The waves lapped at a pink-hued sand beach in the Bahamas while two actors, presumably grandparents, frolicked with their “grandkids.” The next scene focused on a similarly aged couple leaning over the balcony of a glistening river cruise ship with the Rhine, adorned with European architecture, drifting by. The final set shot to yet another retirement-aged couple taking a breather to stand up in a garden that puts ours to shame, admiring the fruits of their labor.
As I sat cramped in a tiny plane seat watching the scenes play out on the mini TV screen on the seat back in front of me, I vividly remember thinking about how the choices we make now impact not only our lives, but the lives of those around us. I don’t remember which financial planning company was running those TV ads, but, given that I was flying to speak to a group of veterinary practice owners about succession planning, real-life stories in our profession began racing through my mind.
In the 30 days prior to writing this article, I spoke with:
- A veterinarian who lives in her clinic (not in an apartment above it) because that’s all she can afford after nearly 20 years in practice.
- A veterinarian who bankrupted his first practice and is now fighting to secure a loan to buy another hospital in hopes he can salvage his retirement plans.
- A veterinarian who has based his retirement plan on the belief that his practice was going to be worth one year’s gross revenue, and who just found out that it’s worth about $1 million less.
- A veterinarian who, in her own words, was going to “work until I die as a solo practitioner” and was just diagnosed with terminal cancer and given six months to get her affairs in order. Even though she had always jokingly planned to work until she died, she had really planned on working until she didn’t want to anymore and then selling her hospital, thereby setting her family up with financial resources.
Also in the last 30 days, I:
- Sat in on a meeting with a millennial veterinarian with aspirations to be a practice owner as she negotiated purchase terms with a husband-wife team who have been planning their retirement from practice for about three years. Upon the sale, the couple will be moving south to be closer to kids and grandkids.
- Had a phone call with an enthusiastic, young veterinarian who was just approached by his hospital owner about gradually buying her out. After she sells, her husband, a firefighter, will be able to retire and she’ll devote her time volunteering in a veterinary association.
- Spent an afternoon on a beach—much like the one painted in the commercial—with a veterinarian who sold his privately owned hospitals to two younger associates when he was 52. He wasn’t ready to leave the profession yet, but suddenly he had the freedom to serve in ways he couldn’t when he was tied up practicing.
I could go on and on with stories from both sides of the aisle. There may not be a lot of certainties in life, but one thing we can all count on is that we will be leaving our careers at some point and in one way or another. This is a certainty. The factor we get at least some control over is the terms upon which we step out of practice. Whether you call it your exit strategy, transition, or succession plan, this process is the best opportunity we’ll get to set a vision for our career, lay the groundwork, and hopefully exit on our own terms.
Instead of thinking about what the first group, mentioned above, did wrong, let’s examine what the practice owners in the second group did right. This group:
- Defined their why — If you haven’t seen Simon Sinek’s TED Talk, “Start with Why,” start there. All of us have a reason we’re in this profession and a reason we chose practice ownership. For some, it’s building their idea of a “perfect” practice culture, for others, it’s practicing a certain level of medicine, and for others, it’s the financial freedom that comes with responsible stewardship of a hospital. Whatever your “why,” define it and build your career to achieve it.
- Knew their number and their hospital’s role in achieving it — I am not a financial planner, and, while I can’t tell you what “your number” is, I can offer what I teach my veterinary students. Thinking back to the certainty that you will eventually no longer be practicing, you will need some amount of income to live whatever style and quality of life that is right for you and your loved ones. For some, given their lifestyle and what they want to do upon retirement, they may need a quarter of a million dollars a year to achieve it. For others, that number may be half of that or less. Your number represents the amount you need to have in income-producing assets to live the lifestyle of your choosing without going broke once the faucet turns off in the form of a paycheck associated with showing up to work every day.
- Determined a desired succession plan — Your hospital is (hopefully) not the only ingredient in the recipe that is your number, but, if you’re like most of us, it’s probably a pretty important staple. With this in mind, it’s important to analyze your options for retirement from practice. All of the below options have upsides and downsides. The advantage of thinking about these outlets now, versus when you’re ready to sell, is that you have the time to set yourself up to make an educated decision instead of being stuck with an option that won’t work for you and your family.
- Do you sell to a current practice partner?
- Do you sell to an associate?
- Do you sell to a private third party?
- Do you sell to a corporate consolidator?
- Do you strive to remain an investor in your hospital even when you’re done practicing?
- Have you run your practice in such a way that an asset sale is the best you can hope for?
- Will you be one of our colleagues who has nothing of value and has to shut the doors and walk away?
- Purposefully laid the foundation to achieve it — “Hope is not a strategy.” A mentor of mine loves this quote, and for good reason. Whichever path for succession is right for you, hoping it will happen does not make it so. Waiting to start laying the foundation until you’re ready to exercise whichever option you’ve chosen means you’ve already lost much of your upside. Assuming you don’t plan on shutting the doors on the hospital you’ve probably invested years of the proverbial “blood, sweat, and tears” into, it’s important to understand what’s important to a buyer so we can lay the foundation to earn the ability to transition in such a way that meets our needs. Buyers—private or corporate—tend to look for common components:
- Goodwill. This is a product of your clients, your clients’ compliance, your pricing, your staff, your equipment, your facilities, your position in the market, your brand, etc. Goodwill is the value assigned to your ability to successfully and sustainably manage those components.
- Profitability. Your gross revenue is of little consequence if you haven’t created a way—a team, a system, or a management structure—for the practice to cashflow debt assumed by a new buyer. Even a corporate consolidator expects some return on assets.
- Worked on their business, not just in it — I often suggest to my students that owning a practice simply to pay themselves a paycheck for being a veterinarian is crazy. If all you want is a paycheck for practicing medicine, go work for someone else. As a veterinarian practice owner, you absolutely deserve to be paid to practice. But, if we’re going to take on the debt, stress, and responsibility that comes with ownership, we should work on our hospitals, not just in them. Working “on” your hospital means intentionally investing time on parts of the business like those mentioned above when referring to goodwill.
- Collaborated with professionals — Disclaimer: I am a proud member of VetPartners, a nonprofit association dedicated to serving the veterinary profession. I am also a private practice owner, veterinary school educator, and I’ve got a consulting team that lets me bum around with them… I think primarily for their entertainment. Even as a member of VetPartners, I learned early on (from mentors and colleagues who fell into the second group of professionals that I described) that none of us can be the jack, and master, of all trades. Successful succession planning is like almost anything else we do in life. You need to determine what’s important to you, establish your vision, then surround yourself with “specialists,” both in your hospital and in your professional circle, who are smarter and better than you in areas where you need them to be.
“Retirement,” whether voluntary or not, is going to happen to all of us. One of the amazing gifts of this profession is our ability to design (within the realm of what we can control) what that looks like. Whether your idea of retirement is time with kids or grandkids, listening to the waves crash on the beach, traveling the world, philanthropy, or something else, intentional succession planning is the ace up your sleeve for hedging your bets.
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