DVM360.com had a good article in the December 2015 issue entitled “3 Practice Sale Slowdowns”:
3 veterinary practice sale slowdowns
Recently I was contacted by a group of veterinarians who had successfully negotiated an excellent deal to sell a group of practices to one of the large corporate veterinary companies. Based on what they told me then, I explained that it sounded as if everything was well on track and that if price, terms, financing and leasing had all been agreed upon, the closing should be simple and soon.
But alas, I heard from them again about a month later. Apparently, the group’s attorney and CPA were being so slow in preparing schedules and documents that the corporate buyer was threatening to pull out of the deal entirely. This response is understandable; corporate practice purchases tie up the acquirer’s transition staff. These buyers need to schedule their people’s time, so time and timing are of the essence. They have little patience for unjustified delays.
Clearly, negotiating and consummating a practice sale can be difficult for anyone who’s never been through it. And it can sometimes be tough to even identify who or what is holding things up when the transaction begins to stall. Let’s proceed logically through the process involved in a quick and proper clinic sale closing.
Time is money
First and foremost, never forget the reasons why it’s critical to move forward with the least possible delay. There are key time-sensitive realities facing both parties.
Taxes. The clinic building may be part of a capital gain “like-kind” exchange and as such carries with it a severe Internal Revenue Service (IRS)-imposed time limitation for the buyer. The seller may have capital losses he needs to offset in the year the sale occurs. Missing deadlines can simply kill the sale for tax reasons.
Financing rate. Banks and other lending institutions don’t commit to loans indefinitely. If some CPA or lawyer slows down the closing such that a loan commitment expires, it can result in more than an inconvenience. A rate hike can make it economically impossible for the buyer to go forward with the purchase.
End of employee contracts. Many practice sales are contingent on the selling clinic having a full veterinary staff at closing. When ownership is about to change hands, employees of all categories begin to get nervous—that edginess can result in staff seeking employment elsewhere and DVMs hesitating to fulfill or renew their employment contracts.
The usual suspects
Second, once we understand the need for speed in finalizing a practice sale, we need to identify what’s most likely to slow things down. Here are my usual suspects:
Lending institution paperwork. Often closings are delayed because banks and banks’ attorneys don’t concern themselves adequately with the importance of thoroughness. Financial institutions loan money day-in-day-out, and one deal looks a lot like the last 10. When a document or a deed goes missing, it can take a long time for bankers even to let folks know that something is missing.
CPAs and accounting assistants. When you schedule a practice sale on or near March 15 (subchapter S tax return deadline), April 15 (personal income tax return deadline), Oct. 15 (personal tax return extension deadline) or after mid-November, expect delays and confusion from your accountant. She is dealing with a barrage of last-minute documents pouring in from procrastinators and also, in December, employees calling in sick to do holiday shopping and party planning.
Lawyers. A lot of law offices operate like squirrels. They take in all the work that comes along in preparation for the leaner times they may face in the future. They’re not always equipped to work diligently on all matters that suddenly demand immediate attention. If yours is one of those matters, look out.
Don’t hate the player, know the game
Third, you as a buyer or seller have the power to speed things up by being proactive. You can genuinely own the transaction by learning what has to happen to get it done. Here are some examples of issues a buyer and seller need to work through with their respective legal and financial teams early in the clinic sale process:
Equipment and employee schedules. Don’t wait for your advisers (or the other side’s advisers) to ask you for the business documents and information they’ll need to prepare closing papers. Make a list at the outset. They might require, among other things:
> Employee lists
> Copies of DVM employment contracts
> Schedules of earned but unpaid vacation and sick time
> Approximate inventory
> Equipment model numbers, age, condition and depreciation status
> Accounts receivable.
Tax returns. Profit-and-loss statements and tax returns are often annexed to purchase agreements. Find out how many are needed and by whom and get them where they belong.
Corporate documents. If your practice operates as a PC or LLC, you likely will need proof that you are legally entitled to dispose of your clinic and its assets and real estate. This involves preparing a board resolution or other paperwork. Don’t wait until the evening before the closing to discover that you can’t find your corporate or LLC kit, seal, stock certificates, board resolutions and so on.
Leases and deeds. The buyer may need to negotiate new terms with your landlord or at least satisfy himself that your lease is assignable. It’s pretty hard to do that if you can’t supply your landlord’s contact information and copies of past leases. And don’t forget: You should give your landlord a heads-up that you’re selling your practice. If the landlord has been secretly waiting for you to leave, he or she may have another tenant in mind, and that will send the whole transaction into a hurricane.
Occupancy permits, zoning restrictions, municipal ordinances. Absolutely, positively discover whether you need any variances or approvals from the municipality where the clinic you plan to sell or buy is located. Nothing can slow up a deal like an ordinance officer or town zoning board. If you wait to discover that three public hearings need to be scheduled before your practice can change hands, you’d better get familiar with the hearing schedule for the village or city in question. And don’t be surprised when a scheduled meeting is postponed or your matter is put on hold pending the village getting an engineer’s opinion or other information before voting on your application.
Ultimately, you may be the No. 1 factor to prevent a sale from coming to a screeching halt: Push for an expeditious close, identify slow-movers and be proactive to avoid becoming the problem.