So, You Want to Open Your Own Veterinary Practice?

As a veterinarian, the dream of owning your own practice often represents the pinnacle of professional achievement. However, venturing into practice ownership is a monumental decision that requires thorough preparation and strategic planning. Here’s a comprehensive guide to help you navigate this exciting journey.

First Things First: New Practice vs. Established Practice

Starting from Scratch – Opening a new veterinary practice means building everything from the ground up. This option provides you with the ultimate level of control over every aspect of your practice, it also involves substantial initial investment and higher risk, as you will need to attract a clientele from scratch and navigate the unpredictable early stages of business growth.

Purchasing an Existing Practice – On the other hand, acquiring an established practice comes with a built-in client base, experienced staff, and an existing revenue stream, which can significantly mitigate initial risks. Many lenders prefer financing acquisitions because they can assess the financial history of the practice to predict future revenue. However, you will inherit the existing business culture and practices, which may require time and effort to align with your vision. Potential downsides include staff turnover and adjustments in business philosophy.

Key Questions to Ask When Purchasing an Existing Practice

Once you decide to take the leap and purchase an existing practice there are a few questions you must ask yourself when evaluating the potential purchase which include:

  • How did the seller arrive at the sale price?
  • What all is included in the sale? 
  • Does the sale include any special conditions?
  • Why is the owner selling, and what are his or her plans following the sale?

Due Diligence: Ensuring a Smooth Transition

Due diligence is a critical phase in acquiring a veterinary practice, requiring meticulous attention to detail and professional expertise.

  • Compliance Documentation: Ensure all regulatory requirements are met. A compliance audit can prevent costly future fines and enhance the practice’s value.
  • Non-Disclosure Agreements:
    Protect sensitive business information with NDAs to prevent information leaks that could harm the practice’s value or operations.
  • Non-Compete Agreements
    Verify that existing veterinarians have non-compete agreements to safeguard against them taking clients if they leave the practice.

Conclusion

Owning a veterinary practice is a significant milestone, representing either the start of an exciting new venture or the culmination of a dedicated career. Whether you choose to build a practice from scratch or acquire an existing one, being well-prepared and informed is key. By asking the right questions, understanding valuation methods, and ensuring thorough due diligence, you can set the foundation for a successful and fulfilling practice ownership journey.

Clients who work with the Florida Healthcare Law Firm are protected by deep healthcare industry experience and fully served by attorneys aligned with their success. The team here doesn’t dabble in healthcare law, we specialize in full spectrum representation of healthcare providers and nearly every type of healthcare business.

MSAs in the IV Hydration Space

The concept of an MSAs (management services agreement) can be confusing for IV hydration business owners.  If you’re curious, you should have these questions:  What is an MSA?  Why do I need one?  What does a “good” one have in it?

An MSA is a contract.  That’s the simple part.  It’s a contract between two entities, a clinical entity (e.g., company, professional corporation, partnership or LLC) and a business entity.  One entity does clinical things (e.g., provides IV hydration services).  The second one does all the business things that any healthcare business needs—reception, accounting, HR, financial management, marketing, sales.

Healthcare businesses need (or want) MSAs for two reasons:  first, because the law of the state where they operate requires only a specific clinician to own a clinical entity.  For instance, the law in a state might say a physician (and no one else) must own any entity that provides medical services.  And it might define even IV hydration services as a medical service.  In that state then, only a physician could own a business that provides IV hydration services.  In that event, non-clinicians (or clinicians without the requisite license) would/could own the business entity (but not the clinical one).  the second reason for using an MSA is because that’s what the entrepreneur thinks a buyer will want.  The entrepreneur will build an MSA based model (called an MSO model) in states that don’t require an MSO model because the entrepreneur believes private equity only wants to buy MSO modeled healthcare businesses.  And (if you haven’t figured it out already) the laws that drive this issue are state laws (not federal ones), which means there are at least 50 different moving pieces.  State laws change regularly (more often than federal ones) so this is something that needs to be checked periodically.

One of the difficult things in an industry where regulations are emerging (e.g., the IV hydration space) is to consider this question:  although the laws in my state don’t require an MSO model, are the legal developments that apply to the IV hydration industry such that we ought to do an MSO model anyway?   This sort of analysis assumes there is change afoot and it may “hit” your state sometime, and it’s best to adapt before the laws in your state are impacted.   This is a complex business decision that requires a thorough discussion with experienced counsel.

What about the MSA itself?  What should be in it?  This depends on state law since states do address the content of such agreements.  New York law, for instance, requires the management fees to be consistent with fair market value.  California law forbids percentage based MSAs (as do other states).  Regardless of the specific state laws applicable, a thoughtful MSA needs to address—

  1. The detailed business-related services the MSO will provide to the clinical entity;
  2. The clinical services that the clinical entity will provide;
  3. A clear commitment on the part of both parties to adherence to state and federal laws;
  4. The fees payable to the MSO;
  5. Financial controls in place, such as a sweep account and lien provisions (to protect the MSA fees payable to the MSO);
  6. The rights of the MSO relative to the clinical entity as it relates to issues like the ability to require a change of clinical owner;
  7. Restrictive covenants like confidentiality, non-solicitations and noncompetes;
  8. Termination provisions, particularly those that are based on threats to the business of either party (e.g., bad actor clauses); and
  9. To the extent possible under state law, the possibility of the MSO sharing liquidity event proceeds if the clinical entity is sold.