Start‐Up or Acquire?

Start‐Up or Acquire? A Very Important Decision the Aspiring Practice Owner Must Make
David Lucht
President COO & CCO
Live Oak Bank
Are you an associate veterinarian with plans to eventually own your practice? Have you thought about owning the clinic where you practice? Or maybe you’ve thought about building your own state‐of‐the‐art veterinary facility in hopes of reaching out to an underserved market? We at Live Oak Bank specialize in the financing of veterinary practices and witness each of these scenarios on a daily basis. The veterinary industry has historically allowed for the practicing DVM to venture out into the entrepreneurial arena and become extremely successful.
While practice ownership may not be for everyone, if you are so inclined, the following tips may be of interest when approaching the hurdle of acquiring or starting your own practice. Maybe the first, and most important decision you will make, will be to purchase an existing practice or start your own from “the ground up.” I spoke to a veterinarian recently, practicing in a fairly rural market, facing this task. She felt very strongly that her specific market, where she has practiced for the last five years, could support an additional single doctor practice. This area was home to her, and she had been with the only other practice in the area for five years. In conversations with our potential borrower, I recall that after careful consideration, she went forward with her decision to build a new clinic, although if circumstances had allowed she would have liked to purchase an existing practice. After researching different resources, including the Simmons and Associates Web service, she was not able to find a practice for sale that met her geographical requirements (Simmons and Associates is a brokerage and consulting company that assists veterinarians in valuating, managing and selling their practices). After careful market analysis Live Oak Bank decided to assist this particular veterinarian in financing the purchase of a one acre track of real estate and the construction of a new veterinary facility. The key to a successful start‐up from a financial perspective is not to over‐build your cost structure and payments to a level where the market can’t support them in a reasonable time frame.
The alternative to starting from scratch is obviously to buy an existing practice. If a practice is for sale in an area where you would like to work and live, we generally consider this to have less risk. The start‐up project requires an uncertain construction period as well as an opening phase, often characterized by low revenues (and lower compensation to you) in the early years of operation. Because of these risks, more up‐front equity is often required of the borrower and you may receive a slightly higher interest rate.
Why is the other example, the practice acquisition from the retiring owner, often significantly less risky than a start‐up? The answer is that an existing practice generally has a solid base of customers with an ongoing stream of revenue and cash flow. It is extremely important to make sure you understand the nature of the customer base, but assuming the practice is generating a quality stream of revenues, you have cash flow and customers the minute you open for business.
Hopefully, you may also find that that the existing employees are well‐trained and competent. You need to very carefully investigate any practice you are buying, making sure the practice has a good reputation, attracts the customers you want to service, etc.
If you can then grow this existing customer base by providing new services, or extending hours, etc., you can create a lot of value very quickly. Our experience in the industry has revealed a very interesting yet practical result; we believe that your energy level and desire to provide the best services in your market will immediately increase revenues to provide for continued growth over your first few years as the practice owner.

The direction you take regarding start‐up or acquisition may be the most important decision you’ll ever make. Each future practice owner is unique, and not every market has a practice for sale that would suit you. At Live Oak Bank, we finance both start‐ups and acquisitions, but believe that existing practices carry slightly less financial risk.

Vets Fare Relatively Well During Current Credit Pinch

Vets Fare Relatively Well During Current Credit Pinch
By Jessica Tremayne
Reprinted from Veterinary Practice News

Despite the upheaval in the U.S. financial landscape, veterinarians remain one of the top three most reliable professions to lend to, joining dentists and physicians.

Experts say the availability of veterinary business loans has stayed stable as well.

Working off the concern of member veterinarians, the American Animal Hospital Assn. conducted a study of the economic impact on practice revenues.

Of the veterinarians polled, 93 percent said they were working off of actual data as opposed to a gut feeling. Fifty-six percent reported a revenue increase in the first six months of 2008 compared to 2007, while 28.4 percent said their revenue had fallen.

About 79 percent of those polled in the AAHA Rocky Mountain Market Research survey said they do not anticipate a decrease in total revenue in the last six months of 2008.

“We had received a number of inquiries, both from the media and from companies in the animal health industry, asking whether economic conditions had resulted in pet owners seeking less veterinary care for their pets,” says John W. Albers, DVM, executive director of the AAHA. “We only had anecdotal information, so we conducted the study.”

Although results may vary by region, the profession’s integrity has remained intact, veterinary lenders report.

Pet Owners Wary
Practitioners’ financial concerns are valid, considering that 68 percent of pet owners polled last December for a pet-spending survey said they believed their finances would be the same or worse in 2008 compared to 2007. The Fleishman Hilliard International Communications survey of 665 pet owners was initiated to obtain a better understanding of the ideology of the pet-owning population in trying economic times. read more

IRS changes vehicle milage rates in 2009

In a recent article on SmartStart Practice, we published the tax rate changes affecting veterinarians in 2008 vs. 2007. Recently the IRS changed the vehicle mileage rates again. During the second half of 2008 mileage rates were increased to 58.5 cents per mile in response to increased fuel costs. This rate will be downgraded to 55 cents per mile for 2009. When tracking your mileage expenses for 2008, you should be using 50.5 for the first 6 months, 58.5 for the last 6 months of 2008 and then 55 for 2009.

Additionally you should be aware that as of January 1, 2009 the following apply:
55 cents per mile for business miles driven
24 cents per mile driven for medical or moving purposes
14 cents per mile driven in service of charitable organizations

As always, we recommend you check www.irs.gov for the most current recommendations.