Veterinary Blueprints
The Veterinary Blueprint Podcast is all about taking the blueprint of industry experts and breaking it down in short, digestible episodes you can use to take your practice to the next level. Join host Bill Butler as he interviews experts on client and practice management, financial strategies, human resources, and more. Gain valuable insights and stay ahead in the veterinary field by tuning in to tips from successful experts inside and outside the veterinary industry.
Veterinary Blueprints
Trends in Veterinary Practice Ownership: Legal Insights with Peter Tanella
Unlock expert legal insights for navigating the complex world of veterinary practice ownership with Peter Tanella, an attorney from Mendelbaum Barrett PC and leader of the National Veterinary Practice Group. Gain the tools you need to master the art of starting, buying, or selling a veterinary practice with confidence. Whether it's zoning, employment law, or lease agreements, Peter shares why assembling a team of specialized professionals is crucial to avoid pitfalls and ensure a seamless transition.
Explore the shifting dynamics of the veterinary practice landscape and discover why larger practices hold more allure for corporate buyers, while smaller practices pivot towards independence. Peter delves into why associate veterinarians are opting to purchase practices, often yearning for the autonomy that corporate acquisitions lack. With a growing interest in startups among veterinarians, this episode provides a roadmap for aligning goals with viable buyers for mutual success.
Curious about partnership dynamics or the challenges of succession planning? This episode covers it all. From the nuances of practice partnerships to preparing for succession, Peter offers invaluable advice on understanding contract terms and setting clear objectives. With real-life experiences and expert tips, listeners will learn how to enhance negotiating power and maximize the value of their practices, all while surrounding themselves with a strong advisory team to tackle any obstacles along the way.
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You want to make the transaction as streamlined as possible and you have the right team in place, You'll be able to figure out any issues that come up. I can't emphasize that enough. It's so basic. We want to be working with somebody who understands what the goals are.
Speaker 2:Welcome to the Veterinary Blueprint Podcast brought to you by Butler Vet Insurance. Hosted by Bill Butler, the Veterinary Blueprint Podcast is for veterinarians and practice managers who are looking to learn about working on their practice instead of in their practice. Each episode we will bring you successful, proven blueprints from others, both inside and outside the veterinary industry. Welcome to today's episode.
Speaker 3:Welcome to another episode of the Veterinary Blueprints Podcast. I am your host, bill Butler, bringing you business and entrepreneurial insights to the veterinary community, and I am honored and pleased to bring another awesome guest to you on this episode. We've got Peter Tonella, an attorney with Mendelbaum Barrett PC. He chairs the firm's National Veterinary Practice Group. He is super active in the veterinary community with vet partners that's where I know him through and also things like writing legal lingo in today's veterinary business. So welcome to today's podcast, peter. Hey, bill, it's great to see you. Thanks for having me. Awesome. Well, you and I met about a year ago at, I believe, vmx down in Orlando and just super excited to connect with you and other business professionals recently joined VetPartners myself and so I've gotten to know you a little bit. But for our listeners out there, why don't you explain who Peter Tonella is and kind of what you do in the veterinary world?
Speaker 1:Yeah, thanks, bill, and it's good to be on here again. It seems like just yesterday when we met. I can't believe it's been over a year. As you mentioned, I chair the firm's National Veterinary Law Group. It's a team of attorneys and we represent veterinarians all over the country buying, selling, merging, starting up and general corporate counseling. I've been in this space for about 15 years now and over that period of time, you know our practices has grown. I think we fulfill a need because our team provides what we like to say a 360-degree approach to our clients, especially those who start up or buy a practice where we're kind of situated as their outside general counsel, and it's been a lot of fun, you know working with our clients but also meeting other. You know professionals like yourself in the industry. As you know, as you're getting more involved in it, it's a small industry. We're, all you know, a good group of friends. Everybody's looking to help each other, as well as the clients that we're serving, which is pretty cool.
Speaker 3:Yeah, it is a good group of business professionals, and that's one thing that I've come to realize, having this podcast and speaking with different professionals across a bunch of different industries, is that veterinarians are just looking for some good people to help advise them as they're starting to become entrepreneurs themselves or run a business. They went to school to become veterinarians and they don't know all the legal stuff or all the financial stuff or taxes or insurance. There's a lot of resources out there and the pharmaceutical companies and the animal health world are falling over themselves, but to find a good attorney or a good CPA or insurance agent is a little bit more difficult, and so there aren't as many of us as there are pharmaceutical reps out there.
Speaker 1:You know, I agree, you know on that point. You know one of the first things I tell or I advise clients regardless of what you're doing, you want to have your team of professionals around you and, like you touched on a good CPA, an attorney, whether it's us or one of our other friends in the industry financial advisor, insurance agent, the consultant, lender there are people like us, professionals like you and me and others, that just specialize in the industry. It's what we're doing on a day-to-day basis and I think that helps our clients, especially from a market perspective. When you're asking you for advice, what are you doing in the market? I think spending the time in there. It's really helpful.
Speaker 3:Yeah, and so for you and your firm and your practice and your team who have gotten to meet a number of the individuals and attorneys on your national veterinary practice group. I'm sure any business attorney out there can draw up a buy-sell agreement or a purchase agreement, but there's just uniques within the industry. So, for veterinarians specifically, what are some legal challenges that they face when they're starting a practice and how do you guide them through some of those issues? Peter?
Speaker 1:We do deal with a lot of attorneys who are outside the industry.
Speaker 1:Listen, sometimes it works, but a lot of times there's issues that I think they raise that otherwise you wouldn't raise.
Speaker 1:If you're practicing within the industry Now, from a starting up perspective, if you're going to be going at it yourself, obviously zoning is the, I think, the first issue you got to look at in terms of where you're looking to practice or start your practice, and you know what do you look at. I always ask what are you looking to do with three to five years? You want to make sure that where you're going to be supports not only what you're currently going to do, but also the growth that you you know you may be anticipating from a parking perspective, if you want to expand, can you do all those things within that location, which is always critical? I mean, it sounds like an obvious one, but it's something that sometimes gets overlooked. Going back to the team concept, if our client has contacted a lender within the industry or a real estate broker within the industry, those issues you know a lot of times will get addressed because they're raising them as well. Again, surrounding yourself with the right people who understand the issues.
Speaker 3:Yeah, they've done that before and so it's not their first time trying to figure out, like you said, zoning issues or contract issues or some of those lease issues that you've seen before as it comes up for veterinarians, and so you know, when veterinarians are looking to buy or sell a practice, there's probably some key factors that they need to think of from a legal perspective. What are two or three of those key factors that you know? You mentioned one, zoning, but what are a few other ones from a buying or selling perspective?
Speaker 1:So, from a buying perspective, if you're a veterinarian looking to buy a practice, I think communication is key with the seller. You want to have a good communication and you want to be on the same level in terms of what the expectations are. I have a number of acquisitions, early acquisitions, going on right now. The client calls us up and kind of walk through what you're looking for and typically the client will put together a letter of intent that just sets forth the business terms that the buyer and seller can agree upon. And then the attorneys take those business terms and they can incorporate it into the. You know the agreement and you really want to. You really want to drill down on those early on. So you get a meeting of the minds Because the last thing you want to do is start spending time and money and all of a sudden an issue comes up. And issues do come up, but it's something that you didn't address early on and it could be material and it just kind of sidetracks the whole deal. So I think that's not really important on the buying side. On the selling side, it's having the right mindset and being prepared to sell mindset in being prepared to sell. If you're going to sell to. You know if you're looking to sell to a, you know another independent veterinarian. You know what is that transition going to look like. Have you gotten your practice valued so you understand what the valuation of your practice is and if there's any issues within your practice operationally or financially how do you fix them? Get them all fixed so those issues don't need to be addressed in a transition and understanding. Are you going to sell to? Are your practice in a size and scope that you're going to sell to? You want to keep it private into an independent vet, or are you looking to sell to corporate? It's similar preparation but there's different issues that need to be addressed.
Speaker 1:But you can never start too soon. If you're looking to retire tomorrow or in a year from now, you're already too late and that happens. You want to be. You're looking to do now. They used to say five years, we can't even say between five and seven years. Get your practice prepared and operate your practice. Operate it now like you're looking to sell in six months. If you have that mindset and you're running your practice on a regular basis, that it can be sold, you know anytime. In six months, you know you shouldn't have any. You shouldn't have any material issues that need to be adjusted on a going forward basis, but it's just preparation in the mindset. I think really for both of them.
Speaker 3:So, and that brings up a point For me, in my business I'm never scared to invest, and I don't say spend to spend money on speaking with an attorney. It's an investment. I don't know employment law or, hey, I'm signing a new lease. You know we moved into a new office space as a business. I've been around for. You know our business has been here 20 years.
Speaker 3:But moving to a new office space, I wanted to have an attorney review the lease, because you know, I read contracts every day, but they're insurance contracts, they're. You know, when I read a lease agreement, I'm reading a lease agreement as it relates to insurance, not as it relates to a maintenance agreement where I'm now responsible for the HVAC on the building I don't own. And so I think one of the key takeaways is don't be afraid to invest. You know, $250 or $300 or $400 for that one hour of advice, if you're working with an attorney, to say, hey, these are some things that I'm thinking about doing, what can I get some help with? And so I'm sure you'll probably agree, peter, not as an attorney. But fixing something before it becomes a problem is always less expensive when you're dealing with a billable hour situation, right Well?
Speaker 1:we're right, not even a billable money is important, but from a time perspective, I mean, remember most of our clients, whether you're buying or even starting up, they're working somewhere as an associate, right? If they're going to be buying a practice, they're either working somewhere else and they're buying another practice or they're an associate working in that current practice. Or if you're selling, most of our clients who are selling are working pretty hard in order to keep the revenue profits up so they can maximize that. So time is like for you and I. I think the biggest factor we have in our lives is the minimal amount of time, and it's no different. So then you're going to enter into a transaction, you want to use your time efficiently because they're busy, and that's something you know.
Speaker 1:I think, going back to somebody who's not in this space, as opposed to somebody like us who is, I appreciate the fact that, how busy they are, especially with those who are selling, when they have availability to speak with you, to use that time wisely you want to be efficient because eventually, every deal at some point in time, especially with sellers they get fatigued at some point in time and you need to know how to deal with that, not only from a legal perspective, but from a psychological perspective, to respect your clients. It's like, oh, I don't want to look at this again. I'm just like, okay, we're almost there. Come on, let's work together. We're almost there. We're going to get you what you were looking for at the very beginning. Let's just stay together and work through this.
Speaker 3:Yeah, one of the things that comes up on an insurance perspective for the sale is a lot of times, if they're selling corporate or even selling private practice, the veterinarian winds up still holding the real estate that they own in the holding company but they sell the asset of which is the practice itself, and that creates a whole different component about the lease that they have with the person they're selling to. And then how do I insure the building? Because I used to insure it through my practice and they think it's a huge, complicated issue and insurance is complicated right now just because of market conditions. But we have experience doing that and so, just trying to make things easier when they're selling their baby, so to speak, that they've spent a lot of years building and so that time and advice and experience can be very beneficial for them.
Speaker 3:Well, you had mentioned corporate consolidation, peter, and what trends are you seeing right now? Because I think pre-COVID there was a different trend line and now 2024, we say post-COVID, even though COVID's still out there. But I think just what are you seeing from corporate consolidation? And if they're considering selling their practice there, what are some things veterinarians should look out for or just be aware of?
Speaker 1:Yeah, you know, you mentioned, I guess, during COVID or pre-COVID. I always look at the January 1st of 2023, when things really slowed down.
Speaker 1:At any given time, we were probably, you know, managing, I would say, 20 to 30 corporate transactions. Now I think that list is down to probably anywhere between 5 to 10. And we're still very active. There's a handful that are still really active. It's just again going back to the mindset in terms of what you're looking to do and what your goals are.
Speaker 1:A lot of times, clients come to us and they get brought to us by another colleague in the industry whether it's an accountant or a consultant saying you know, listen, dr Smith and Dr Jones are looking to sell to a corporate buyer. We have one or two that are interested, so they already have the mindset that that's where they're going, and then our goal is to have a conversation with them and kind of help them achieve their goals. Sometimes clients will call us ahead of time and say you know, what do you think? And I'll ask them are you interested in selling to corporate? Obviously they got to be the right fit in terms of financially and size and whatnot. Or do you want to stay independent? Because I do see talking about a trend. I think before back in 2022, 21 and 20, you didn't see as many independent veterinarians buying the practices where they're associated at now yeah.
Speaker 1:I use the word the pendulum Now we're doing. We do have a still pretty strong corporate, you know market in terms of who were the clients that we're dealing with, but we are dealing with a lot more associate veterinarians buying into or buying the practice where they currently work, and it's great and a lot of our, actually a lot of the clients, even on the sales side, who we represent. Yes, they have a practice that is a corporate target, but they said you know what, maybe I don't need to maximize every dollar out of here. I want to sell to my associate, dr Jones. She's been with me for five years. I want to sell to her and they figure out a deal that just works or makes sense for the owner and for the associate. That is a trend we're seeing much, much more of, as well as the startups.
Speaker 1:I do think there is a swing back to the independent practice of veterinary medicine, away from corporate, and I don't have a preference one way or the other. My goal is, like you, I want to speak with my client and I want to help them to achieve their goals. It's not what Pete wants to do or my team wants to do. What are you looking to do, and then we talk about it and say, okay, how do we achieve that?
Speaker 3:How do we work together? And let's go at it. So, on the changeover, you mentioned January 1st 23. Are you seeing more? So my viewpoint of it and I'll be interested to get your take on it is that the one and two doctor practices are now not the ones prior to January 1st of it, and I'll be interested to get your take on it is that the one and two doctor practices are now not the ones you know prior to January 1st of 23,. The corporate entities were buying all comers and now those one and two vet practices are a little bit more risky for them. If that vet leaves now they're having trouble filling the pipeline and keeping vets on board and so those smaller practices are a little bit more risky. So, like you said, it's got to be the right fit. And what I'm seeing is the right fit for the corporate purchasers is the larger you know three to seven vet practices as being more in their wheelhouse or demographic.
Speaker 1:Yeah. So I think what we have seen, the one doctor practices have never been an ideal target for a corporate buyer. However, now I think what we have seen, the one doctor practices have never been an ideal target for a corporate buyer. However, now I think, with so many of the larger practice being have been bought up. We are seeing there are a handful, not many. I actually have one right now where our client is. She's an. It's an older veterinarian single doctor practice was recently a two doctor practice. There is a corporate buyer for it. And older veterinarian single doctor practice was recently a two doctor practice. There is a corporate buyer for it. And another thing too we say corporate buyer.
Speaker 1:You know at one time there's 70 plus corporate consolidators and you know that number of fluctuates so much. And then out of those 70, how many were active? People would come up. You know I'll get phone calls with different professionals or clients and they'll say did you know this one, did you know that one? There's so many of them and some just come up. I have one right now. I never even heard of it.
Speaker 1:We're doing a transaction with them. It's going to be the first time we're doing it. I understand they own about 10 practices, a small one. But my point is that they're looking at a one doctor practice which, to your point, it's a risk. They're interested in this practice because it could be a five doctor practice that has the room for it and they can be very aggressive on recruiting. So it's a fit for them. It's going to be for our client because she's ready to sell and there's not a lot of buyers out there. It's going to be a fit for that corporate buyer because where the demographic is and the size of our practice kind of checks the box. So it's got to be a fit on both sides in order to, you know, to make it work.
Speaker 3:Yeah, on the startup side, are you seeing some? Some doctors who were, you know, maybe worked at independent practice that got bought out and sold corporate, and they are like you know I really liked working at the independent practice. I don't like the corporate model and you know, like you said, I don't have a flavor one way or the other for my clients. You know, at some point in my career I'm going to sell my business and you know I've got to make a decision about where I'm going to go with that. But I'm not there yet. I'm in the preparation stage, as you said, you know, trying to make sure I'm running my business to sell it whenever I need to. However, are you seeing those startups, those veterinarians who are starting up a practice? Are you seeing more of them coming from maybe the corporate side or the practice where they were corporate and they're like I think I can do this myself.
Speaker 1:Definitely, we're doing a lot more of those Quite frequently throughout the country, and even more so on the specialty side, where, you know, the specialty hospital was bought out by corporate and maybe their restricted covenant is almost over or they're looking to go outside of the you know the non-compete radius and whether it's one of them or two or three of them going to go do their own thing, right, and then it's always interesting because they want to get away from corporate and go do their own thing and we talk about so what's your three, four, no five, seven year plan?
Speaker 1:And, hey, we don't know. We want to build this thing up and you just don't know we're not going to smartly, we're not going to, you know, cross anything off in terms of options for us. You know, maybe we'll stay independent, maybe if somebody comes along you know they have families of their own, it's just right now they just want to find a location and be able to build. You know what they want to do in terms of their business and they go from there. So, yeah, we're doing a lot more of those which we weren't doing, you know. You know back before, I think, that 2023 mark and we were far between on the startup side.
Speaker 3:Yeah, it's. It's funny because you know you mentioned the veterinary started a number probably 40% of my most recent. You know referrals in our husband and wife teams. You know the husbands, the practice manager or actually husband and wife veterinarians, where you know they're both working at different practices. They maybe met in vet school and now they're like you know, your practice got bought out corporate. I'm going to leave my practice. We're going to start a practice together. Your practice got bought out corporate. I'm going to leave my practice. We're going to start a practice together. And I was speaking to the Minnesota Veterinary College here at the U of M, to the VBMA, last fall, and I said how many of you at some point want to open your own practice someday? There were probably 80 second and third year vet students in the room and probably 60% of them raised their hand.
Speaker 3:And I think there's just a little bit more of an entrepreneurial mindset in the younger veterinarians now than there maybe was, you know, five, six years ago.
Speaker 1:When all the practices seem to be corporate, just came on so strong. I think you know there's a need for everything and I think for the industry it's being an outsider who's been fortunate enough to work within the industry and seeing what's transpired I think there are a lot of good things that came from. You know corporate in terms of you know compensation. You know it has risen for associate veterinarians.
Speaker 3:Well, access to emergency care. Yeah, I mean, you look at, you know, blue Pearl. Access to emergency care, like there's a lot of benefits for the animal health community. Yes, you know, I think there's arguments to be made on both sides. You know my industry is going through same stuff being bought by you know I get I get calls every week saying hey, are you ready? Emails like are you ready to sell your practice? My insurance agency.
Speaker 1:There certainly are advantages and there's challenges. I think it's what do you want? What's your goal in the end of the day as a practice owner?
Speaker 3:And then drawing it back to the attorney piece is making sure that what you're signing and on the buyout purchase that you're going in with your eyes wide open, you're working with a legal professional who's seen these contracts before and knows maybe some of the pitfalls. So when you say, well, that isn't what I intended, but now I'm locked into this contract with either an independent or a corporate seller and you're working with an attorney who hasn't seen this before, yeah, especially on the corporate side.
Speaker 1:Obviously, on the independent side you always say what's the difference? There's more flexibility in terms of the terms and conditions. When you're working with another independent veterinarian, the money may be a little more limited because a lot of times you know if somebody's an independent vet that's going to come by your practice. They're kind of limited as what kind of financing you're going to get, right.
Speaker 3:You might have to have some seller financing involved. Yeah, on top of that, in order to get the number that you're looking for.
Speaker 1:But you know your transition period after you close may be shorter. There's just a lot more workarounds when you sell to, you know, a corporate buyer, obviously you want to try to avoid a bad partner. You know your due diligence ahead of time and make sure you know culturally they're a fit for you. Typically the transition periods another trend you know just to bring up and kind of delves into this the transition periods are much longer. You know, I think you know before COVID, you know the transition period for a corporate buyer, maybe two years. Now you're looking at, you know, at three at a minimum up to seven years.
Speaker 1:We're seeing at some point in time if you're a producer in that practice. So you're asking your client when do you want to get out? So if you want to get out in three years but the contract doesn't provide for that, you want to make sure there's provisions or try to get a provision in there where you can say, okay, buyer, I can put it to you, I want to be able to get out in three years and it may come at a cost. Because if you do that at three, the three-year term, maybe you're not going to get the full value of what you know. What you know, the maximize or the value of the practice. But you have the ability to get out on your terms as opposed to you know when they want to do a recap and then you're going to realize a full maximize value of your practice. So, to your point, you want to be looking at those deal documents closely. The deal documents on a corporate sale are much, much more complex than a deal documents on the sale from one veterinarian to another.
Speaker 3:You mentioned something there and I think it's probably worth bringing up on a recapitalization of the numbers that you see veterinarians being offered for their practice. How much of part of the deals is equity in the fund, the private equity fund, where they say, yeah, you're going to get 18 times EBITDA or some insane number here's $10 million but 6 million of the 10 million is equity that's going to get recapitalized and you don't get that until we cash out. They might not cash out for 10 years. How much of that are you seeing and how wary should veterinarians be of that?
Speaker 1:It's not so much wary, it's a matter of just being educated. I know what you're going with being educated on it. But almost every deal now and I was out in Reno two weeks ago and I did a presentation and a corporate buyer happened to be in the audience I said, you know, I'd say almost 90, 95% of deals now are all you know, some type of rollover equity. And they came up to me, oh, we do all cash deals still. I'm like, oh, okay, but no, again the talk about a trend. You know, back before 2023, you had a lot of buyers out there, like at NBAs of the world, who are coming up all cash deals, you know, in order to minimize their risk. Most of these buyers, the corporate buyers have, you know, some type of rollover equity, whether you're rolling over at the practice level or it's going to be at Topco level. And it goes back to my point you're asking how long you want to ask your client no, younger veterinarians you sell, they may not be so concerned about sticking around.
Speaker 1:For a recap event, if you're in your mid sixties and you want out in three years or four years, you want to try to get language in there in the letter of intent phase where there is an you can put. It's called the put option. You want to be able to put it to the corporate buyer and say I'm ready to leave, and then there's a full calculation of what does that look like? Sure, it's an option. You don't have to exercise it, but maybe you do want to stick around for a recap event. But to your point, a recap. What happens if they all say, oh, we're going to be recapping next year or four years from now? You just don't know. So to control your own destiny, you want to make sure you try to have that option in there so you can control your own destiny and understand what it looks like financially.
Speaker 3:Just to put a statement to that, it's really knowing what the end. What does done look like?
Speaker 1:Yeah.
Speaker 3:What you know, whether that's a dollar amount, whether that's my entire team gets taken care of, or whatever. That is like really having that clear, and so that way you weren't surprised by something four years down the road where you go. Well, this isn't what I wanted, but you're you're four years in on it.
Speaker 1:Right, you know you mentioned a word. You said team. That's I'm glad you brought that up. You mentioned a word. You said team. I'm glad you brought that up. That's really something special about this industry which I noticed early on.
Speaker 1:I always say everybody wants money. It's just human nature, right. But here you're talking to clients and having a conversation like this and you're saying, okay, I'm going to get X amount of dollars from my practice selling to a corporate buyer, but how are they going to treat my team? What is that going to look like? And there are a lot of sellers out there who will leave some money on the table or try to negotiate a deal in order to have some type of stay on bonus sprinkled along key associates or staff, which is, I think that's pretty cool.
Speaker 1:Where they want to share because they'll tell you, pretty cool. Yeah, where they want to share because they'll tell you listen, there's my practice. Most of my practice would not be as successful if it wasn't for Dr Smith or Dr Gold, and I want them to share in the reward of this as well. And also, what is it going to look like, not only for me in three years, but I want to make sure culturally. It's a fit for my, my team, which is why you want to do your due diligence ahead of time as a seller and you want to ask around hey, how did it work for you when you sold to X or Y? So you make sure it's a fit for you too.
Speaker 3:Yeah, you mentioned other veterinarians and so I think that probably brings a question to my mind about partnerships and structuring partnerships for veterinarians. You know I mentioned husband and wife. What if you've got a couple of veterinarians that they you know I mentioned husband and wife? What if you've got a couple of veterinarians who are classmates and want to start a vet practice together, maybe a couple of vets who are a little disillusioned with where they're working now and think we can do this a little bit better? What advice do you have about structuring partnerships?
Speaker 1:You know, a lot of times they don't want to spend the time on a good partnership agreement. And what's a partnership agreement? A partnership agreement it's either an operating agreement, if you're a limited liability company, or it's a shareholder's agreement if you're a corporation and people say, well, buy-sell agreement, well, the buy-sell provisions are all incorporated into that partnership agreement. And I try to keep it really simple. From an analogy standpoint, it's really your prenuptial agreement and I kind of I try to keep it really simple from analogy standpoint. You know it's really your prenuptial agreement. You and I are going to be partners. What do we? You know what do we want our partnership to look like. You know, if decisions need to be made, how are we going to make them and what? If you know Bill, you want to. You know you think we need another $50,000, you know in you000 in two months in order to boost our practice. And I say I think you're crazy, I don't want to do that. Okay, rather than fighting, you want to spell all those terms and conditions out in that partnership agreement. So you're going into this thing excited, so you want to address all those issues.
Speaker 1:So, in the event that one of you wants to leave or it's not working out. You're going to spend the time and effort up front, so hopefully you're not going to be spending time and money on legal fees to exit. It's all built in there and it's built in fairly when you guys were all on good terms. I really think it's important to spend the time on it, because we have had clients where partners will come to us and the younger partner says you know what? I'm just fried, I don't want to work anymore. And then there's a poor valuation method in there in order to further buy out. It's just poorly drafted. So you really want to spend the time and the effort on it and it's not overly complicated. But just like you're looking at a corporate transaction, it's the same thing on a partnership agreement and you're spending time with your clients talking about what do you guys envision this partnership looking like? And if one of you wants to leave, what do you think it should look like? Things like that, you know. Just address those issues head on.
Speaker 3:It can seem fairly mundane to fill that out or work with you know, work with you or another attorney to fill that out when everything's going good or you're going in excited, but when things aren't going well and you're not excited, that's not the time that you want to sit down and like hammer out whose roles or responsibilities are.
Speaker 3:Who's making the final decision on that piece. It brought to my mind a story. So my wife was sick in 2016. She had cancer, recovered and we didn't have a health care directive for her, and so we're sitting in the hospital the day she got diagnosed with cancer, filling out a health care directive. It makes life a lot more real when you're filling that out in the middle of an emergency or maybe you know. To put this back to the partnership piece, you're looking to dissolve your partnership or buy a partner out and you haven't taken care of these things on the front end. It becomes a lot more messy trying to do that in the middle of it versus with clear eyes, thinking okay, what do I want to have happen down the road and feeling good about it, versus like this is very real and things could go bad.
Speaker 1:Yeah, bill, listen, I'm sorry I didn't know about your wife's diagnosis. I'm so happy to hear that she's in recovery. I can't even imagine sitting there and filling out that healthcare directive. Think about the stress you're under just because of the situation and then to have that and you're trying to comb over it. That's a great analogy, because if you're trying to come to an agreement when you guys really aren't on good terms, it's that's a great, great analogy, because if you know you're you're trying to come to an agreement when you guys really aren't on good terms. It's just human nature, it's not you probably would have been created early on.
Speaker 1:But now, because you're pissed off at each other, you're I don't want to agree to that, I don't want, and especially you know. Then you get different lawyers and, depending on their personalities, you're spending time and money. Time and money on things where you can On a business divorce. Yeah, that could probably have been avoided if you had the roadmap Again, it's a roadmap going into that business. How do you guys exit amicably if you want to sell? What do decisions look like? That's where you want to talk to somebody who understands it so they can walk through those issues and address those issues with you.
Speaker 3:Yeah Well, you mentioned the decision-making process a little bit earlier about getting out, you know, just from a succession planning perspective and planning within veterinary practices. You know why do you think it's important? You touched on it, but why do you think it's important for veterinarians to think about that early in their careers?
Speaker 1:You want to have a plan in place in order to what's the in any business, what's the exit strategy going to look like. So, all of a sudden, you wake up one day and I, you know, I want to get out. And that still goes on to this day. In terms of clients, I have one client who's, you know, in her 60s. She wants to sell to one doctor practice, as we just talked about. It's a lot harder to sell. She thinks she has somebody who's interested in it, but she's really ready to sell. So I mean, you're really putting yourself in an awkward position because if that particular associate doesn't want to buy your practice, you know your options. There's not a lot of options out there for you. One and then two. Hopefully it's a new client, hopefully you know they have their what I would say house in order. From a financial perspective, from a contractual standpoint perspective, have you no, have you been filing your taxes? You know no.
Speaker 3:Are you reconciling your books?
Speaker 1:Right, right, I mean no, because their lender if you're selling to an independent veterinarian, their lender is going to be looking at all that stuff. Are you comfortable with the buyer in their team, whether it's a counter lawyer or lender is going to be looking at what they're going to find in your practice? Have you been declaring cash that you receive? That's a big no-no. Obviously you want to be preparing ahead of time and that's on the practice side and you hit on it before. What does your lease look like? Do you own a real estate? Do you have a lease of a fair market value lease in place or are you leasing? And if you're leasing, what does your lease look like? What is your relationship with your landlord look like?
Speaker 1:And these are all things that you, as a business owner, you know. You just wake up one day I'm going to sell. You want to be preparing so when you do sell, you can put yourself in the best position possible and hopefully address. You be proactive about addressing issues ahead of time. So then, when you're the buyers looking at, you're doing their due diligence. Hopefully there's not fewer issues that would otherwise be there Because two things will happen.
Speaker 3:Well, three things will happen. You'll get a deal, or you'll get a deal that you don't want, but it's the only deal you're going to get, or they're going to walk away.
Speaker 1:Right. We hear the word a lot. Now I keep thinking of other trends that could come retrading, they'll come in. You don't want to give especially a corporate buyer, any opportunity to retrade on your deal and back during COVID or before COVID, you didn't see a lot of retrading going on. Now they're constantly looking and looking and doing diligence. It seems like forever. And you don't want to give them any opportunity to say oh yeah, I know we have a signed LOI, but we found this and we're going to take a million dollars off the purchase price and you're kind of like what? And meanwhile you're knee deep in this deal. But had your practice properly prepared? Hopefully that issue could have been addressed ahead of time.
Speaker 3:You're probably going to pull your hair out when I describe this to you, but I bought an insurance agency in 2021 with no P&L, no balance sheet, a two-year lease and it was 100% paper agency where I couldn't verify the client list.
Speaker 1:You know what that was a business decision so you went in there. You understood the risks that were involved and you know and you did it. It has worked out, yeah.
Speaker 3:It worked out right. It's, it's worked out very well. But, you know, the interesting thing is the the, the seller. He was older and he said you know, this was October of 2021. So this is in the middle of COVID. This is the first guy I'd met with since March in person, other than my wife. I was like sitting in his office, we're both wearing masks. It was crazy. And he said, well, I want X guaranteed. And I said, well, I need three years loss runs, I need three years production reports, I need three years P&L. He goes well, I don't have any of that. And I said, well, then that guaranteed number is not guaranteed. And so the negotiating power that you have if your house is in order, like you're mentioning, peter, it puts the cards in your hands versus the buyer's hands.
Speaker 3:If you're in a sell position and preparing for that succession planning whether it's internally and you're trying to help one of your associates buy the practice, or you're going to try and maximize your investment in your practice and get as much top dollar outside I mean, I've done evaluation of my agency just from a planning perspective three years, six years, nine years of what do I need to be doing? And the person told me is three years before you want to sell. You need to stop all personal expenses through the business because a lot of veterinarians use, you know, insurance agents use their business as a lifestyle business. I think veterinarians do a little bit as well and you have to stop all personal expenses through the business to drive that revenue number as high as you can versus. Well, I was putting 5% of the practice revenue through my pocket because I've got a truck that I drive and expenses and I travel to VMX and all these things and I run that through the business.
Speaker 3:If you want to maximize your investment, you have to stop doing those things, and so I think that's where working with whether it's an attorney, a CPA, a financial advisor, a valuation advisor they're all out there insurance to help you with that. Well, what's the one thing that you would leave veterinarians with today, peter, if they had a question about buying a practice, selling a practice or any sort of legal advice? What's the Peter Tonella golden tip of the day?
Speaker 1:I'll go back to see if it's really simple. Surround yourself with the right team. I mean, I think you know you want to make the transaction as streamlined as possible and you have the right team in place, I think you'll be able to figure out any issues that come up. I can't emphasize that enough. It's so basic in terms of clients that I've worked with, because it's one of the first things I ask when I get retained who's your accountant, who's your lender, who's on your team? So we want to be working with somebody who understands what the goals are.
Speaker 3:Absolutely Well. That's a great piece of advice For our listeners out there if they want to reach you or any member of your veterinary practice national group. How do they get a hold of Peter Tonella? So?
Speaker 1:you can go to our website, wwwmblawfirmcom. All of our information is on there. Feel free to reach out. I'd love to have the conversation, perfect.
Speaker 3:Well, thanks so much for joining us, Peter. Really appreciate your insights on this episode of the Veterinary Blueprints Podcast.
Speaker 1:Bill, thanks for having me. It's great seeing you again. Thank you.
Speaker 3:Awesome. Well, as always, friends make sure to like, share and review the podcast. Get out there and be great for your clients and help the animal health care industry. Thanks so much for listening to this episode of veterinary blueprints podcast.
