If you have decided to sell your practice, it is sensible to ensure that your house is in order before the transaction gets underway so as to help avoid any unnecessary headaches. In this article, we set out some helpful tips and considerations on how you can prepare before selling your practice.
Questions and more questions
A prospective buyer will want information regarding the practice they are proposing to purchase so they can evaluate the risks, if any, and where they might lie in your business. The buyer will normally issue quite a detailed questionnaire which will cover things such as:
- the structure of your business
- compliance with the Royal College of Veterinary Surgeons registration
- any existing contracts, particularly with any buying groups, in respect of your clinical waste and practice management system
- whether you have any hire purchase or lease agreements, the term of these agreements and the amounts still to be paid
- details of RPA inspections
- Health and Safety Executive registration and consent
- the practice out-of-hours arrangements
- the details of locums used
- any pet health plans or free insurance offered
- the practice insurance, including your VDS insurance
- data protection compliance
- domain name registrations
- practice employees, including copies of their employment contracts
- maintenance records and agreements for any assets
- any property used and/or owned by the business
The buyer will also raise commercial property standard enquiries and further property enquiries regarding your ownership or occupation of the property used by the practice.
It is therefore essential that before beginning the sales process, you ensure that you have organised all paperwork in respect of your business
A number of financial due diligence questions will normally be raised by the buyer’s accountants, including your SAGE or management accounts, VAT, employee taxes, tax computations and the profit and loss of the business. It is likely that the buyer will also want to know about any ongoing liabilities within your practice finance, including how much is left to pay on any hire purchase agreements and the details of all contracts, as well as what notice periods need to be given to terminate any contracts they do not want.
It is therefore essential that before beginning the sales process, you ensure that you have organised all paperwork in respect of your business. This will make this process a lot easier and less stressful for you.
When considering selling your practice, it is sensible to get your advisers lined up early on. Your accountants will be able to assist with valuing your practice and with the structure of the sale – if you are a company, accountants will help you consider whether it will be a share sale or asset sale. Early tax advice may help you decide which route is best for you by identifying the tax advantages of choosing one option over the other.
It is wise to consider whether you wish to remain employed after completion early on before approaching prospective buyers
We often find in veterinary transactions that the buyer may want to adjust the purchase price by way of reference to completion accounts. Buyers often wish for the sellers to carry on working at the practice after completion to allow for a smooth transition. A buyer may also incentivise a seller to remain after completion by offering further considerations based on the future turnover of the practice. It is wise to consider whether you wish to remain employed after completion early on before approaching prospective buyers.
Your accountants and solicitors should be engaged to help negotiate the heads of terms once a potential buyer is found. This will help ensure that the whole process starts on the right footing. The heads of terms will set out the key conditions of the proposed sale, including the agreed price, when it will be paid, a proposed date for completion and an agreement for both parties to keep the proposed sale confidential. Although this document is not usually legally binding, it provides early visibility of the parties’ intentions and should allow you to pencil in a timetable.
Although [heads of terms] is not usually legally binding, it provides early visibility of the parties’ intentions
It is recommended that you create a timetable up to completion in order to focus everyone’s minds on what is required and by when. It is, however, also important to have realistic expectations, bearing in mind that you will still be running a busy veterinary practice while going through the sale process. You will need to allow sufficient time for the buyer to undertake due diligence of the practice and time for both parties to negotiate the terms of the sale agreement, as well as any additional documentation to achieve their objectives. Any consultation with employees will also need to be factored into your timetable.
If you are thinking about selling your practice, getting your house in order and looking at the possibilities available to you post-sale can be a valuable tool in your arsenal. Considering in advance the questions that buyers may ask, onboarding any advisors in the process and timetabling your tasks up until the completion of the sale can smooth the buying and selling process.