it's going to take a long time to get an associate and, you know.

Sheila 00:13:17  Exactly.

Brandon 00:13:18  Figuring that stuff out. Well, when it comes to growing the practice that it's attractive for, an acquisition, do you think? what are some of the biggest things that make your practice more attractive? Versus it's just like a business that if you walked away, it dies because you're the whole thing driving the growth. So kind of what are the things that you're looking for to help implement for people that are thinking about like, okay, I'd like to sell this someday. I think the earlier that you can establish systems, especially when it comes to marketing, like if you open your practice and you have lead acquisition systems and you have, you know, good conversion systems and trainings and SOPs and all of these different things, it's much easier to grow down the line.

Brandon 00:14:02  But what are the things that are kind of the core value pieces that people need to be thinking about when it comes to selling their practice?

Sheila 00:14:09  You know, one of the big things that you just mentioned, Brandon, is owner dependent businesses. When it's 100% dependent on an owner, let's say I have a $3 million revenue practice, and the owner is producing two and a half out of the three. Most buyers are going to be really scared of that acquisition, right, because they're going to say, if he leaves, what do I have? So dispersing the production over multiple doctors. Makes that far more attractive. Number one. Number two, as an owner, if you can back off a little bit, if you are going to sell to, say, a consolidator, you back off so you don't want to have to stay. If you're in a rural area again dividing that that production among other veterinarians. So the clients bond to the other veterinarians. And when you leave, it's not such a catastrophic event.

Sheila 00:15:01  That's number one. Number two, a strong online presence, which is something that you can really help with. Up to date website constantly driving reviews so that people will come to that practice. They see this up to date beautiful website can get to familiarize with the staff. look at your reviews, which grows the number of people coming that that's a big thing. Also automate automating things like your medical records, getting away from written medical records and going to digital medical records and utilizing a CSR program, a customer service representative program like Pet Desk or La DBM, which sends automated reminders out, sends flashes about specials and things like that. That saves somebody so much time from the old days when we used to have to stamp 3000 reminders, right? So automating your processes, increasing or improving the quality of technology in your practice, good quality lab equipment, good quality equipment in general. When I walk into a in a rural practice and I see, let's say, a 50 year old anesthesia machine, that makes me really nervous.

Sheila 00:16:20  So investing in technology and investing in quality equipment and then investing in the appearance of the practice, making it bright and comfortable and modern. All of those things help with, of course, preparing your practice for sale.

Brandon 00:16:40  Very very interesting. So one thing that I will ask most clients when we're we're starting running ads for their practice. We'll be like, how much is an average client worth? Or what's an average value like of a new client that comes in and almost nobody knows their numbers when it comes to how much clients are worth cost per acquisition, annual lifetime value of a client, the total lifetime value of a client, things like that. When somebody is looking at acquiring a practice, how in-depth do these these practice groups go in? Like what kind of numbers do you think a practice should be looking at and knowing when it comes to like revenue numbers and things like that?

Sheila 00:17:19  I mean, I think that, there's that's kind of a multifaceted question, right? For sure. so from a revenue standpoint, you really want a revenue of, of $1 million or more.

Sheila 00:17:33  The practices less than $1 million are going to struggle a little bit to get their value out that they need. when we look at numbers, How important are new clients? Very important. The the practices that are not taking new clients are not attractive. Right. So you want to be growing your new client numbers. Now some of these, programs will actually tell you how much each client has contributed over time. But obviously, corporate groups, private buyers included, are looking at a trend of increased profitability year to year, increase new client numbers year to year, increase increase in number of transactions year to year. And they also look at your average client transaction. So if your average client transaction is below $100 and you multiply that by the number of people you see versus your average client transaction of 200, that's astronomically different, right? So those are some key metrics that we do pay close attention to.

Brandon 00:18:43  That totally makes sense. And so along those lines, when you're talking to somebody, just out of curiosity, do you typically go through like categories of types of procedures that people are doing and try to either focus more on high margin, high end transactions or like scale up, like adding in more dental procedures or more surgeries or things like that.

Brandon 00:19:06  Or is that not super important when it comes to exiting?

Sheila 00:19:10  I think it's very important to diversify the services offered. When you're selling, when you don't diversify, then you're limiting yourself, especially if there's competition in the area. So you want to diversify. Whether you do more advanced dental procedures, you start offering ultrasound. Those kind of things absolutely is very important. But the other key factor here is the more high dollar items that you do, which I think is what you're you're getting at here is quality. The more quality procedures you are doing, like dental with blocks and extractions, pre anesthetic blood work on your big procedures, abdominal exploratory splenectomy, things like that. That is going to raise your average client transaction. So if you're just strictly a vaccine clinic for example your value to a buyer is going to be far less than a practice that does a high number of very quality procedures, has a higher client transaction and a more, more diverse offering. we use urgent care practices as an example, because urgent care practices also often get a much higher average client transaction, but they're not diverse enough and they're only open certain hours.

Sheila 00:20:30  Right. And so those are actually less valuable in many areas than a GP practice that has a diverse range of services offered.

Brandon 00:20:40  That totally makes sense. And when it comes to specialty practices, are those kind of along the same lines of being more difficult to sell like a rural practice or that not the case, it's going to be market dependent.

Sheila 00:20:51  I think it's market dependent, but in general, there's fewer buyers out there for specialty practices. So when you have greater than 48 buyers Consolidators looking for GP, GP practices, you might have far fewer, let's say 20% of that number that will actually look at a specialty practice. The emergency practices in general are becoming very difficult to sell as well because of work life balance. People not wanting to work the hours of the weekends and it becoming too costly to keep them open.

Brandon 00:21:30  Very interesting. Very, very interesting. that that's so when it comes to thinking about, Growing a practice. I know that especially with startup practices that I've been talking to lately, there's a lot of de novo practices that are creating multiple locations.

Brandon 00:21:48  How much of an increase or does that help with finding buyers? If you're a multi-location practice, like let's say you have 3 or 4 locations. Is that something that's more attractive or is that less attractive in most buyers?

Sheila 00:22:01  I think that I think that that depends on the overall value of each practice. If if you are running for practices efficiently and you have a high EBITDA, that is very attractive because a consolidator can come in and buy them all at once, and that really raises their number, basically their inventory. Right? So they like that. but if you have multiple locations that only have one doctor and the revenue is fairly low, it's really not going to help your case.

Brandon 00:22:32  So would you say that focusing on a single location and expanding more with like four doctors at one location is better than four single doctor locations or is that.

Sheila 00:22:42  Absolutely.

Brandon 00:22:43  Yeah, that's super interesting. So when people are looking at maybe acquiring a location when especially with de novo practices, I work a lot with them. I think it's hard for people to go from working in a practice to then owning a practice and thinking kind of like vision, where they're going to be in like ten, 20 years type of a thing.

Brandon 00:23:05  Yeah. When somebody is setting up, how how much do you think they should be considering growth in like how many vets they should be having for capacity and those kinds of things.

Sheila 00:23:16  Growth and number of veterinarians and capacity has 100% to do with revenue. Right. So if you look at an average veterinarian, let's say an average veterinary management group veterinarian producing 750,000, then you want to look at I want to grow my revenue, at least in the first several years to. It just depends 100% on location, right? but you want to grow to that 500 and that to that 750. But ideally at each growth mark, when you get to 750, then you add another veterinarian and you want to grow to 1.5. You're at 1.5. You want to grow, to over 2 million and then add your third doctor. And so the number of doctors is very much related to what your revenue is, but how many patients you're turning away. How booked out you are and your location. Right. Because I could have a startup in a very rural western Colorado town that really just doesn't have the demand.

Sheila 00:24:19  So I can't say how much they should grow from one year to the next.

Brandon 00:24:24  Sure, that totally makes sense when you're doing these types of acquisitions or I mean sales practices, especially to like, let's say you're helping somebody acquire some real estate for a practice. How far in advance are you kind of looking at projections for growth of locations and things? I think there's been a big exodus from a lot of cities recently. And I'm curious to see if that'll continue here. But how how far out are you looking when you're helping people to to find practice locations and things.

Sheila 00:24:58  A year out typically.

Brandon 00:25:00  Interesting.

Sheila 00:25:01  Very cool. And you know, one of the common, things that people do is they start going to town board meetings, town planning, planning meetings, especially like in a county where I live in western Colorado. You know, there's just huge growth, right? So by going to this planning meetings, you kind of know where are the housing developments coming in, what do you need as a base? Right.

Sheila 00:25:23  You know how many people you need? About 15,000 people, you know, for a good veterinary practice to be thriving. And so, I think a year, a year or even two years in advance to be knowing what's going to happen in the future.

Brandon 00:25:40  I think that's that's really, really wise when it comes to kind of the key value points that really make up a strong practice. What are those things that you really look at when it comes to like, one thing that I'm thinking in particular is, is like lease versus own on real estate. How important is that distinction when you're looking at selling? You know.

Sheila 00:26:02  That's a great question that just came up at a webinar that we gave this year. is it better to lease versus own your real estate? When we value a practice. We adjust the rent to fair market value. So whether you own it or you lease it, we're still adjusting it. So from a valuation standpoint, it doesn't make a huge bit of difference. But from a selling standpoint it's it's huge.

Sheila 00:26:30  Why? Because when you lease you can't control the number of years that you can lease that facility. Most consolidators want a lease of 15 years minimum three five year renewals. And when you are simply leasing it, you don't know if they're going to raise the rent. At what rate? They're going to raise the rent. If they're going to move, if they're going to sell the facility and how long a lease they're going to give you. And many practice acquisitions and sales fail because of the lease and the landlord. So in my opinion, you're better off owning because you can control your destiny much easier.

Brandon 00:27:14  Definitely makes sense. how much do, interest rates affect the sales is that seem to be affecting valuations and and things very much? Or is that not such a big factor.

Sheila 00:27:26  Just more. It's not affecting the valuations but it's affecting the ability of people to buy Because at the higher interest rates, if the business doesn't cash flow to support that higher interest rate, then they're going to have to wait until rates come down and they can support that payment.

Sheila 00:27:45  what happens many times too, is that people are looking at real estate rich hospitals, right where the real estate is worth quite a bit more than the practice. And the higher the interest rate, the less the chances are that that person's going to be able to purchase that practice.

Brandon 00:28:05  That totally makes sense. Yeah. That I think that's the case for lots of industries like farming, especially where farmland is not very valuable as farmland, but they turn it into some development and then it's worth millions of dollars. So that that makes a lot of sense.

Sheila 00:28:20  And I think consolidators are less likely with high interest rates to roll, you know, to liquidate and sell, because nobody wants to buy them at the high interest rates. So it's harder to get your equity money out of a consolidator. And they're smarter about what they buy. When they can borrow money at a much higher rate, they're not going to buy as much.

Brandon 00:28:42  Definitely makes sense when people are selling any of these commercial buildings along with their business.

Brandon 00:28:48  Are any of these loans assumed or is that like worth looking into when they're acquiring that it is assumed at the current interest rate and.

Sheila 00:28:55  Absolutely. Yep. That's that's a really, really important question that comes up all the time. And understanding if it's a suitable loan is extremely important. Also, if you're doing an SBA loan, SBA tends to be really high interest and you have to know how much is it going to cost to pay it off, what are my repayment options?

Brandon 00:29:18  That definitely makes sense when it comes to the value of a practice. I think I've spoken to a few practices that have been just like they've been in business for 30 or 35 years, their single doctor practice, and they're just kind of like a little hole in the wall veterinary practice in a strip mall, maybe. I'm thinking of a few, but they really have waited till the last minute. They're like, I need to sell in the next six months. and I have this customer base, but, like, if they walked away, the practice wouldn't be open.

Brandon 00:29:46  They would have no revenue. How much is having a client base and, like, the equipment worth? Is that anything that that these consolidators are thinking about? Or is that just like, you know what, we could acquire customers for much cheaper and set up a new practice for much cheaper. Is that what they're thinking, or is there value to that?

Sheila 00:30:03  Absolutely. Yeah. That that's you know, this question comes up all the time, and I use this as an example of AA1 doctor practice potentially, that I have listed in the past where the value of the practice was at least one tenth of what the owner thought it was worth. it wouldn't even have paid to equip the surgery in the in the clinic yet Fully equipped. Beautiful clinic. Well-run clinic. from a standpoint of quality procedures, but no profit. And the issue here is the banks will only loan on profit, and equipment can only be sold at $0.05 on a dollar, literally. a lot of times we just can't get our money out of the equipment.

Sheila 00:30:52  So you see very few people coming in and buying just a client list or just the equipment. We would call that an asset sale. it's all comes down to the profit. And if it's profitable, we can sell it. If it's not profitable, we can't.

Brandon 00:31:10  Right now, what are some of the biggest mistakes that you see practices making that are keeping them from being profitable in your opinion?

Sheila 00:31:17  I think not efficient. You know, first of all, digitalize your medical records, right? Like, it just makes systems so much smoother. Automate your front desk using great software programs that can automate your marketing. use your staff efficiently. Like use your technicians to draw the blood and do the heartworm tests and run the fecal. And don't be putting your doctor at work doing those things, because that is not allowing the doctor to produce. Utilizing the staff efficiently is critical. and then giving away their services. I mean, we love animals. That's why we're in the business is because we absolutely love what we do.

Sheila 00:32:04  The problem is, when you're giving away 200,000, 300,000 worth of services, those discounts are coming off your bottom line. So if you're discounting that much, I think you have to step back and say, why am I discounting so much? And what is wrong with my fees that I feel like I have to discount? And then the other really big thing is people do not realize. Veterinary owners do not realize how buying groups such as veterinary management groups, veterinary growth partners, or see how they can go in and buy things so much cheaper than you can. Just as the Joe Schmo veterinarian in the shopping mall, right? And if you were to join a buying group, you can get so much purchasing power and that will lower your costs. So if you lower your costs and lower your expense, utilize your staff and grow your revenue by great marketing techniques and good customer service that'll make your practice perform in the long run. So those are the big mistakes that I see.

Brandon 00:33:09  That's very interesting. So I think one of the things that's unique to you is that you worked in practice and also you've sold your practice.

Brandon 00:33:16  So thinking back to the sale of your practice, what were some of the biggest lessons that you learned that you wish you had known beforehand, if there was any that you're thinking of?

Sheila 00:33:24  I think I think that, there was a lot of lessons I learned in that.

Sheila 00:33:28  It was.

Sheila 00:33:29  I think that before you sell your practice, you do need to meet with a financial advisor and understand what do you need financially to live the rest of your life? Because there's never a good time to sell a veterinary practice? Because veterinary practices are, for the most part, very valuable businesses. Right? So I should have met with a financial advisor. The second thing is meet with the CPA. I didn't meet with the CPA, so I had no idea of the tax implications of selling the business. And if you get all cash up front versus you get a slow buyout, that would have greatly reduced my tax rate. And so had I understood that, I might have done things a little differently. And then I think a couple really big lessons is you need to know that the day that the ink dries.

Sheila 00:34:24  Right. And the practice is sold. It's not yours anymore. So no matter what happens in that business, you no longer own it. And they are in control. And it's it's being mentally and, you know, prepared for that. That difference. Because it's never going to be how you did it. Right. And then lastly, most people have a manager. Like most Consolidators have the managers sort of rule the roost. Right. And so you've been the the power person forever, right? You've been calling the shots. And now all of a sudden, your manager, who you've been directing, is telling you what to do. And that's quite a bit of a change that a lot of people can't accommodate to. It's just a lot of change. And just being prepared, emotionally prepared to say it's not mine anymore. I can't comment on how they're running the practice.

Brandon 00:35:23  Totally makes sense. I think a lot of people want to leave a legacy with the practice and the business that they that they're growing.

Brandon 00:35:31  Do you think that that is a reasonable expectation, and if so, do you think that maybe like doing a succession plan, that is, I'm going to bring associates in and keep them on and keep this thing going with my vision? Do you think that's even a reasonable kind of exit plan, or is that just like you have to?

Sheila 00:35:49  Absolutely. I mean, I hired veterinarians that I thought shared my mission. We had the same morals and ethics, and we had the same quality of practice. And so I feel that I instilled those standards in my staff and in my doctors to continue my legacy after I left. And I think that, some people sell the consolidators, some people sell to private buyers. But when you sell, you want to sell to somebody who has a similar vision for where this practice is going and how it's going to be operated. If you if you're a no low practice, for example, where you have a super high volume, super low cost to try to transition that practice to somebody new, coming in saying, hey, I'm going to really raise the prices now.

Sheila 00:36:46  It just doesn't work because it's the culture of the practice, right? The clients are coming for that culture, and if you change that culture, your legacy won't live up.

Brandon 00:36:58  Totally makes sense. And that's one of the biggest problems that I see with marketing is that they just they want to attract a higher end client or a higher end procedures, but they don't have really anything to justify that increase in price. And so it's just like, yeah, we just want those clients. It's like, I wish we could, you know, get the high end clients for everybody, but they have to have a reason to accept the offers that you're putting out there. And so I definitely see that as as being true. right now with if you could snap your fingers and magically fix something when it comes to the sales process, when you're talking to these sellers, what's one thing you wish that you could just help people to do that would really benefit them as they're exiting practices?

Sheila 00:37:40  I wish that so many of them had planned their exit sooner, and I wish that I could give them all more money.

Sheila 00:37:50  because what happens is that they want more than it's worth, because they've gone so long without saving that I need to be the hero and get 2 to 3 times what it's worth to make up for the fact that they did not plan properly. And so I would want to. I just really want to educate the veterinary, workforce on plan ahead, be prepared, and also be emotionally ready. Already talk to other colleagues that sold. Do your homework on the buyer, whether it's a private buyer or a corporate buyer. Get references and know who you're selling to and then ask the right questions. What is it going to be like the first year? What's it going to be like the first month? And be prepared instead of going in blindly and being shocked.

Brandon 00:38:45  That totally makes sense when you're looking at like, let's say a practice is interested in in what their practice is worth because you're wishing that it could be, you know, 2 to 4 times more valuable. How difficult is it to get a pretty basic understanding of the practice value, like when you're when you're talking to somebody, can you pretty quickly know, like, okay, this sounds like this type of a practice, or do you have to really do a deep dive into financials and everything or what does that typically look like?

Sheila 00:39:10  I think that's a great question.

Sheila 00:39:12  I think if you started by looking at a software report right from the practice software, and you look at doctor Production. Average client transaction. Number of transactions and number of new clients. You'll get a pretty good sense immediately if this practice is going to have value. But to do a deep dive to really give somebody an EBITDA, it takes a deep dive and it's not an overnight process. It's looked deep into the financials and tax returns, panels and payroll and software reports and find the non-recurring expenses. Find the one time expenses and take out the boat that they bought to take to Lake Powell. take out the new horse that they bought or the new Maserati that they bought, and just remove these personal expenses so that I can actually see what the practice is generating.

Brandon 00:40:11  That totally makes sense when you have a practice. And I think a lot of practices right now are hovering maybe between like 60 and 80% of being kind of efficient. And then what I mean by that is that when they contact me, they'll be like, yeah, most of our days are, you know, 60 to 80% full appointment wise.

Brandon 00:40:28  When you're looking at improving a practice to maximize exit value, how long does it need to be kind of baseline for when it comes to like let's say you ramp up ad spend, you ramp up client acquisition, you get everything really dialed in. How long does that need to be established for that to be translated into value for a practice owner?

Sheila 00:40:46  A solid year.

Brandon 00:40:47  A.

Sheila 00:40:47  Solid, a solid year of change to see that it reflects, you know, I give an example. I was valuing a practice this past week where the revenue was really high. And then right at Covid, a lot of people lost doctors at Covid, doctors quit. They just couldn't deal with it. And so they went from three doctors to one. So then that revenue is dropping. Well, now all of a sudden we're adding doctors again and we're building revenue. And I say to them, you're going to have to have one solid year up in profitability before somebody is going to feel comfortable, because they're going to see that decline in revenue.

Sheila 00:41:28  So a good, solid year of really working on the practice will help you get it sold.

Brandon 00:41:33  Very interesting. So if things are stagnant or slightly declining, a lot of practices are seeing slight declines now just because they've been really market driven. how much does that affect valuation in like current market condition?

Sheila 00:41:50  It depends on if they're controlling their expenses.

Sheila 00:41:52  Right.

Sheila 00:41:53  If their revenue is steady, which which Aviva did come out with their economic report this year and they said visits are down. People are waiting six more months to come back into the vet. People are spending less. Right. And so if that practice is steady in revenue but they're controlling their expenses, their value could actually go up. That makes sense. Now if if there, let's say their profitability is lingering below 10%, it's going to be tough to sell. So you want to look at that profitability, that overall profitability. You want it up in that 15% or higher. That would be ideal. when you're selling. So control those expenses.

Sheila 00:42:36  If you're not growing the least cut back on, you know, the, the $28,000 of office supplies or think before you buy something that you don't really need.

Brandon 00:42:49  That totally makes sense. And, so I guess one quick question that I would love to get your take on, because you have such a big background in financial planning and things. What is your opinion? This is the question that I ask every time I get somebody who knows about financial planning. But what percentage of revenue do you think should be allocated towards, marketing expenses in a practice? And if you don't know, that's okay.

Sheila 00:43:13  But it's 3% of total gross revenue is dedicated to marketing. That's a standard value.

Brandon 00:43:20  Awesome. So I get that question all the time, and I say, I don't know. I'm not a CPA. Yeah.

Sheila 00:43:26  3% is your number. And you know, I have some practices that I'm just shocked that they spent. Let's say they're a $4 million revenue and they spent 900 on marketing. But, you know, again, if you're booming and you can't take care of the people that you have, then you can't market, right? Because you can't.

Sheila 00:43:46  I mean, the doors are going too fast. There's too many people coming in. Right. But if you're trying to grow, you need to utilize that 3%.

Brandon 00:43:54  Definitely. That totally makes sense. Well, before we finish here, tell people how they can get in touch with you and then how they can get a valuation and all the types of things that you help with. So that I think that you're super easy to talk to. I love chatting with you. And so I recommend everybody reach out to Sheila. So she's not.

Sheila 00:44:13  Thanks so much.

Brandon 00:44:14  And used car salesman is going to hunt you down and make you sign something.

Sheila 00:44:18  Yeah. we're at, VP Veterinary Advisors. So, my website is VP Veterinary Advisors. Com, easy to find. We also are on LinkedIn and we're on Facebook. and we'd love to connect. We're very easy to connect with you. You just hop on our website and fill out a quick form, and we will set up a time. There's even a calendar link to book an appointment.

Sheila 00:44:43  So really look forward to reaching out and hearing from you all.

Brandon 00:44:47  Definitely. And so you help with buyers sellers also some recruiting things to you. Can you tell them a little bit about like let's say somebody is thinking about selling or they're been in practice for ten years and they're like, you know what, I should think about this. What would that look like if they if they reached out to you, what would you typically go through and do?

Sheila 00:45:04  Yeah, we would spend an hour, a free consultation, free our consultation and just talk about what their goals are and if their goals are in alignment with what we think they need to be to get to their end end goal exit strategy. we talk about the three legs of the stool, which is your personal goals, your financial goals, and the business goals, and see how we can get those in alignment to make a plan for the future. And whether you're planning ten years from now, a year from now, we can help you. If it's a month from now, it's going to be difficult.

Sheila 00:45:42  So but no deed is too difficult for our team. We can do it for sure.

Brandon 00:45:48  And it's better. Even if you only had a month, it's better to have some help and advice on your side, especially from somebody who's been through there. and I know we talk mostly about selling, but for people that are doing buying of practices and things to you help with that. Obviously in securing.

Sheila 00:46:03  We do we help do evaluations. We do, a review of the valuation to be sure it's fair and equitable for all parties. and we also advise on terms. I advise a lot on terms, of the sale of what I see and what I think is doable. And then of course, we have a real estate division and we can help with lease terms, purchase terms and things like that.

Brandon 00:46:27  Excellent. Well that's VP Veterinary Advisors. Thank you so much, Sheila, for being on the podcast. And, is there anything else that you wanted to add in there or think that would be valuable or beneficial for everybody? Anything.

Sheila 00:46:40  Yeah. We also offer a recruiting division. we have VP veterinary recruiters, and we work with students all around the country. We help them negotiate their deal. We help veterinarians, private veterinarians find associates, show them where to look, help them to develop a good quality ad. So that is a division that we have. And just want to make you all aware that that is a service that we offer.

Brandon 00:47:07  Thank you again, Sheila. I really appreciate your your time and insight. Thank you.

Sheila 00:47:10  Thanks for having me. Take care.

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