Ready to retire? Here’s how to prepare to sell your hospital
- A firm’s estimate is not the same as a real estate appraisal. The valuation of a practice typically uses the earnings before interest, tax, depreciation, and amortization method and is modified with a multiple that takes into account other factors. Again, this method doesn’t account for your new reception desk or the tile you put in your lobby, except those upgrades are expenses on your books.
In this context, should you upgrade before a sale? There are a few important factors to consider.
It’s a great motivator. Whether you’re selling to associates or a corporation, your earnings and profitability are important because they can make the sale more attractive to buyers and enable you to sell at a higher price to an outside investor. Remember, however, that the outside investor is most interested in their return on investment, so it is important to invest in areas that improve profits without increasing costs more than is recommended for the practice.
Given the high cost of renovation, you should get sound financial advice before investing in an upgrade. That said, here are 3 of the best strategies that others have used:
- Add more exam rooms. Many older hospitals have a higher back to front space ratio than newer hospitals. How about converting the spacious owner’s office into 2 new exam rooms? This decision, for most practices, will immediately improve profitability, especially if it allows the practice to hire another vet and/or make better use of the vets’ time.
- Add a new service. Can one of your huge canine rooms be converted into dental space? Again, don’t do this unless it’s easy and immediately relieves pressure on your practice so you can become more profitable by using space and time more efficiently.
- Reduce the pitfalls of the past, including giant lobbies, private offices and bathrooms, and other potentially unprofitable spaces, within reason. It is still important to maintain quality work and rest areas for staff.
Attract and retain associates
It’s no secret that there are more advertised jobs than vets applying for them. If your strategy is to sell to one of your associates or a group of associates, you will potentially need to attract or retain them. It’s too uphill a battle for some practices, and they prefer to sell to investors who could pay more and offer better benefits. But for others, sales to younger associates are still possible. There are young entrepreneurial partners who would prefer the autonomy of private practice.
If you are potentially selling your practice to associates, follow these steps.
See your practice as if you were an investor
Keep excellent books, work on profitability and understand the market around you. Is it saturated? Or is there a lot of untapped potential? Although an architectural practice is not the same as a veterinary practice, our architectural practice has successfully transitioned ownership to new partners over a period of years. During this period, we have focused on improving our business and profitability, encouraging the adhesion of new partners. The senior partners have now retired and the transition has been successful.
Regardless of the type of business, without a strategy towards better profitability, young owners are not motivated or able to invest their time and money. Viewing your practice as an investor and focusing on increasing profits may lead to the need to remodel, expand, or relocate your practice.
Make it look professional
Nothing in construction is cheaper than a gallon of paint. A fresh coat of paint and new artwork and signage can improve the look of a tired old hospital. It matters! As the original owner, you no longer see the old salmon pink walls, but your associates do. Invest a reasonable amount to make your hospital look less tired and dated. Also buy new equipment, as equipment can be depreciated. Think a facelift, not a major remodel. It’s amazing what a minor upgrade can do for the morale and appearance of your hospital. Your customers will love it too.
Focus on lifestyle
Since the beginning of human civilization, older generations have complained about younger generations and their lack of work ethic. The truth is that these complaints are often unfounded. It’s harder for millennials and upcoming Gen Z vets to support their lifestyles the way previous generations could. Expenses are high, demands are many and life
is very, very complex. As a working parent and second-generation architecture firm owner, I understand some of these requirements. So how do you focus on supporting those who will lead your practice in the future?
- Create flexibility with work. It may not be an architectural idea, although it could be. You could invest in better technology
to allow selected jobs to be done from anywhere. You can design workspaces for doctors similar to hotel office spaces
for multiple part-time physicians rather than designated offices for full-time physicians.
- Create benefits at work. This could mean helping your staff with child or pet care requests while they are at work. This does not necessarily mean “bringing your dog or child to work”, as there are other ways to help, including financially. Other perks could be free snacks for those long days when they miss a lunch break. Don’t forget to help staff return to work after having a child. A lactation room is essential for many new mothers and doesn’t take up much space.
Let it go
It is difficult to give up your practice. You have spent a large part of your life there. You raised your family around your practice. It’s sentimental and painful to move on. But whether you’re handing over the reins internally or externally, letting go is part of a successful transition. Here are the things you should consider:
- Declutter and get rid of junk, keepsakes and old items. You’ll never need it again, and neither will anyone else. (For more information on how to declutter, see this article on Organized Hospital.)
- Store items that don’t need to be in the hospital elsewhere, such as a storage unit. These can include inactive files (before you can legally destroy them), older gear, and seasonal scenery.
- Share your space. Start giving up your space (physically and operationally) to others as a way to disconnect. Begin to take on a business advisory role rather than a primary medical role. This will allow customers to connect with new vets and provide other vets with new experiences. This motivates them to continue working at the firm and, if they are partners, to become more involved in it.
Ultimately, no drive sale is like another. You may not want to take any personal risk and you may want to sell your practice as is. Or the real estate investment group may not agree with the hospital improvements or may not be aligned with the practice ownership group.
Whatever the situation, ask yourself if investing in your physical building can make sense for your ownership transition. In some cases, this can help you sell a more profitable practice to an investor or succeed in that stock sale to associates. Consider this your final push towards hospital design, part of your legacy to yourself and the practice you’ve built and love.
Heather E. Lewis, AIA, NCARB, AAA is a partner at Animal Arts, an architecture firm in Boulder, Colorado, and a frequent speaker on hospital design. She is a strong advocate for reducing pet stress and anxiety during vet visits. She has designed practices and shelters ranging in size from 1200 square feet to 110,000 square feet.
Why do so many veterinary hospitals sell to companies? Ackerman Group. April 4, 2022. Accessed September 1, 2022. https://eval.ackerman-group.com/why-are-so-many-veterinary-hospitals-selling-to-corporate/