The Broker answers

Practice Valuation FAQ’s

1How long does it take to sell a practice?
The time is longer than you might expect as the purchasers do a great deal of legal, commercial and financial due diligence so they largely determine the timetable.The average time is from our receiving instructions having offers is about 6 weeks and then after that a further 16 weeks to completion of the deal.An experienced broker will manage that process through the various stages from the preparation for the initial approach through to completion of the deal.
2What costs are we likely to incur relating to the sale?
Brokers fees vary depend on many factors. We have found that being totally independent of the corporate buyers gives the client confidence that his best interests are being looked after.Our fees, which are only paid if a deal is concluded, are based solely on the amount received for the goodwill. In addition, lawyers’ fees will need to be paid and, depending on the property ownership, a lease and if you continue in employment, agreeing a service contract. Your lawyer should be one of your choosing. You will also need to spend a great deal of time dealing with the buyers’ questions as they go through the due diligence and you will need to pay your accountant to assist you with this.You can save time and costs by getting certain matters in order before you begin by ensuring you have a recent asbestos survey, EPC and your PAT testing is up to date.
3When should we tell our staff we are selling the practice?
As late as possible, as you do not know that the sale will take place and staff can be unsettled in the meantime. The exact timing of that will be discussed and agreed with the purchaser. As there will be a number of visitors to the practice during the process, you may need to give an explanation such as your bank, insurance brokers or surveyors require information
4Will the purchaser make wholesale changes to the business once they have bought it?
They are paying a lot of money for the practice and they will not damage the goodwill by undoing what you have built up over many years. Changes will generally be agreed with you before implementation but such as computers may need to change to fall in line with their requirements.
5What are the major factors in determining the price for a practice by a corporate purchaser?
Turnover, maintainable profitability, growth prospects as well as location are some of the factors a purchaser will consider when deciding the price, he is prepared to pay. This information supported by a clear and comprehensive sales memorandum, which we prepare, has proved to be the key to obtaining the best price.

The Broker answers

1 SE NW England- "I am a sole trader and am considering selling my practice. I have been advised of the tax benefits of incorporating, should I do that before selling?"
The price you get should not differ whether you are incorporated on not, although the selling costs will be higher, as the process is more complicated. If you sell as a sole trader now you will be eligible for Entrepreneurs' Relief tax relief at 10% of the gain in value. If you incorporate your practice you will not be eligible for the Entrepreneurs' Relief until the limited company has traded for at least 12 months.
2M25 England- I have an established small animal practice which I have run single handed for the last six years. My turnover (ex VAT) was £339,000 last year, with a net profit of £94,000. About 6 months ago a pet supermarket in house practice opened within 1 mile of my surgery. Will this destroy any chance of selling my practice for a reasonable price?
Often pet supermarket practices will open up near to other independent practices. Obviously they will attract clients from your practice, but similarly they will attract them from other neighbouring practices. Our experience has shown that you could lose up to 15-20% of your income as a result. However in most cases many clients will also return, especially if you are competitive on price. This can still be undertaken even while you increase some prices. Most of the supermarket practices are competitive on the shopped prices, e.g. vaccines and neutering and more expensive on the non shopped services. Once you have stabilised your sales income reduction, and got to a point where you are starting to increase it again there is no reason why your practice should not sell.
3Central Midlands- "I am thinking of selling my 3 vet SA practice, who should I sell to?"
Your options will depend on who is interested in buying your practice and what it is worth for them to do so. The practice sales market at the moment is dominated by the corporates, with 95% of all practices with a turnover of over £500k being purchased by them. There are also individuals out there looking to buy, usually in the £250K-£750K price range for the goodwill, as well as some larger practices who may be looking to expand.Ycorporate purchase. The corporates are paying a premium for good practices with both high turnover and high profits and it would be difficult for a private buyer to match some of their offers and also borrow the funds. Offers of up to 10x EBITDA are taking place in some cases. A range of multipliers for the EBITDA are used, so the practice must have a good location, maintainable profits and easy manageability to get the best price. You should only negotiate with potential purchasers who have a serious interest and are willing to negotiate constructively The important point in any sale is to ensure the accounts and sales are up to date and presented in the best way to maximise any offers and to ensure offers are place in a like for like way.
4JS- Midlands- "I keep hearing about EBITDA what is it used for?"
EBITDA stands for Earnings Before Interest, Taxes, Depreciation and Amortisation.At the VBA we use maintainable profit as a basis for valuing the goodwill of the practice, which is similar to the EBITDA The MP is the net profit after deducting costs unrelated to the purchaser and adding back unaccounted veterinary salaries and property rentals if not already used. So, a practice with a maintainable profit of say £200k could have a value between £700k up to £2m depending upon the multiplier used.
5SW- SW England "I have been approached by a corporate with an offer to buy my practice, which looks very attractive, should I engage a broker or accountant to deal with the offer?"
The growing presence of corporate practices, often results in an approach being made before you are ready to sell. It is essential to know the value of your practice (business/company) before accepting any offers or going into discussions. Although your accountants may have been involved in the technical parts of a business sale, they might not have the experience of dealing with a veterinary practice sale or dealing with veterinary corporate companies. A veterinary practice broker should do more than just sell the practice, they should also have the experience to know how much you could sell your practice for in the present market and have the experience to deal and negotiate with buyers to obtain the maximum value. The sales process should be methodical to allow everything to go as smoothly as possible, hence, a broker should maintain support throughout to completion, offering help through a difficult time to ensure the owners get the true value of the practice.You should always check that they have the skills to deal with both sole traders and incorporated share sales. ______________ A broker should know and understand the veterinary market and offer a personal hands on service being solely responsible to their client.
6MJ- Wales - "I own a mainly SA practice with a T/O of £850,000. My assistant who has worked for me for 5 years wishes to buy my practice, because the corporates keep enquiring whether I want to sell and I have heard that the prices paid are very good I am not sure what to do, can you help?"
The presence of the corporates has resulted in prices being obtained by practice owners trebling in the last five years. Unfortunately an individual is unlikely to be able to fund a similar price to any indicative offers you have received or could receive.We have found that once you have a corporate offer you should give your assistant the option to make an offer based upon the same information, or at least see if they can obtain funds for the purchase from the bank and at what level. In most cases the banks level of funding is usually half the corporate offer.1. Obviously you must be sure that you trust the individual at this stage as you do not want the information that you are selling, being given to the staff. 2. Do not give any indication of the level of offer you have received so far.My advice is to let a broker deal with this situation as in can be very delicate and you should step back from any personal involvement.
7 JD Southern England "What costs are we likely to incur relating to selling my practice ?"
Brokers fees vary depend on many factors. We have found that being totally independent of the corporate buyers gives the client confidence that his best interests are being looked after.With The VBA, our fees, which are only paid if a deal is concluded, are based solely on the amount received for the goodwill and this starts at 3.5% of that value. In addition, lawyers’ fees will need to be paid and, depending on the property ownership, a lease and if you continue in employment, agreeing a service contract. Your lawyer should be one of your choosing. You will also need to spend a great deal of time dealing with the buyers’ questions as they go through the due diligence and you will need to pay your accountant to assist you with this.You can save time and costs by getting certain matters in order before you begin by ensuring you have a recent asbestos survey and your PAT testing is up to date.
8JS-London When should we tell our staff we are considering selling the practice?
As late as possible, as you do not know that the sale will take place and staff can be unsettled in the meantime. The exact timing of that will be discussed and agreed with the purchaser. As there will be a number of visitors to the practice during the process, you may need to give an explanation such as your bank, insurance brokers or surveyors require information
9PP N.W. England -"I have had an indicative offer from a corporate for my practice, does this mean that is exactly what I will receive if I accept ?
An indicative offer is exactly that, it indicates how much they will pay based upon the information they have received. If this is simply financial info, that is all it is based upon. You have a long way to go as they will undertake both legal Due diligence and commercial due diligence these processes will forensically analyse both financial aspects and legal aspects of your practice. If the financial information is based upon the previous years accounts and your sales levels are not maintained this may affect the final figure. Additionally the final amount will depend upon the final completion balance sheet of your practice (Sole trader or ltd company) which will include the goodwill figure. Most corporates will only reduce or chip at the final figure if things are not what they appeared, and will usually honour their offers. The key thing is to get them to maximise the GW, bu maximising the desirability of your business.
10PS SW England " I have approached an accountancy firm specialising in Veterinary business development to help value and develop my practice to make it more saleable, their fees seem high but they are a national firm with lots of practices on their books, will it be worth spending the money?"
Well, it all depends! specialising in veterinary practice isn't just about account management You should ask the following questions before laying out your money on consultants.1. What will they charge to value the practice and what will that valuation be based upon. 2. Have the people concerned ever owned and physically managed a practice? 3. Have they ever developed a successful practice of their own?If their valuation is low- then increasing its value and selling it on shouldn't be difficult for them in the present market band you may well be paying for this yourself.My advice is try a few different companies that have veterinary practice experience and compare the costs and service they can provide and then make a decision.
11WS- Midlands - "I have been made an offer of £990,000 for my 4 vet SA practice, I am a sole trader, the corporate group who did this, approached me directly and after seeing my accounts, made the offer. It seems really good as I wasn't expecting as much. Should I take it and move on or ask a professional agent to help?"
All the major corporates have been approaching practices for the last 5 years. If they ask for accounts and make an indicative offer then this is exactly what the offer will be based upon, the historic financials of the practice. You may get an offer higher than you expected, but in almost every case the best values are obtained when the practice information (financial and clinical) is presented professionally and there are 2 or more interested parties. You should be able to show the practice and its associated financial information in a way that will give confidence to the prospective purchaser, of the practice's viability for producing maintainable profits. To sell a practice successfully you should1. Prepare it for sale 3-6 months before marketing. 2. Know what sort of prices are being paid 3. Understand what is the minimum you want for the practice . 4. Maximise the number of potential purchasers. 5. Sell its benefits. 6. Agree a price based upon the best offers 7.Confirm agreed terms with a written Head of Terms. 8. Don't get involved in protracted negotiations. 9. Use an experienced professional sales team Sales broker, Lawyer and Accountants
12NE England"Should I use a Benchmark report to reassess my price list to improve profitability?
Benchmarking can be useful as a tool to see whether you stand with your fees. Having 300 practices from all over the country may not be of much use as Jo Bloggs in Truro, Fred Smith in London and Jamie MCvet in Inverness will all have three different client bases with differing expectations, different levels of service and competition. What you need to know is what YOUR competitors are charging for it to be of any use. Bench marking is usually for shopped services, spays, vaccines etc. For specific procedures it is difficult to benchmark with any relevance. Charging £250 for a bitch spay because that is the Report average, when your competitors are charging £150 may not be good business.Pick up the phone and find out what each competitor charges over a couple of days- prefix your number by 141 to hide where the call is coming from!
13"I am surrounded by corporate practices and feel like Colonel Custer in his last stand, my turnover is not very good and the corporates do not seem interested in buying, what shall I do" JH. Scotland
Looking at your practice, you are surrounded by a corporate practice with three sites employing a total of 15 vets. Your sales and profits are well below the average expected of a practice this size. If it was based upon just the figures the practice is not very saleable, but you are in a great location, visible, passing traffic and a property that offers lots of space. While you continue with a low turnover the corporates are not bothered as you will have very little effect on them, however if the turnover started to increase I think you would see a very different reaction. Obviously a lot is dependent upon what you want to do, if you are at a stage where you feel you can't really put that level of effort in then trying to sell would be best. The practice would offer a rare opportunity for a young ambitious vet who wants to own their own practice (There are still ones out there). You will not get a huge figure but it is worth considering trying to sell.
14"How can I sell a Practice that the corporates do not seem interested in purchasing."
As I have stated before 95% of practices with a turnover of over £500k will be sold to a corporate entity. Occasionally they will purchase smaller units if the location fits their plans, but in the majority of cases these smaller practices will have to be sold to non-corporate buyers. Often many are technically non-profit making. A sole trader with a profit of £20k is often in reality making a loss of £40k after a salary and a property rental is charged out, so when selling these practices a different approach has to be made. There are many reasons why your practice might be falling into that category, from rapidly changing markets to aggressive competition, but in every case a low turnover per vet employed is usually the problem. Wherever possible, selling your practice when it is technically losing money should be a last resort, and every attempt should be made to increase the profit level before putting it up for sale.When you sell as a sole trader you will be selling the assets, the goodwill, equipment and property. Any liabilities will be your responsibility, which effectively means you will have to clear off any debtsWhy would a buyer look to purchase a low profit/turnover practice?1.Incorporating your practice into their own.2.Acquiring the assets such as your client base, and practice property.3.Introducing capital and restructuring the practice to make it profitable.4.Buying the practice to offset tax.So, there are reasons why someone might be interested, and marketing these has to be undertaken in a very different manner.
15"I own a mainly SA practice with a T/O of £850,000. My assistant who has worked for me for 5 years wishes to buy my practice, because the corporates keep enquiring whether I want to sell and I have heard that the prices paid are very good I am not sure what to do, can you help?" MJ- Wales
The presence of the corporates has resulted in prices being obtained by practice owners trebling in the last five years. Unfortunately an individual is unlikely to be able to fund a similar price to any indicative offers you have received or could receive.We have found that once you have a corporate offer you should give your assistant the option to make an offer based upon the same information, or at least see if they can obtain funds for the purchase from the bank and at what level. In most cases the banks level of funding is usually half the corporate offer.1. Obviously you must be sure that you trust the individual at this stage as you do not want the information that you are selling, being given to the staff. 2. Do not give any indication of the level of offer you have received so far.My advice is to let a broker deal with this situation as in can be very delicate and you should step back from any personal involvement.
16"I want to protect myself from my assistants putting up their plate in opposition. I have been advised that a restrictive covenant may not be legally binding, what else can I do??" West Midlands
The courts now seem to look at anything that appears to restrict an employee from having their being illegal. My only advice is that if you include any restrictive clauses ensure that they are reasonable both in time, distance and conditions. Often distance may be only a mile, and time only 12 months. Try and obtain legal advice on this before presenting it to your employees.
17"We have had to increase our fees markedly in the last 12 months to compensate for increased assistant’s salaries. We now seem to be getting a large number of complaints about the increased charges, and I am worried about clients leaving the practice."
The majority of clients, who complain about fee increases, relate the fee they paid to their expectation of value for money. If you fees have been increased, you must be seen to be giving something for that increase, either in time spent, or the quality of the care of the practice. If the service were poor clients would complain whether the fee was £5 or £50, whereas if the service is good and they feel they have had value they may well accept the higher fee.
18" I have been involved with selling my practice to a corporate, after 8 months of work they suddenly withdrew their offer, shall I look to another corporate as my broker has suggested or what?" AA. England
This has happened to several practices over the last 6 months, and almost certainly has been due to the corporate practices realising that not all veterinary practices are geese that lay golden eggs. The prices being paid in the past have been out of synch with the maintainable profit of many units, combining this with the fact that being a people business managing a large practice is difficult, so 300+ is well ? My advice would be to take it off the market for a few months until at least Brexit has been settled. After this approach it again with a fresh view. You should be prepared that you may not get the same level of offer, although if you have a profitable well managed unit you will still a premium price that should be worth considering.
19" My wife and I are thinking about selling our practice, we have a turnover of £1.8million and are concerned the tax consequences of the Entrepreneurial tax relief of 10% being reduced to the first £million of any sale"
A: This tax refers to the individual owners of a a business, so if your wife and yourself are co-owners the effect is to pay the reduced tax on your share. If you sell for over £2m then you may have to pay the higher rate, but remember you can offset some of the costs of start-up against this , if for example you had paid for the goodwill. Your accountant should advise on the consequences. The November 2020 budget may reduce or change the level of tax relief, we will have to wait and see.
20" I have recently incorporated my practice from a sole trader 3 vet unit. I am thinking of including the property in company, is that a good option. TT Northern England
A: This is something which is dependent upon your long term plans which you should think carefully about and will need specialist advice from your tax lawyer. If the premises are included in the Ltd company if at some point in the future you are looking to sell you will probably have to repurchase the premises as most corporates do not purchase the buildings. This will occur CGT which will be due by the purchaser if the business is sold or yourself if the Ltd Co is not sold. This reduces the net value you receive if the company has been sold. You will also have to technically pay the new sale price, however the company probably owes money to you from the original purchase. Once out and privately owned you can obtain income by charging the company rent directly, this is taxable and will be allowed for in your tax-return. You are not obliged to keep the property and can sell it as a income earning business to a third party. There are some benefits relating to death duties concerning keeping the property in the ltd company and your accountant will advise on this.
21" What effect will Covid19 have on the sale of my practice?"
A: Covid19 has a had a dramatic effect on veterinary practice, affecting both fee income, and job security. Some practices are getting through with limited losses, whereas others have closed down branches and surgeries, even if only on a temporary basis. When selling, the buyer is paying for the current performance of the practice and Covid over a period of months will have almost certainly affected that. If the value of the practice is based upon the profitability then this will be affected also. It is essential therefore to get the practice revenue to show an increasing picture over a period of months to counteract the Covid period, which should be allowed for as a long but temporary blip. The goodwill will have to be then calculated on the current figures and projected figures which hopefully will show a rebound.
22" I am looking to exit my practice , but am unwilling to sell to a corporate, is that am unreasonable stance to take"?
A: May practice owners are unwell to sell to a corporate as they feel that the practice they have built will be lost once it loses its independence When the time comes to sell the practice, the interest shown will depend upon the practice size, location, turnover, and profitability. The buyers in the veterinary market are The corporate practices Independent practices Individual Veterinary surgeons.Corporates dominate the market because they have the available funds, tend to pay the highest prices, and offer employment if required.The independent practices will offer that they are not corporate but may not match the offer prices of the corporates.Individual veterinary surgeons may have difficulty getting the funds but will still keep it independent.You will have to decide on which to go with. The choice may not be yours anyway if the turnover etc, is too low; the corporates may not be interested.If you sell to a non-corporate at a lower price to stick with a principal, remember the buyer could sell it on to a corporate a year later for the price you may have got if you had sold it in the first instance.
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