Road Map to Starting a Veterinary Practice
Thinking of starting your own veterinary practice?
A lot of thought and effort goes into this choice, while keeping in mind there will be little to no financial reward for at least the first year. Before pursuing this goal, be certain that you’re at a point in your life where you can give everything you have, plus more, to this new endeavor. It’s never too early to start thinking about the idea of practice ownership, but make sure you have the experience and confidence to back it up.
I have the privilege to talk with many veterinarians on a day-to-day basis, and the ones who say, “I want to start my own practice” truly inspire me. The courage it takes to purchase an existing practice is huge. But pursuing a startup business - including purchasing equipment needed to operate a practice, building up a clientele, and oh yeah, filling the role of doctor - is an enormous task. This takes an ambitious individual, an entrepreneurial spirit, and the support of a knowledgeable team.
Putting together a solid team is very important for any start-up entrepreneur. For a veterinary practice the lineup may include, but certainly will not be limited to, a banker, practice consultant, architect, and accountant. When choosing your team, don’t make your decisions lightly. You should choose professionals who understand the veterinary industry. For example, choose a bank that understands the nuances of a veterinary practice, find a practice consultant that works with veterinarians every day, an architect who has designed veterinary practices, and an accountant who understands the finances specific to veterinary practices. Selecting a team that understands the veterinary industry will be one of the most important steps you will take in the process of starting a practice.
Once you start reaching out and getting members of your dream team together, you should start thinking about the big picture of your practice – location, species treated, and services offered. Think of ways that you can differentiate your practice from other practices in the area. The beauty of veterinary medicine is that we have so many options in our practice format. However, you need to decide on a location and identify the specific needs of that area. Your consultant will play a large role in performing a location analysis to determine what the area can support. You definitely don’t want to start in an area that is saturated with veterinarians or seeing population decline.
After you have tackled the bigger picture, you can begin putting together a business plan along with three-year financial projections. A start-up veterinary practice is usually going to be funded by a bank via a Small Business Administration (SBA) loan. When going through the approval process of an SBA loan, you’ll need a solid business plan accompanied by three years of financial projections. Within those projections, the first two years will need a more focused month to month break down. The business plan will rely heavily on your personal resume, plus any previous veterinary and management experience.
Projections will include gross income numbers, cost of goods sold, net income, and all expenses of the business. These numbers are put together to assess the cash flow of the proposed practice. Keep in mind that the location of the practice and the services offered will play a large role in the cash flow. For example, a start-up small animal practice located in a large city near an area where 1,000 new homes were recently built will probably scale more quickly than a similar practice located in a smaller town with no growth on the horizon. All of these variables come into play when putting together your plan. If you start to see that the location may not be as good for a start-up practice as you initially thought, don’t force it. Take a step back and regroup. This is not necessarily a bad thing, it just means you have put in the proper research and development. Now, get back together with your team and adjust your plan. With all of the variables that go into a start-up practice, expect some adjustments to your plan along the way. These course corrections will only help guide you to your more defined and ideal situation.
Now that you have your location, business plan, and projections together, let’s talk about the financing. Hopefully by this point you have a relationship with a veterinary-specific lender and have an idea of what your budget is. SBA loans require a down payment of 10% for a start-up practice and can include a term as long as 25 years if real estate is involved in the transaction. It is important to find a bank who understands the veterinary industry, along with SBA lending, and who can help tailor the loan to your needs. Typically, a start-up practice owner will need funds for furniture, fixtures, equipment, working capital, inventory, and a build out or leasehold improvements. And, of course, if you decide to buy your own commercial property that will also add to the transaction. To start a veterinary practice in a leased space, a borrower is typically looking at a loan ranging from $400,000-$600,000 - depending on how extensive the improvements are and how many of those improvements, if any, the landlord is willing to cover. For a borrower purchasing their own commercial real estate, they are usually looking at a loan ranging from $700,000-$1,000,000. Again, this depends on how much work is needed to turn the property into a functioning veterinary practice. An architect will play an important role here in helping you determine if the space is a reasonable option to be turned into a veterinary practice.
Even though an existing practice purchase typically has you up and running the next day with an established clientele, in some cases choosing to pursue a start-up practice instead may be the best fit for you. All of those thriving veterinary practices out there had to start somewhere, right?