BUILDING AND MANAGING WEALTH AS AN EQUINE PRACTITIONER 1. What Is the Buyer of an Equine Practice Acquiring?


A corporate buyer, as well as an associate buyer, is buying a stream of cash that the business will deliver to the buyer into the future. The unit ofmeasure com- monly used to value that stream of cash is earnings before interest, taxes, depreciation, and amortization (EBITDA). The practice’s EBITDA is the basis of what is being sold to the buyer. The strategic goals of most corporate buyers are threefold:


1. To be the veterinary service provider of choice. 2. To be the employer of choice. 3. To be the investment of choice.


The strategic goals of most associate buyers are also threefold and very similar:


1. To be the veterinary service provider of choice. 2. To have a higher income, i.e., investment of choice. 3. To have control over their career and create their own practice culture that suits their spe- cific needs and values, i.e., employer of choice.


The value of a practice is usually calculated as a


multiple of the businesses’ EBITDA. The “multiple” in the equation is dependent upon the level of uncer- tainty that the stream of cash delivered by the busi- ness will grow over time. A seller can maximize the valuation of their equine practice by decreasing the uncertainty of future delivery of that streamof cash to the buyer. The level of risk of future returns can substantially impact value. There are many factors which increase or decrease the level of uncertainty. A few of the common risk factors are listed below:


1. Client’s personal brand loyalty to the practice owner(s) rather than to the practice.


2. No successor lead veterinarian identified and trained.


3. Random pricing strategy that is not based on cost of providing a service.


4. Low collection at time of service. 5. Casual inventory management without rou- tine inventory counts and location tracking.


6. Non-compliant controlled substance program. 7. Reliance on billing records rather than board of examiners compliant medical records.


Whether or not an equine practice can be sold to a


corporate entity and, if so, the valuation of the prac- tice depend on whether the business has been devel- oped and managed to minimize business uncertainty in the future. The three primary objectives of the prac- tice ownership teamcontemplating sale to a corporate aggregator should be tomaximize EBITDA, client loy- alty, and establish a veterinary successor as the leader of the veterinary team. Lowering those should probably be the three primary objectives inmanaging a veterinary business whetherornot


it


Another way to look at management to maximize return to the owner and value of the practice is to


identify andmitigate risks that impact cash flow, profit- ability, and regulatory compliance consequences.


2. Maximizing EBITDA


Think of an equine practice as a black box into which money and effort are the inputs and cash is the out- put. The cash output is EBITDA. The largest two expenses of an equine practice are drugs and medical supplies, and payroll. Managing these components to- ward efficiency while not sacrificing excellence, should be the primary goal in managing the business. The revenue and cash flow generated by the caseload of a practice is influenced by pricing, discounting, and col- lection policy. The higher the price, the lower the dis- counts, and the sooner money is collected, the more EBITDA the practice can sell. A major obstacle to healthy EBITDA is the tendency of veterinarians to assume responsibility for subsidizing an expensive hobby of their clients.


Client Loyalty


Client loyalty must be to the practice, not to the indi- vidual veterinarian. Personal brand loyalty adds virtually no value to a buyer,while practice brand loy- alty has tremendous value. Clearly, a solo equine practice’s client loyalty is loyalty to the veterinarian, minimizing value. However, several very valuable group equine practices have been formed by merging solo practices, creating brand loyalty, and building leadership. Opportunities for subsequent sale to cor- porate entities have followed.


Successor Veterinary Leadership


Historically, equine practice lead veterinarians have been the owners of the practice. Following the sale of an equine practice to a corporate buyer, the vet- erinarians of the practice will probably prefer to be led by another veterinarian rather than a lay per- son. Having successor lead veterinarian(s), a compen- sated position, in place prior to the sale minimizes uncertainty and increases the value of the practice.


Summary is forsale.


There is no set formula for what the selling veterinar- ian(s) rolewill be post sale. Some sellerswant to retire immediately. This can significantly reduce the value of the practice unless client loyalty to the practice and a strong successor lead veterinarian are in place. The usual path is for the selling veterinarian(s) to remain employed as associate veterinarians with a leadership role for a few years. Some sellers expect to stay on as an associate with a leadership role for many years. The multiple used in the valuation of a veterinary practice will be proportionally higher in relation to the success in establishing client loyalty and a succes- sor lead veterinarian(s).Whether or not an owner or owners sell to a corporate group, equine practices with clients loyal to the practice and strong prac- tice lead veterinarians are usually more profitable businesses, so fetch a higher price. Think of an


AAEP PROCEEDINGS / Vol. 68 / 2022 269


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