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Owning Your Own Hospital: How to Avoid the Pitfalls

By: Gavin Shea

You've trained for years to become a veterinary doctor, and now you may want to make the leap into hospital ownership. The good news is that the demand for veterinary services is likely to remain strong, with pet ownership a high priority for many families. 

Nevertheless, you may likely make a significant monetary investment in practice ownership, and naturally there may be stumbling blocks along the way. What are the potential pitfalls  to avoid? Not surprisingly, they may involve how you manage your finances -- both the funding from your lender and your practice income. Following are common obstacles to watch out for, and guidelines on how you can protect your investment to help ensure a successful outcome.

  • Inadequate build-out funding
    One of the risks in building your first veterinary hospital is an incorrect estimate of the amount of funding required to fully complete the project. Perhaps some of your less obvious needs have been overlooked, such as a parking area for easy access in a crowded downtown location. Or perhaps you are relying on an inexperienced build-out team that does not fully grasp the unique requirements of the veterinary office, such as specialty plumbing and enhanced wiring for today's digital equipment. Whatever the cause, finding yourself short of funds before your project is complete can produce considerable stress as you choose between cutting back on your plans or taking on additional debt. Ultimately, it may lead to poor decision-making.

  • Shortage of practice income
    As you're getting your new start-up underway, you may face challenges during the first year or two in generating adequate traffic flow and income to cover expenses. When you are introducing a new service to a community, it may take a good deal of marketing and networking to gain visibility, attract clients, and generate loyalty. It may take two to three years to build a self-supporting client base capable of sustaining a full-time veterinary practice. To ensure you have enough revenue to cover your overhead as well as your debt, you may want to consider practicing elsewhere part-time as an intern or associate until you build a self-supporting level of business in your own practice.

  • Overpaying for a practice
    Some new doctors attempt to manage the acquisition process themselves in order to save on the costs of purchasing a practice, rather than working with a professional practice broker. In doing so, they may be relying on the selling doctor's valuation of the business and terms of agreement. This may result in a higher price for your hospital than it is actually worth. To avoid potentially overpaying for a hospital, consider hiring a professional appraiser who can establish the true and fair market value of the practice and working with a broker specializing in veterinary practices who can guide you to the best offerings.

  • Declining revenues after transition
    After purchasing a new hospital, you may experience declining revenues after the transition. When a new practice owner is introduced, clients may begin shoping around, perhaps for an animal hospital closer to home or with bundled specialty services. The key for you is to understand the cause of your drop in revenues, and determine how to get back on track. Before transitioning to your new hospital, consider reaching out to patients with a personal letter describing your background and services. Perhaps, offer a promotional discount on regular exams for the first few months to bring existing clients back into the hospital. Understand your practice numbers in order to properly evaluate the reason for client attrition.

Seven steps to a smooth transition
You may not be able to avoid all the pitfalls when transitioning to ownership. You can be prepared with a definitive back-up plan if you run into problems so that rather than wasting time floundering, you can immediately get busy working toward a solution.

  1. Activate your team
    You may want to consider working with a team of practice acquisition or start-up professionals before you begin your project. Working with them from the beginning and through the entire project may help ensure your interests are protected. Your team can help guide you through a significant project like a hospital purchase or start-up without becoming entangled in potential obstacles or frustrations. You may want to include:
    • Acquisition: Attorney, practice broker, lender, accountant, and insurance broker, marketing/PR professional
    • Start-up: Attorney, general contractor, lender, accountant, equipment supplier, insurance broker, marketing/PR professional

  2. Complete your due diligence
    Before purchasing or starting a practice, help prevent unpleasant surprises by asking to see charts, reports, inventories, and schedules -- any information that will help detail the daily operations of the practice you are purchasing. For a practice start-up, a due diligence exercise may help you prepare a comprehensive plan for technology development, staffing, marketing, Occupational Safety and Health Administration (OSHA) guidelines, and other critical business requirements of your practice. Another component of your due diligence can be understanding the size and makeup of the local population and how its veterinary needs are currently being met by existing hospitals in the area.

  3. Monitor practice performance
    Examining your hospital statistics regularly can be important for maintaining the health of your veterinary practice. Profit and loss numbers may help you diagnose and treat problems, much like a lab panel can help you diagnose and treat veterinary disorders. In order to understand the strengths and weaknesses of your practice and systems, you can use the Milestones program from Wells Fargo Practice Finance, a practice monitoring tool that may help you establish baseline measurements for everything from production to operating expenses.

  4. Manage your cash flow
    Any business, large or small, may find itself with cash flow shortages at times. Consider making a plan to help you manage your cash flow by setting daily and monthly production goals, paying down outstanding debt, and saving 10% of income after expenses are paid. This may help ensure you have cash on hand in case of a bad month or an unanticipated expense.

  5. Beef up your marketing
    Whether you choose to utilize an agency or consultant, or handle these efforts yourself, it may be helpful to create a consistent marketing program that builds awareness and recognition of your practice. As your budget allows, explore the potential of internet ads, newspapers, billboards, or even radio and television. Consider sending personal letters to members of the community to introduce yourself and directly ask for their business. Requesting referrals from your current clients may be one of the easiest and least expensive methods of marketing. Don't overlook social media. A Facebook page, for example, can be a great tool for creating an online community, giving your patients a place to comment and refer others.

  6. Improve your treatment presentation skills
    Consider working with your staff to improve your verbal skills in presenting treatment recommendations to clients and handling potential customer concerns. Keep track of the treatment you present, and whether or not the client accepts your recommendation. Documenting the reasons given for accepting or rejecting treatment may help ensure a complete customer file. It helps to know what techniques you and your team are doing well, and which may need practice.

  7. Know your strengths and build on them
    Consider surrounding yourself with specialists and staff who complement your skills. While you work to improve your weaknesses, let your strengths take the lead in guiding the tone and style of your practice. You may be happier in your work as you succeed while being yourself.

Transitioning to practice ownership can indeed have its occasional pitfalls. But by relying on your team of professional advisors and planning your success well in advance, you'll likely find before long that you have made the transition not only effectively -- but profitably.

About the Author

Gavin Shea is the National Director, Healthcare for Wells Fargo Practice Finance. With more than 20 years of banking experience with an emphasis in practice lending, he leads sales and marketing strategy development and implementation throughout the national footprint. His industry background offers practitioners a unique perspective as they approach some of the most important decisions in their professional lives. With more than 30 years of practice lending experience, Wells Fargo Practice Finance specializes in helping healthcare professionals acquire, start and expand their practices with various financing options and a signature Practice Success Program. Contact: gavin.m.shea@wellsfargo.com or 844-626-4317

View all articles by Gavin Shea

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All financing is subject to credit approval.

All financing is subject to credit approval.

All financing is subject to credit approval.

All financing is subject to credit approval.

All financing is subject to credit approval.

All financing is subject to credit approval.

All financing is subject to credit approval.

All financing is subject to credit approval.

All financing is subject to credit approval.

All financing is subject to credit approval.