The sale or purchase of a veterinary practice is likely to be one of the largest financial transactions that a vet hospice business broker will enter into. Whether selling or buying, it is important for vets to understand the process involved.
Is your practice ready to sell?
Prospective buyers will expect to see information regarding the practice such as existing contracts, maintenance records and property used and/or owned by the business. A buyer will want to learn about all ongoing liabilities it is likely to take over. It is important therefore that, prior to marketing the practice, the seller ensures that the practice information and records are in good order.
Marketing the practice
Many sellers will use a specialist agent to market their veterinary practice. It makes sense to use an agent who is experienced in marketing veterinary practices. Such agents act as intermediaries assisting to conduct initial negotiations, to hopefully obtain the best price for the practice, but also to help the buyer assess the target business. The agent will usually then prepare a memorandum of sale setting out the key terms of the deal such as the price agreed, what is included, and whether a deposit is payable. This is not necessarily a legally binding document, but it helps keep everyone on track.
If buying, it is worth making your offer on the basis that the seller ceases marketing the practice – at least for a period of time to give the parties time to progress the legal work.
If you are selling the practice, it is normal to seek to offer such exclusivity period in return for a deposit from the buyer. If the buyer pulls out of the transaction without a fair cause, the seller could keep the deposit as compensation. However, if the buyer were to pull out because of a change in the deal e.g. something unexpected is uncovered during the due diligence investigation, or the seller seeks to increase the price, then the deposit should be returned.
Financing the purchase
Often a purchase will be a mix of the buyer’s own funds, and some third-party finance from a bank or alternative lender. As with the agents, it makes sense to use a bank with experience of lending to the specialist sector. It is always best to seek independent financial advice when looking to secure finance for such a transaction.
In return for providing finance, the lender will usually expect some security such as charges over property and personal guarantees. Such security will depend on the level of finance being provided, whether the buyer is a limited company or individual, and the means of the buyer.
Structuring the deal
If trading as a sole practitioner or in a partnership, the practice would be sold by way of an asset transfer. However, if the business and assets are owned by a limited company, there is the added option of selling by way of a share sale instead. It is vital for both the buyer and seller to take tax advice to help decide which route is best. Whilst tax is not the only reason for a particular structure, it can be very costly to a party if the wrong decision is made!
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