All right, hello and welcome. My name's Chris Howard and I'm the executive director of Bank of America's Animal Health division. First and foremost, I wanna say thank you so much for taking time out of your busy schedules to spend the next hour or so talking about starting or buying a practise and which path is right for you.
We know that your time is valuable, and we definitely see it as an investment as well. So, in turn, we're gonna try to do our best to ensure return on your investment through the form of courage, confidence, and clarity to help guide you down the path of practise ownership. And we don't have a tonne of time to cover a tonne of information, so we're gonna go ahead and dive right into our agenda and start the presentation.
First up, we're gonna talk about Bank of America practise solutions, the team, the products and services that we help surround those who currently are practise owners and those who want to become practise owners. Next up, we'll talk about the six C's of lending and credit, and basically, are you bankable or do you have some work to do? After we cover that, we're gonna dive into starting a practise, the pros, the cons.
The process, the teams, the networks, just anything and everything that you would want to know, as you have this idea to try to take it to fruition. After that, we're gonna do the exact same, but just for purchasing a practise. And we're gonna delve into some frequently asked questions.
So right out of the gate, you might be asking yourself, why is a bank talking to me about starting a practise or buying a practise? What could they possibly know? Well, hopefully this slide will help articulate how much work we've done within the animal health space.
So basically, we are a boutique division within Bank of America's corporate division with over 30 years plus of lending experience to veterinarians. We have over 500 associates committed to helping veterinarians meet their financial goals through the form of practise ownership and products and services. We have over 10 specialists strategically located throughout the United States that are solely focused on helping veterinarians become practise owners or enhance their dream of practise ownership.
We have an underwriting specialised team that understands cash flow and the business flow, and the patient base, and just what you're faced with on a daily challenging basis. We're a proud partner of the AVMA Med Edge programme since 2017, and we're proud to say we've lent over $3 billion to veterinarians for their practise and commercial financing needs over the past 10 years. And to try to give some context to that, our average loan size is roughly around $750,000.
So you can do the math and just see how much we interact with veterinarians and their practise financing needs, and we're grateful to do so. We do so specifically through the products that you see here. Our startup practise saloons range from $950,000 all the way up to $1,250,000.
We give 100% conventional financing up to 15 years with graduated or step up payments. And the budget typically break down to have money built into the budgets for the finish of a space, equipment of a space, marketing, and working capital to help support your operational expenses and help really spread the word about your business. Next up, we're happy to say that we've provided a tonne of financing towards doctors looking at buy-in and buyout opportunities with terms up to 20 years.
100% financing. And basically we see the equity that you have behind your name, the DVM and the DMD as your injection into these transactions. So we don't look to you to put any type of money, in most cases, towards your request.
We're very proud to do that. We also have the ability to finance owner occupied commercial real estate for those startup practises and those practise acquisition loans with financing terms all the way up to 25 years and up to 100% financing available, and we typically want our cash flow model to make sense out of your personal and professional debt schedules, so we do not want someone to become practise poor by taking advantage of their DVM or BMD doctrine. And obviously once you get into practise ownership, we also want to be there for the next bite of the apple, you know, or the 3rd or 4th bite of the apples.
So we provide a tonne of additional location loans, remodel, expansion, relocation, financing available for practises that outgrow their current space and need to expand. We also offer a debt refinance in the form of practise in commercial real estate financing, that is utilised typically to try to streamline multiple loans into one, help improve cash flow, and ultimately try to improve an interest rate and pay less interest back to your lender. And then finally, we are able to finance capital equipment in the form of 5 to 7 year terms, up to 100% financing, and very flexible, easy repayment options in the form of you can take the loan out today and decide to pay it off tomorrow without penalty.
I really, really like this slide. The slide helps articulate those bites of the apple. So not only do we have best in class for products and services after you take lending with Bank of America practise Solutions, we also offer all these different stages of someone's career as a practise owner.
So we're gonna help you get into the marketplace as a new owner through a startup or an acquisition or a buy-in loan. Once you establish yourself, you're gonna grow that business, and you're gonna see the product set that matches up to those next 5 years or so, as you mature and really develop your community and your brand. Once you feel like you've grown, you've matured, you might be starting to think about transition planning, and again, we're they're with you every step of the way.
We can provide associate financing with buy-in loans, we can help put you in contact with the right network of professionals that are going to help make that transition turned into a dream versus a a nightmare. Our team is 10 specialists deep throughout the United States. We have over 100 years of combined experience lending to veterinarians and their practising commercial real estate financing needs.
I would highly encourage if you're on this webinar that you have conversations that are tailored to you and your unique opportunities. Reach out to any one of our specialists in your respective areas and start the conversation sooner than later. You'll be glad you did.
All right, the six C's of underwriting. This is really gonna hopefully pull back the curtain on how underwriters view requests that come in from our veterinarians. I will tell you, the 1st 6 C's are most likely going to be more objective and metric-based than the last 3 C's.
And you might be wondering what is capacity and capital and collateral and conditions and character and communication have anything to do with the animal health industry and our ability to take out a practise loan. Well, a lot to unpack here, so let's begin with the capacity. So capacity is a fancy way of saying cash flow, your ability to repay the debt that you take out, and not just your professional debt, but also your per your personal debt that shows up on your credit bureau.
So you'll hear cash flow is king all the time, especially in a transition for a practise sale. What it basically boils down to is the amount of income you're able to generate on an annual basis. And then you divide in your annualised personal and professional debt repayments, via your credit bureau, your home mortgage, you know, your student loan balances, your credit cards, anything and everything that would show up under your Social Security number.
You want to annualize those payments. Next up, you're gonna take a look at what you have to take out for professional debt. Right, so in the form of a practise startup loan or a practise acquisition loan, commercial real estate financing, anything and everything that results back to the business and any comm commercial professional needs.
You would analyse those payments as well, and all you're looking to do is basically divide those debt payments into how much income you have, and voila, you have cash flow. That's going to show us. Exactly what your ability to repay that loan looks like and your total capacity to accomplish that debt.
Next up, capital. Your capital is another way of saying your personal financial statement. You obviously have a position, a career, you get paid for your work, you're gonna see.
Cash savings, retirement accounts, money markets, stocks, bonds, anything that's an asset would fall under that capital category. And specifically, we don't want you to inject any of your personal finances into your opportunities. Again, your equity is your DVM or your BMD status.
What in turn we look at is we want to make sure we're being responsible when we offer up a million dollars startup loan to someone who doesn't really have a patient base that we can look back via tax return to see if it's viable. So we think it's responsible to have a correlation. With someone's cash on hand versus how much debt they take out, and we'll dive deeper than that in about 2 slides.
Collateral, collateral hopefully is what it sounds like to you. A lot of people have challenges understanding what the collateral is on this practise and these real estate notes. I will tell you and try to break it down to everyday terminology.
If you have a home mortgage, the collateral for that home mortgage most likely in almost all cases is gonna be the home itself, much the same way that if you have a practise loan with us, that practise is going to be collateralized and secured against the loan itself. Same is true with the commercial real estate side of the equation. Your commercial real estate would be collateralized and pledged as the asset and the reason for taking out the loan.
So again, objective metric-based lending approach with the first six C's. The next 60s are more subjective conditions, character, and communication, just the environment that you're looking to take out the financing in, you know, what, what your marketplace might look like if you're looking to start up a practise. How many other veterinarians are located in your community?
What types of practises are those? What stage of your career are you located in? What's your production capability?
All these different things kind of blend into the conditions that really kind of give a all-around approach to an underwriter to say emotionally if they feel like it's a good opportunity for you to take out this debt. I'm happy to say the character piece of the sixties is one of the strongest in animal health. All of our veterinarians become veterinarians because they're very empathetic.
They care about animals, they care about people, they care about their patients, and that translates into a very high level worth of character net worth. So we're very happy to say our veterinarians are some of the highest character calibre doctors that we get a chance to work with on a daily basis. And your communication is very key.
You're gonna have a time to talk to an underwriter, usually 15 to 30 minutes based on your opportunity, and that's your time to shine. That's really your time to make sense out of your opportunity to an underwriter that's gonna either say yes or no to your request. How clearly you're able to articulate your business plan, your vision for the practise, you know, the challenges, the opportunities, the threats, the weaknesses, all that.
Is designated during that communication process. So those are basically the six C's of practising commercial real estate lending, and hopefully it gives you a sneak peek as to what underwriters are going to be looking at more so than anything else. And the next slide is one of our favourite slides because this comes up every single time we talk to a doctor.
We hear it all the time. Chris, we have a great credit score. We got an 850 or an 840 or an 800, whatever the case may be, we hear it all the time.
We should be a great a great credit risk, have no problem taking out this debt. And while I agree with you in certain types of lending, that's true. Home mortgage, car purchasing, they do focus on your credit bureau reporting.
For practise lending, I would describe your credit score as a ticket to get you inside the ballgame. So a ticket to get inside the stadium is based on at least a 680 or above credit score. Now how close you'll sit to that field is ultimately dependent upon the next slide that we'll dive into in just a second here.
But staying with the credit reporting, this is going to be anything that ties your Social Security number, and ideally what I would tell you is, each of these three companies you see below on the slide, Equifax, TransUnion, and Experian, they all report your credit score, but they're all competing companies with each other. And if you don't have a best practise of going out at least once a year. And retrieving a soft credit report from each one of these companies' websites, you might be missing it.
Those credit reports will maybe show the same amount of information, but they could also be different from company to company. So it's very important you understand each one of these companies will report similar information but potentially different information. So it's a good best practise to be able to retrieve your credit report from each one of these companies once a year and understand how to interpret and how to read that information.
You can see below, the buckets that really make up and drive your credit scores. Your payment history is the largest at 35%. So how quick you're able to pay, how frequently on time you're paying, you know, or how, how, how, how slow you are to pay, and if you have derogatories, that will drag your credit score down substantially.
The amounts owed, the types of debt, right, the length of history with that creditor, and then credit inquiries being the last. When you apply for a hard credit request, like applying for a practise loan or commercial real estate loan. So just know.
A 680 or above typically gets you a ticket to go to the ballgame. How close you sit to the field is dependent upon this next slide. So debt, liquidity and production, and hopefully this will make perfect sense after we get done covering each one of these, these arrows.
So we'll start with debt. Again, your Social Security number will tie you back to your home mortgage if you have one, your car payments, your student loans, and your credit card debt. That's, that's important, especially as you apply for financing for a specific opportunity.
If you're unaware Of the type of debt that's going to impact you negatively, let's shed some light on it today. Your student loan debt is a good investment in yourself. We know you're gonna have it, it's OK.
Your home mortgage, again, a good asset to have, not a whole lot of people have the ability to pay cash for a home and they have to take out a mortgage, so we see that as a good debt. Your car loans are a little bit fifty-fifty, depending on how many you have and what the amounts are owed per month. It could be good and or bad, but traditionally everyone's going to come to us and have a car payment potentially or maybe multiple car payments.
The type of debt that the banks will look at and kind of frown upon is going to be your revolving or your credit card debt. Now there could be certain situations that you might carry a balance forward, i.e.
A 0% offer on a credit card for up to 1416, 20 months, whatever the case may be. If that's the case, you definitely want to articulate it to your lender that, hey, this is something that I have out there. It's basically free money to myself.
I'm utilising my own personal cash, investing it to make a higher return on the investment while I pay 0% on this debt. That's OK, potentially. Where it's not OK is when we see the revolving debt not paid off every single month.
But instead, left outstanding for multiple months, with the inability to pay it off because your liquidity, which is our next arrow, isn't high enough to basically take out. That revolving debt, so that that presents a challenge, and they're usually a reason why you're in that much credit card debt without the ability to pay it off. So again, going back to the The succeeds and specifically talking about the Capitol.
That's your liquidity. So how much you have sitting on the sidelines, again, we don't want you to put it into the request, but we 100% expect and hope that there's a correlation between the dollar amount that we're financing for you and how much you have saved up as a rainy day or a nest egg fund. So traditionally, that's anywhere from 5 to 7% of your total loan amount that you're looking to finance.
And it's important because eventually if you blow through the working capital that you'll be given through a startup loan or a practise acquisition loan, you're gonna have the need potentially to dip into personal savings in the worst, worst case scenario. So in our eyes, we're trying to be very responsible and making sure that if we give someone arguably the largest financial commitment in their life, that they're going to have a nest egg to fall back onto in case they hit rough times. Most likely you don't have to worry about it, but it's nice to know it's there just in case you do.
So that's a big piece of the puzzle for underwriters. Next up, and this kind of comes full circle between the liquidity and the debt, is your ability to produce. What's your skill set?
Are you doing hard tissue surgeries? Are you doing soft tissue surgeries? Are you doing surgeries at all?
Right? What's this practise going to be focused towards, if it's a startup? Is your skill set gonna marry up if it's an acquisition to the previous owner?
So that production definitely gives you a position of power when you go to apply for bank financing. Used to be before COVID, we'd see someone and the average production amount per year working a full-time schedule 5 to 6 days a week was around $550,000. Nowadays with the fee schedule increases, you're most likely in the $700,000 to $850,000 range as an average working 5 to 6 days a week.
So this, these 3 points are really what determine an underwriter's decision. Within those six seas of credit lending. So moving right along, now that we got the unfun stuff talking about underwriting out of the way, let's move on to the fun stuff, which hopefully wise people are here on this webinar.
Starting a practise, I can tell you I've helped over 300+ doctors in my 14-year career start a practise from scratch, and it's an awesome piece, it's an awesome process to be involved in. It's not for everyone, and there's definitely an art form to it more than a science. So we're gonna talk through some best practises, some pros and cons, you know, just anything and everything you'd want to know if you have an idea and an inclination to go out and be your own boss and start your own business over the next couple slides.
This wheel, this wheel is very important. You guys are veterinarians, and you guys are great veterinarians. I'm sure that that's what you know, and that's what you do best.
That's what you're focused in on, and quite honestly, that's what you should be focusing on. You should surround yourself with all these different lines of business that are gonna help make that startup a reality and a dream come true instead of turning into a nightmare. And I'll tell you with specific examples, as much as we can get into with the limited time we have.
There's 44 bubbles here that you really want to focus in on at the beginning of your startup project. Number 1, you're gonna need to know where you're going to put your location, so that real estate broker who hopefully is healthcare specific and understands that your business needs to have high visibility most likely, high, high foot traffic, high street traffic. We want to be seen.
That's a very important piece of the puzzle. You can be the best veterinarian in the world, but if people can't find you. It's a loss, so it's very important to be working with a healthcare specific real estate agent that has veterinarian specific experience placing doctors in leaseholds and building purchases.
So that ball goes up in the air typically at the same time that you would engage with a bank, and that real estate agent is gonna absolutely ask, are you approved, and do you have a letter that I can put to a landlord or to an owner of a building, because quite honestly, that proves that you're serious and you're real, and then that other side of the table is not going to waste their time engaging with their third party counsel to vet you out and to see if you're a viable option for their space. So it's very important that you get bank approval along when you go to your real estate brokers to try to locate your space. Another very important line of business in this mix is gonna be your architect slash your contractor.
Cause you're gonna need to basically walk into a space and have eyes that are gonna understand, hey, we have an HVAC problem, or maybe there's asbestos in the glue in the tile. We need to, we need to negotiate that into our landlord, agreement with the, with the lease, that they need to remediate that. If we're unable to identify potential issues with HVAC, asbestos, ADA compliance.
And just the overall construction of what it's gonna take for demolition and taking that space from a white box or or a shell to a fully functioning practise, we might be setting ourselves up for failure. So you want to have bank approval to be able to give the approval letter to your real estate agent, and then I would highly advise walking that space with your real estate agent, your contractor, your architect, and your lender, if they're healthcare specific and specifically like our team is veterinary specific. They can give you some best practises and really kind of point some ideas out as you start to design your space.
And negotiate your space. The other, I would tell you a very important part of these lines of business that you see on the screen are going to be your equipment specialists and your TMs from your manufacturers and your distribution partners. You need to know how much it's going to cost to build out that space, but you also need to understand how much it's going to cost to equip that space.
And everyone needs to be aligned with your vision, you know, for example, if you're a doctor that's used to working in a high paced, fast-paced environment with super short exam times and seeing a lot of patients per day, you might need more square footage. You might need a larger square footage to accomplish more exam rooms. You might need more lay staff to tee those rooms up as you go back and forth throughout your day.
So it's very important everyone understands your business and you specifically your style of medicine, cause it's gonna, it's gonna translate to your space. So specifically work with people that have built veterinary practises, they understand the challenges that you're going to face, they understand the, the electrical requirements for your digital radiography systems. Very, very important.
At the end of the day, those 4 lines of business, your bank. Your real estate agent, your contractor, and your equipment team should all be in communication together. That's the tip of the spear as you move forward.
Demographic reporting and consultants are extremely important as well. You need someone to help guide you through the process if you've never done it before, and for most people, this is the first time that they're gonna take a look at being a practise owner. So it's incredibly incredibly important to make sure that hindsight is not 20/20 and to build your team, and this is again where I would, I would refer you back to slide six, connecting with your local specialist.
Those are the folks that are gonna be connected to all these different lines of business in a marketplace throughout the United States, and I can guarantee you that there's absolutely people. And professionals that you can lean on and allow you to be a veterinarian on a day to day basis and let them do what they do best in their profession. So, that's a, that's a little sneak peek at at the team you need to put around you, the network of folks that are gonna be very prevalent to try to make this, this dream a reality, and it's my definition of who's good and who to work with is basically when they can tell you stories of veterinarians they worked with, and when something went wrong in the project, because it's not a question of if, it's not a question of if, it's a question of when something goes astray, how equipped are they to handle that.
And make that speed bump not turn into a roadblock. So it's incredibly important that you work with vetted individuals that have built, located, negotiated, equipped veterinary practises and consulted. With veterinarians like yourselves.
So, moving right along, and we could spend, we could spend a lot more time on this slide, but that is just the tip of the spear. So again, encourage you to have a conversation with your local specialist on slide 6, connect with them, talk through your unique individual opportunity, if you're looking at doing a startup project. Again, we talked in pretty good detail.
About the process and specifically what you need to do and the steps in order to achieve this. Again, defer back to slide 6, talk to your specialist, they will walk you through the suggested timeline and kind of walk you through what you need to be doing at certain points in time throughout the process, but obviously reference this slide if you have questions, there's a lot to unpack within these seven steps, a lot that happens, but again, we, we just don't have the time to unfortunately run through each one of them. The biggest piece of the puzzle is again, those 4 individuals that you're gonna work with.
They all need to know each other and hopefully be familiar with each other and work in tandem while you're still working as an associate. Let them do what they do best. All right, pros and cons, pros and cons.
There's a lot. To say that's that's worthwhile in a startup, and there's also some, some downside that exists today that didn't exist a couple of years back. But let's start with the pros first, and we'll move over to the cons second.
All right, so, one of the pros is you get to choose your location, and if you're an associate that's doing 900,000 in production and you don't have a non-compete, and you know you can get really close to where your, your current employer is at, and you feel like that patient base will absolutely transfer with you, I would agree. We see that a decent amount, especially with the corporate consolidation over the years, sometimes there's non-compete, sometimes there's not. But we've seen literally doctors move next door to the practise they came from, and traditionally that Goodwill will follow that DBM or that BMD.
So, the beautiful part about a startup is you get to choose your location, and obviously you get to choose your layout. I'm sure everyone on this call has been able to work in a practise where it feels like it's been remodelled 5 times over 50 years and it's like a maze internally within that space, and there's not a good flow, it dead ends, and it's just a tough location to work at. One of the beautiful things about the startup is you choose the location, you customise your layout, it helps attract new doctors that are used to practising with new equipment and better technology than essentially taking over a, a turnkey solution with an acquisition.
So we, we definitely hear people saying that, you know, they like the freedom and flexibility to choose. Where they need to be in their city, in their marketplace, they want to be next to like-minded businesses with disposable income type goodwill. So for example, you don't want to be next to a payday loan place or a smoke smoke shop place, you most likely want to be next to, a dance studio, a karate studio, a daycare, you know, family oriented business that you are gonna have pets.
So we see that as a as a pretty good determining factor of people trying to choose their location, and again, the layout, working with a designer, working with a design build contractor and architect, that can really maximise the square footage within that space is very, very important, and again, the flow of that practise is very important for longevity. Again, new equipment, new technology that should attract, if you have the good problem of, of running out of doctor hours and you need to hire additional professional staff, which we'll talk about a little bit on the cons side of the startup equation. You're gonna have a good situation where people want to work in your space.
They want to practise with your equipment, your technology, cause they're used to that, and really the biggest determining factor that we see is that you can build your own culture. You're not buying someone else's sweat equity in someone else's preexisting culture, so you get to put your own thumbprint on that practise and really implement your culture that's going to be destined there to help improve and maximise your practise ownership. Again, it's the emotions that we typically see, and, and it's good if you have these, is you're nervous, excited, and scared all at the same time.
That's common, that's natural. It's probably the the the largest financial commitment you're ever gonna make, but it's worth it, in our opinion. We've seen it firsthand, and one of our frequently asked questions we're gonna talk about is one, what, what, one piece of advice would you give yourself, just doing this for a long time, and the number one answer is I wish I would have done this 5, 1012, 13 years ago.
I wish I would have taken the leap of faith and just known it was gonna be OK. So, again, it's, it's easy for me to say and harder for you to live, but it's absolutely worth your time and your effort to be your own boss and to control your own destiny and practise the type of medicine you want to practise, and the startup is a really good way of getting that done. So some downsides potentially to the startup.
Finding your space can take time, that's true. I'm old enough to remember after the Great Recession, the landlords and the, the owners of space couldn't give away a tenant space. They, they had problems, right?
They were just lining up to say, hey, take rent my space, please buy my space. Nowadays, the pendulum has shifting and the marketplace for commercial real estate is a little bit tougher, and it takes a while to find the right location. Negotiate it, try to get tenant improvement allowance money through that landlord potentially, you know, it takes a while to find that dream location, and you're gonna spend a lot of your life there for the next 57, 10 years of the lease situation and even longer if it's a building purchase.
So, the location can definitely take a decent amount of time, so be, be ready for that, and just know it's not gonna happen overnight. Also, I would tell you the stress and the cost of construction. That went north with COVID.
So again, I'm gonna date myself a little bit, but I remember back in the day when a startup loan was around $375,000 to $550,000 OK? And that was super high end in a big space, if it was all the way up to the bank's budget. COVID hits, cost of materials and the cost of construction skyrocketed.
It is what it is, price per square foot is up across the board across the country, and your specific marketplace, it's, it's gonna be unique to yourselves and the contractors and the subcontractors that are located within those markets. So I'd highly recommend, again, reaching out to our specialists, connecting with those folks and get a better understanding of what it costs to build a vet practise in your marketplace. People view the startups as more risk, you know, beginning without a patient base, starting from zero, and I can tell you that is scary.
This is where I think our expertise and our knowledge really shows through. We're gonna ask you specific questions based on your background, what you're producing today, your style of medicine, where you want to be, right? Your time licenced.
All these things really help us understand you and your style of medicine, and then we can best advise you, hey, this is, this is what you need to do, and here's where you need to be careful. We're vetted with you, we're vested with you, we have a relationship with you, we're successful only if you're successful. So yes, there is more risk on the surface, but it's a lot more reward potentially for those that take that leap of faith.
I mentioned it earlier, but growing pains with the staff. There, there's definitely something to talk about there. When you start off, you don't want to overstaff, you know, you wanna do that Goldilocks scenario with the space, you wanna go not too big, not too small, you want to get just the right square footage for what this business could be today.
That's true too with your staff. You don't wanna go. And overstaff with the lay staff and the professional staff, and then you can't live up to your expectations of paying the salaries.
So this is again, I'll defer back to the team to advise you on how many people to bring over, the, the stage of the game when you hire another doctor and what that looks like. So definitely one of the challenges of the marketplace today is finding doctors, finding lay staff, you know, it's, it's difficult, it can be hard, it can be very defeating for several doctors that that are just maxed out with how much they can produce in their practises, and they're, they're turning business away. So again, con, potentially, the nerves and the, the, the, the, the, you know, the idea that you could not be successful might be too much for someone.
They might say, I don't want to start from scratch. I'm just, I'm not cut from that cloth, and that's OK. You're the person that has to live with the debt after it's all said and done, and no one should make you feel pressured into doing something that you don't feel comfortable doing.
You might be more suited towards an acquisition that's turnkey and a little bit safer. So those are some of our pros, some of our cons on our startups. Here's an example of a budget in a 2800 to 3400 square foot space.
As mentioned previously, we can lend up to $950,000 towards a startup for a single doctor practise. If it's a multi-doctor practise, we can be up over a million dollars and in some cases all the way up to $1,250,000 in a leasehold and even more if you decide you want to buy the real estate, and that makes sense for what you want to do. In this situation, $950,000 breaks down as follows.
Your remodel your finished budget in a leasehold situation would be around $575,000. Your equipment costs would be around $275,000 which should get you all the toys and all the bells and whistles you can imagine. And then your working capital is give me $100,000 and that's liquid cash that we wire to you, and that takes care of your operational costs, really takes care of anything you need that that demands cash.
So that budget we feel will well capitalise you and the idea is that you don't have to take $950 ideally you take less. The less you take, the quicker you go from the red to the black on the numbers, and you're more profitable, and that's again the art form to this, this scenario. So we want to consult you, we want to talk to you about how much space square footage that you're gonna need, that's going to drive your construction budget.
The style of medicine that you practise is gonna contribute to the type of equipment you're gonna need. And then obviously your working capital is pretty universal across the board. You're gonna need that liquid cash to operate and pay yourself and staff.
All right, moving right along, we're getting into purchasing a practise, and this is something that, you know, I kind of cut my teeth 14 years ago, understanding transitions. And I will tell you, the way I like to describe it is, today, it's a nice pretty puzzle that's been put together, makes a beautiful picture, and, and the job of a transition specialist is to basically take apart those proprietary owner pieces of the puzzle, and then put in your pieces of the puzzle and still see if it makes the same pretty picture. Sometimes those puzzles can be 3000 pieces and very challenging.
Sometimes they can be 200 pieces. It all depends on you, the opportunity at hand, and how that transitional risk looks on paper. So, let's dive right in.
Again, you're gonna see several of the same team members that you saw in the starting of practise slide. I would tell you and I'd point out there's a couple of very important changes here and different people that you can consult with. Number 1, practise brokers serve a good purpose.
They're gonna help connect you to opportunities, they're gonna help diagnose the financials, and they're going to try to make the transition come together. And I will tell you, these transitions do feel like a roller coaster as you move forward through the process, and we'll see that on the next slide. It's important to have representation on your side, because at the end of the day, the seller has a goal, you have a goal, and they're not always aligned.
So you need to find compromise traditionally in these situations, and the professional mediation you put around you is very important. Again, you guys are probably tired of hearing me say this, but I would defer you back. To the team of specialists on slide 6, they can help point you in the right direction of reputable people that have done transitions in animal health for years, for decades plus.
A very, very important line of business that can be a real hindrance or a real help is going to be your veterinary specific attorneys and or CPAs. Again, very, very smart people all involved in this transaction. Sometimes people that are not familiar with the business want to prove that they're the smartest, and they end up costing a lot of people a lot of money.
For example, if you have one really, really good veterinary specific attorney on your side, and the seller has a non-veterinary specific attorney on their side, and they don't understand lease assumptions with lab companies, they don't understand, the, the, the breakout of assets on a bill of sale between the goodwill, the equipment, the non-compete, that can present challenges. To the actual integrity of the deal, and specifically, it can present monetary challenges. You might end up finding out you're gonna pay a lot more.
Because your attorney has to reply and work with the other attorney. So one bad attorney is almost the equivalent in terms of cost of having two bad attorneys, unfortunately. So again, this goes back to just knowing the networks that are out there in the marketplaces that you're that you're working in and you're trying to get this done in.
I would highly, highly recommend professional mediation for especially for those folks that are doing buy-ins, where you're working at the target practise and you're buying, you know, a minority or a majority share of the practise. It's very, very important to get the corporate structure correct, and that's where you bring in a veterinary specific attorney. You know, a stock sale versus an asset sale potentially should have a different purchase price because the tax implications on the back end.
And if you work with the correct CPA, the correct attorney, the correct practise broker and buyer's rep, and, and consultant and mentor, you'll ensure that hindsight's not going to turn out to be 2020. Again, at the end of the day, you're the ones that are left with this loan, including the bank, everyone else on this page. We blow away from the transaction.
So it's very, very important you work with qualified, reputable individuals to make that dream a reality. In the process, a little different from starting up a practise. In fact, I wish I could have made this into like a roller coaster effect because this is what the process feels like almost 99% of the time, and it's by design, you know, it, it's not meant to be that way, but it just turns into that, towards the end because there's a lot of people communicating trying to put the deal together, and at the end of the day, my definition of a really good transaction is when you could have a handshake across the table with the owner closing, and you both feel like you gave in and compromised to come to the end result.
But going back to the beginning, you're gonna begin your search, you're gonna try to come across practises for sale. The pendulum effect is real. 2020, we saw, you know, 2020 through 2023, we saw the height of private equity consolidation.
It was very difficult to negotiate and purchase a good practise if it was being courted by any of the private equity partners in the country. It just didn't make sense for most private individuals to try to pay the multiples of what the corporates were able to pay. Cause and effect.
We saw a tonne of doctors go out and do startups from scratch. Now we're starting to see the pendulum shift back more towards the middle, middle of the road. So we're seeing, you know, people still doing the startup opportunities, we're also seeing a lot of good inventory coming back on the marketplace through the practise broker networks, and I would highly encourage you to connect with those folks that know about those opportunities.
So you're gonna go and you're gonna begin your search, you're gonna identify those opportunities, and it traditionally starts with talking to the right parties that you saw on the slide before. You're gonna finally come across, you know, a potential, a potential practise that you would interest in, have an interest in purchasing, and you're gonna enter into what they call a letter of intent, that usually takes that practise off the market from anywhere from 30 to 45 to 60 days, depending on the letter of intent, due diligence time period. During that time, you're gonna investigate, you're gonna go historically backwards and look at all the financials of that business, cause.
Again, with an acquisition, you're looking at the rearview of the car. With a startup, you're going off projected revenue curves that we know to be true because we have a lot of proprietary data that suggests revenue curves over the 1st 4 years of ownership. So it's a different underwriting approach where you're basically going in reverse looking at the trends of revenue and ultimately income.
You're trying to establish truly how much income is there, and you'll hear the word, you'll hear the description EBITDA. EBITDA is basically quantifying how much income you can expect to receive from that practise if you were the owner. Again, take apart the puzzle pieces and put your own in.
You want to find out if it's gonna cash flow. So our role is to say, hey, it's feasible or hey, it's not feasible. The practise broker, the accountant in some cases, the the the attorney, they're gonna determine the the the the evaluation of that practise, what the purchase price should be.
Based on the EBITDA and capitalization rates and things of that nature, the bank's job is to say, hey, this is feasible, this is a good cash flowing situation for you personally and professionally, and we're gonna see an example of that coming up here shortly. So again, you go to apply for financing. We're gonna take a look and make sure that this is something that's gonna make sense for you and your family.
We're not gonna put you in a situation where it doesn't, you know, make you money. We're not even gonna put you in a situation where it breaks even for every $1 you, take in, you gotta spend that $1 in that situation. We're not gonna do that to someone.
We're gonna wanna make sure it's a positive cash flow situation where you can put some money away, reinvest in the business, you know, do whatever you need to do with it. You're gonna work through finalising contracts, purchase and sale agreement, bill of sale, non-competes, equipment lists. Inventory, all these things are going to be happening behind the scenes as you work towards closing.
The seller is going to get together, most likely have a staff meeting announced to the staff once we get really, really close to the transition day, and you're gonna make sense out of that from your side of the table and get introduced to that staff and that patient base. You're gonna probably send out a mailer, if you're the seller, to the current patient base announcing the sale. And at the end of the day, you'll sit down, you'll sign documents, money will transfer, and that day the owner, the previous owner will, will turn the lights off at the practise, and the next day you'll turn them on and you enjoy the fruits of that labour of being the owner in that practise.
So, pros and cons, established patient base. It's a little less scary if you can look backwards and say, hey, the business runs like a clock, and we can expect this much revenue, this much income, it's turnkey. I know I'm not going to take a step back and have to grow this patient base.
I can walk right in with the established culture, should be less risk to me. There's a brand and reputation, hopefully it's strong, that you're taking over and you're buying, so you're buying that reputation, the goodwill, the staff, the, the equipment, the layout, all that comes with the sale. The cons to that is your cost of acquisition has, has, has gone down over the years, you know, since the height of PE consolidation, but it still can be somewhat expensive, depending on the size of the practise and how profitable that practise is, that can scare some people.
But no, you're buying cash flow. The stronger the cash flow, the more it's going to cost, so don't let that square you away. Market inventory, people have been saying, oh, there's no practises for sale.
We hear the exact opposite from our from our practise broker networks. They're saying they have more inventory than ever before, and it's just, they don't think there's people looking to buy like they used to. So we just need to connect those dots and understand that there's a lot of really good opportunities out there in the market that you absolutely take advantage of.
Transition and patient attrition. So, we're trying to quantify risk, transitional risk in a in a in a buyout or a buy-in. If you have a complete buyout, most likely you're going to lose some patient attrition during the 1st 18 months.
It's just naturally going to occur. You're not going to get along with everyone, you're not going to get along with all the staff members, especially if you're coming in from another practise or another area. There's some growing pains there.
You're gonna lose some people, both on your staff and the goodwill, that's OK, but you can't hemorrrrhage the goodwill because truly at the end of the day, that's what you're buying. You're buying that goodwill, you're buying that culture, you're buying that staff. In some cases, you know, in, in an older practise situation, you might be buying a layout that might be a little bit dated, the equipment might be a little bit dated, and in essence, you're not only buying a project, or I'm sorry, you're not only buying a practise, you might be buying a project of relocation or expansion or, or, or remodel, when you buy that project or that practise.
So just know going in, if you're in, you know, a small space with only 2 exam rooms and you're taking it over, you most likely have a, a ceiling, you know, a growth cap there with the current facility, and you know you're gonna have to relocate it or expand it next door, and that's going to take additional funding. And that could be OK, but again, it's all situation all unique to your opportunity, . Yeah, there's a lot of good things about transitions.
We've seen the good, the bad, and the ugly, and we try to pay that experience forward and tell you, hey, that's a good situation to embrace, or keep your eyes open, keep the peripherals open. If you do this, in a couple of years, you're gonna have to do that relocation, which is going to cost X amount of dollars to locate, build, equip, and move into that facility. So again, just kind of making sure we're not just doing the first bite of the apple, getting you into practise ownership.
We want to make sure that we're giving you the full vantage point of what it looks like as you move down the practise ownership chart we saw earlier, as you grow, you mature, and then ultimately you'll transition that business to someone else. So, moving right along. All right, so here we have an example of debt service coverage, your income over your annualised personal and professional debt.
In this situation, we're gonna say the practise generates $300,000 of income from the business that you're gonna buy. And we're gonna say in this case you're gonna have $240,000 of annualised monthly obligations on your credit bureau reporting, as well as your business loans. And in that situation, when you divide $300,000 of income divided by $240,000 of debt, you're gonna come up with a 1.25 debt service coverage ratio.
For us, we just need you to be above a 1.20. For us, that's a good that's a good threshold that you're gonna be embracing an opportunity that's gonna make you money.
It's gonna allow you to invest back in the business or in yourself personally. It, it, it's what you wanna do. You wanna make money for this opportunity.
You don't wanna lose money or break even. Another way to say this is if you were able to make $600,000 from the practise and you still had $240,000 of annualised personal and professional debt. All of a sudden your debt service coverage wouldn't be 1.25%, it would double, right?
It'd be 2.5%. So the higher that debt service coverage ratio, the stronger the cash flow, and that's what you want to see if you're the person buying this opportunity.
All right, now we're at the question and answer segment of our presentation here, and we took, we took a toll or a poll of what the most frequently asked questions are, and we're getting low on time, so we're gonna cover the, the, the top questions first. So, how long does the practise startup slash purchase typically take from start to finish? I'll tell you the startups usually will take anywhere from 4 to 9 months if you have that space already located and negotiated.
That space is the the variable that you really can't quantify. It might take you years to find a location that makes sense for you, or it might happen next month. So really that that that location really drives the timeline on a startup, but once you have it, and you go in anywhere from 2500 to 3400 square feet, you're gonna probably build that out if you're working with a reputable contractor, and architect, you're gonna probably build that out within 4 to 9 months in a leasehold situation.
If it's ground up, it's gonna take a lot longer. It's gonna take anywhere from 15 to 18 months, and if it's a building purchase, again, you gotta layer in a little extra time for the closing of the real estate, and then your project will start thereafter. In a purchase situation.
You're typically gonna take it from start to finish, if it's just the practise, anywhere from 30 to 45 days is a pretty average comfortable timeline, once you enter into a letter of intent, and you, you, you know, you're gonna have a closing date in the horizon. If there's real estate involved, I'd bump it another 30 days just to give yourself a buffer because you got to engage with the title company, you got to have an appraisal done. There's certain due diligence that's going to elongate the process, and there's a process to that commercial real estate closing that you got to adhere to, and that's the reason for the 30 to maybe even 45 days additional time.
All right, next up, do I need to put any money down on a practise startup or a practise acquisition as a current associate? Again, the answer we kind of addressed earlier, the answer is no. Your, your injection is your professional accreditation as a DBM and a BMD.
There are situations, depending on the ask and the request, where you might be asked to bring in some additional financing or look to the seller to carry what they call a promissory note. Those are, those are more one-offs these days, but there are gonna be situations that there are some limitations on how much you can lend to in a situation because there's budgets for a reason, right? And there's purchase price, toll gates for a reason, but in general we don't want to look to the borrower to inject any of their personal financing.
We want them to reinvest that money somewhere else where they're gonna earn a higher rate of return than what we are going to charge from an interest rate perspective on the loan. Next one up, how big of a space do I need for a startup? It's subjective based on your style of medicine.
You might have a situation where, you know, you're a high volume, low-cost veterinarian, you might need all that square footage. You might need 3500 square feet to put in 6 to 7 exam rooms, cause you're going back and forth 3 to 5 in the exam times, and you're just running all day long. So the coin over, if you're a high touch, high concierge style veterinarian with very long exam times and very high ACTs, you probably don't need a huge space to start with.
You know, you might be able to operate in 2500 square feet. So this is where having the expertise and understanding what type of medicine you really wanna gravitate towards, is gonna come in and and be a very big help as you kind of explore practise ownership. Here's a good one.
What's a good price per square foot for construction? That's like asking how long a piece of string is. It's gonna be dependent on your market, the contractors, the subcontractors, how busy, how slow they are, and this is where I defer to slide 6 and have you reach out to your local specialist and have them kind of talk you through it.
Let's see. What are the main reasons that a practise will fail? OK, this is a good one, and this is something that, quite honestly, no one can, can predict.
The top 3 reasons that we've seen in the past are going to be for death, divorce, illness, and those are things that no one sees coming traditionally, when they do happen. You know, you, you definitely need to have that conversation with, with the bank up front and ask them what the recourse would look like. Our opinion is that we want to keep that practise open.
We don't want to shut the doors. We want that goodwill to keep being seen no matter what the situation that occurs for the for the hardship. So you want to work with the bank that understands what a practise is, how to keep it afloat, having all the resources in the marketplace to help people connect, and then keep that business, keep those doors open, and ultimately find the best solution in a tough situation.
And then finally, cause we're coming up to our time here, what is one piece of advice you would give to anyone interested in practise ownership? I mentioned it earlier, and I would 100% tell you this. This is the number one answer we ask people when we see him at conferences after they started up or they bought a practise.
We'll ask him, hey, what would you do differently, now that you've gone through the process, what would you change? What would you do differently? The number one answer is, I should have done this 2015, 2012, 2010, 2007, 5 years ago.
It's not as difficult as it seems, and this is where we love to pay for that expertise, those networks, and give people the confidence, the clarity, and the courage to move forward and really maximise your professional accreditation as a DBM or a BMD. So, with that being said, we would highly encourage any conversations from the end of this webinar towards the conversation of practise ownership. We love what we get to do.
We're we're super vested in the animal health industry. We're a proud member edge partner of AM AVMA since 2017, and we would relish any conversations moving forward to try to maximise your, your practise ownership dreams and goals. Thank you so much.
I hope everyone has a great day.
