At some point, every veterinary practice owner reaches a tipping point regarding the future of their business. This will be a major step forward, professionally and personally, and can involve realising the value of the business through a sale, a full or partial MBO or, indeed, looking to raise funds to grow or modernise the practice ready for the next generation or in preparation for a future sale.
The market for practice sales is currently in a state of some flux following recent investigations by the Competition and Markets Authority (CMA); however, there continues to be a healthy appetite from some corporate groups to acquire strong practices. Whether you are considering raising finance for growth or an outright sale, one of the key questions is “what can I do to prepare my practice for a successful and relatively painless transaction?”
The answer is that there is plenty you should be doing to get your house in order, just as when you sell a house. And it is never too early to start planning for an exit. Implementing good business practices and disciplines in advance of a sale will not only make the sale process much smoother but also enhance value. Vendors who take the right steps to prepare will almost certainly end up reaping the biggest rewards. This article will outline some of the main areas to consider to optimise your chances of a successful deal.
Founders’ reliance risk
Owner-managed practices are, by definition, reliant upon the owner; however, any buyer will want to ensure that the business they are buying is capable of functioning and, indeed, growing after the current owner has left the practice. If the business cannot function without you, then what is the buyer acquiring? Ensuring you have a strong clinical and management team who can continue to drive success after you step down will make your business far more attractive to a buyer and deliver a higher sale value.
Ensuring you have a strong clinical and management team who can continue to drive success after you step down will make your business far more attractive to a buyer and deliver a higher sale value
Quality of financial information
Poor financial information sends the wrong message to a buyer. Having good-quality up-to-date financials and systems not only is good practice but makes a buyer’s ability to value your business and rely on the financial results much easier. Ensuring that you have a good-quality and relevant monthly board pack, which includes profit and loss, balance sheets, cash flow and key KPIs, will put you one step ahead on commencement of any transaction process.
A buyer or funder will undertake financial due diligence on your business as part of a transaction. Being able to provide this information not only makes the process smoother but improves their perception of your business, which may, in turn, reduce challenges to the pre-agreed valuation.
Furthermore, investing properly in your finance team is an area often overlooked by many businesses as they grow and mature. A strong internal finance function is key to ensuring proper financial information is kept and will also enable you to navigate successfully through financial due diligence.
Growth, timing and trends
Evidence of strong growing profitability over a sustained period will undoubtedly increase the value of your practice. Moreover, being able to understand your practice’s profit trends and future growth opportunities, as well as the underlying market dynamics, can help determine the optimal time to sell.
Strong financial performance during due diligence and negotiations will provide additional confidence to the prospective buyer and significantly reduce the chance of a ‘price chip’
During a transaction process, it is also essential to perform well compared to forecasts. Strong financial performance during due diligence and negotiations will provide additional confidence to the prospective buyer and significantly reduce the chance of a “price chip”.
Manage current and future risks
Buyers will eventually take a forensic look at your practice, so it is crucial to identify areas of concern before they do.
Think critically about your practice and consider how it could be perceived by an outsider. Does your business rely on one or two key clinical team members? Or is your practice coming under increasing price pressure from local competitors? Once you have identified areas of concern, consider what action you can take to mitigate them.
Legal and financial tidy up
Keeping your statutory records, corporate filings and tax affairs accurate and up to date is of critical importance for any transaction process. Ensuring that Companies House filings are watertight, proper company articles and shareholder agreements are in place and resolutions and board minutes have been produced (and filed where appropriate) should ensure no nasty surprises are uncovered during due diligence.
Robust compliance with your legal and financial reporting requirements sends the right impression to a buyer
Robust compliance with your legal and financial reporting requirements sends the right impression to a buyer. From a legal perspective, make sure that items such as incorporation documents, statutory registers, share certificates, property leases, title deeds, intellectual property rights, employee contracts, directors’ service agreements and/or customer and supplier agreements are in place and up to date.
Tax due diligence and planning
While the tax due diligence process will mainly focus on the most recent tax filings, it will also look at some historical items, particularly so if there have been any restructurings or transfers of assets between companies in the case of groups. Therefore, it is recommended that you ask tax advisors to undertake a pre-transaction review before the due diligence process starts. Doing so ensures you are aware of any potential problems and can either take rectifying action where possible or disclose the issues early in the due diligence process.
Conclusion
Experienced corporate finance advisors, especially sector specialists, can provide valuable advice to make your business “sale ready”, maximise its value and support you in executing a successful transaction.
