For many practitioners, buying or selling a veterinary practice is a once-in-a-lifetime activity. Regardless of which side of the transaction you may be on, there are numerous questions you should be prepared to ask and answer. These discussions between the vendor and purchaser will allow for a smooth transaction, as well as a more seamless and successful transition of practice ownership.

When looking at this landscape now—a year or more into COVID—and considering the pandemic’s overall impact on businesses, we are frequently seeing additional practice assessment questions being asked when buying and selling a practice. This article will explore three key pillars to assist with guiding the practice acquisition conversation in the current climate.

Financial statements

Over the 2020 fiscal year, it is fair to assume many practice owners experienced a drop in revenue and, potentially, net-operating income. Indeed, the uncertainty faced when dealing with practice closures and, ultimately, modifying operations to serve clients with new operating protocols in place was certainly felt by practice owners across the Great White North.

However, a decrease in gross revenues generated does not necessarily mean a practice is performing poorly! While assessing financial statements, it is important to also have discussions around the performance of billings in the weeks and months following any COVID-related practice closures, as well as any relief programs the vendor may have been able to take advantage of during this period. This helps paint a better picture of a facility’s true operations in a way the numbers alone may not sufficiently depict.

Monthly production reports

Likewise, year-end financial statements may show a decrease in revenue due to both COVID-related closures, as well as operating at a reduced capacity for a period of time. As a result, it is important to understand practice revenue streams on a monthly basis for the 2020 fiscal year and year-to-date. Looking at monthly production reports by producer and breaking down clinical versus retail billings will more effectively illustrate the strength of a practice’s recovery, as well as its current performance.

Further, monthly production reports will showcase changes in trends between clinical and retail revenue streams and help assess the strength of each associate’s billings from a clinical perspective. Additionally, from a buy-side point of view, these reports will assist in identifying the top producers at the practice and if, as a purchaser, they would be able to take on the capacity.

Practice demographics

In addition to financial metrics, there are other statistics that can be generated from internal practice management systems that may better help sellers understand the strengths and weaknesses of their practice, as well as assist buyers in making informed and strategic decisions.

Assuming the practice focuses on companion care, for example, it is important to know the percentage of patients who are dogs versus cats, as these two species tend to generate varying levels of profits. Likewise, it is of interest to gain a better understanding of new patients to the practice, as well as how many dogs and cats are in need of senior or geriatric care.

Additionally, purchasers would want to understand if the practice, historically, has seen a high degree of turnover and if there are long-term clients at the practice—in short, a snapshot of what the ‘pipeline’ looks like in terms of revenue-generating opportunities over the next three to five years. While these practice metrics are not directly tied to post-COVID due diligence, they are items of key consideration to map out the overall direction of the practice moving forward.

Down the line

In the wake of veterinary practice acquisitions post-COVID, it is evident there is a deeper ‘due diligence dive’ occurring, particularly from a buy-side. As a result, practice owners looking to transition out of ownership should be familiar with common questions they may face and documents they may need to provide. It is important for practice owners looking to sell to be able to provide a narrative that best explains operations, as well as a realistic trajectory of practice performance.

Kathryn Buis is the regional market leader, Healthcare Finance GTA, for BMO Bank of Montreal. She can be contacted via email at Kathryn.Buis@bmo.com.