Embrace in Place? Overcoming Common Facility Roadblocks to Selling Your Practice

Whether you own or lease the real estate, your facility could become the main factor in determining your practice salability. In addition to the practice financial situation, potential buyers will scrutinize facility operational efficiency, growth potential and physical infrastructure. Several challenges, such as limited space, inadequate parking, and other structural or logistical constraints, can impact the salability, sale price and finance ability of both the practice and real estate.

Too often we encounter a practice with everything an owner could want—great profitability, equipment, staff, demographic expansion—except room to grow. As with any investment, a prospective buyer will want to plan for the long term, which requires growth. And if there is no potential for that growth, inflationary forces will eventually erode profits and value for future resale.

So, how do you mitigate these issues before it’s too late? Evaluate your space early (at least five years before selling) and consider the following:

• Complete a renovation feasibility study. Work with an architect or contractor to determine if reconfiguring existing space is feasible.
• Explore expansion options. If adjacent land is available, check zoning regulations to explore possible expansion. If purchase isn’t an option, try to negotiate a lease agreement with neighboring businesses for overflow parking.
• Enhance scheduling. Staggered appointment times can reduce congestion, allowing for optimized use of available parking and operational space.
• Promote drop-off services. Encourage clients to drop off their pets for treatment, reducing the need for extended parking.

But let’s say you decide you’re ready to sell within a year, or soon thereafter, and your broker advises that you have an issue. You’ve drifted along doing just fine as the owner of a profitable veterinary practice. Yet you have not recognized the extent to which your facility limitations impact your practice value and salability. Your one-year exit timeline won’t allow for major enhancements, so what now?

Relocating is not an option—real estate is too expensive, and you are in a high-density area with nothing available close enough to your location to maintain sufficient client traffic. And expansion is a capital expense that will not yield a return in the immediate future (typically five years or so, depending upon the extent).

Solution: Although inconvenient, you could postpone retirement and fix the problem. But if issues preclude postponement, you may have to settle for a reduced price for the practice—or get creative if the space is too dated and tight for a prospective purchaser.

Here’s another dilemma: You have an overbuilt facility on a piece of land for which a veterinary practice is perhaps not the best use. You have built the perfect facility, but the clientele is not there to support it. Taxes and operating expenses are high, and the imputed rent you must pay yourself is exorbitant for the revenues you produce. (Rent should not exceed 5% of revenues.) You are upside down, and the prospect of significant, demographic development is remote.

Solution: Unfortunately, it may be necessary to close the practice and sell the real estate for a better use, or consider merging with a nearby colleague.

Selling your veterinary practice and real estate requires careful advanced planning to address infrastructure challenges, zoning restrictions, financial concerns and operational transitions. Start thinking of these issues at least five years out—or sooner—to give yourself unpressured time to fix the problems. By proactively resolving roadblocks, you will increase buyer interest, enhance practice value, and facilitate a smoother sale process. If you are considering selling, working with a veterinary practice broker will further streamline the process and maximize your return on investment.

To avoid value and salability issues at the point of retirement, it is essential to have your practice not only appraised for value but also assessed for salability. These are two separate procedures that can be accomplished by a qualified veterinary broker. Additionally, a professional real estate valuation helps set a competitive price on both the practice and real estate while giving buyers confidence in their investment.