Why Hire a Financial Advisor?

November 29, 2021

Veterinary practice owners looking to sell a veterinary practice often struggle with who to hire to help them accomplish this important task. There are many veterinary practice sale advisors including consultants, advisors, attorneys and others who can do the job. Oftentimes, veterinary hospital owners rely on existing accounting and specialized legal counsel to provide advice and services in a practice sale. This is particularly common in circumstances when they are selling directly to a corporate buyer.

The Benefits to Hiring a 3rd Party Financial Advisor

A 3rd party financial advisor, such as a broker that is paid at close can be worth her weight in gold when selling a practice to a private-equity owned consolidator for a number of reasons.  Each of these functions is critical in a practice sale.  If you cannot adequately perform each function with the team you have, your chances of securing the best deal for the sale of your animal hospital or practice are slim.

#1 Match-making

A successful practice sale should resemble a partnership, or marriage. Both are based on trust, respect and goodwill. Both are also the product of shopping, carefully, for the right partner. The right advisor can play the role of astute matchmaker. A skilled intermediary’s knowledge of potential buyers will facilitate introductions to and discussions with the most appropriate sale partners.  There are currently more than 50+ active consolidators in the market for veterinary practices. Finding the right buyer will make all the difference. 

You may think that the buyers who have called you, represent a pretty representative sample of what is out there in corporate land. However, there are many potential great owners of your practice, some of which have not called you.  One of these corporate groups may be the company who will offer the highest veterinary practice sale multiple for your practice.  Any trustworthy, first-hand perspective on who might be the best buyer for you is valuable.    

#2 Creating Competition

Business deals involve more than spreadsheets. There are humans involved. Animal spirits are found in the markets, as well as in your practice.  The right advisor can create healthy competition between potential buyers which will nearly always result in a better outcome for the seller.

#3 Financial Expertise: 

Buyers need to know what they are bidding on. Buyers can value your practice with higher veterinary practice sale valuation multiples if they are given better information. The right advisor will know how to package, diligence and market your practice’s operations and financial data for buyers.  

For any small business, this can be a lot of work and will require coordinating with multiple service providers such as your CPA and book-keeper, your payroll vendor and your practice management vendor. If you don’t do it on your own, the buyers will do it for you. The fee you pay to the buyers for doing this work will be high and in-kind through sale valuation discount.

You should not expect your attorney to present and defend a normalized EBITDA to a buyer.  If your attorney is willing to do these things, then you should hope that the attorney on the other side hasn’t, instead, just papered up his 5th business purchase in the last 3 weeks. 

#4 Managing Conflict:

Sales agreements start as Letters of Intent (LOI) with an associated term sheet. These abbreviated documents must be expanded into deal documents by the professionals working on the transaction. Once drafted, the details of certain terms may differ from what you thought the business deal was.

In this context, to get to the deal you want, you may need to create some conflict. This requires creating a delicate balance. If you push too hard, you can hurt the partnership between you and the buyer that will be necessary for everyone to succeed post transaction.  If you are too soft, you will agree to some very buyer friendly terms.  

Here it is better to have an intermediary be the point of the negotiating spear. Many might ask their attorney. If your attorney runs up the legal bills to get you your way, you will not be wholly innocent in the eyes of the buyer. Practice buyers know that most attorneys execute the decisions their clients make, particularly with business issues, as well as matters of law.      

The right advisor can serve you better than your attorney when negotiating key business terms. Your negotiations should lay the groundwork for a successful business partnership between the buyer and your practice. All parties involved in these deals want the practices they are buying to thrive. A business focused advisor will focus more on how to create the “upside” of a good marriage. A good attorney will protect your down-side. 

Don't Go it Alone

If you choose to “go it alone” and sell your practice to a corporate party without an advisor, such as a broker, may find that your team is ill-prepared for success. Almost all corporate group buyers are adept at making often-lofty pitches about teamwork and shared values to practice owners. The fact is, the sale of a practice is a negotiation with elements of a zero-sum game. If you go into one of these transactions short-handed you are leaving success to the good will of the buyer. 

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