Veterinary Blueprints
The Veterinary Blueprint Podcast is all about taking the blueprint of industry experts and breaking it down in short, digestible episodes you can use to take your practice to the next level. Join host Bill Butler as he interviews experts on client and practice management, financial strategies, human resources, and more. Gain valuable insights and stay ahead in the veterinary field by tuning in to tips from successful experts inside and outside the veterinary industry.
Veterinary Blueprints
#10 - Strategies for Thriving Through Veterinary Practice Acquisitions
Discover the secrets to a prosperous future in veterinary practice with Travis York of Three and One Veterinary Advisors, our latest guest on the Veterinary Blueprint podcast. Travis, a seasoned expert in veterinary practice transitions, shares his knowledge on acquisitions, expansions, and the essential strategies for a successful exit. With over 500 practices under his guidance, his advice is indispensable for veterinarians and practice managers aiming to navigate the complexities of significant wealth changes.
This episode is a treasure trove of insights as we unpack the role of EBITDA in evaluating practice profitability and distinguish between economic and actual ownership, shedding light on the nuances of veterinary practice ownership. Whether you're pondering the longevity of your career or contemplating selling your practice soon, the wisdom shared here holds value for all stages of your professional journey. We dive into the spectrum of ownership and the importance of aligning expectations with ownership goals, and explore alternative compensation methods that could be the key to retaining crucial talent without relinquishing equity.
Prepare to be armed with strategic tools for retirement planning and understanding the array of exit options available to you. Hear a compelling story about a veterinarian's seamless transition to retirement and learn why early communication with associates can make or break the future value of your practice. Our conversation also takes a critical look at the evolving landscape of veterinary services and the underlying importance of maintaining client trust in a fiercely competitive market. This episode is not only about finding the right exit but also about mentoring your team and managing your business with foresight and precision for that eventual, rewarding transition.
GUEST INFORMATION
Travis York
678-523-0234
www.threeandonevetadvisors.com
travis@threeandonevetadvisors.com
Host Information
Bill Buter – Contact Information
Direct – 952-208-7220
https://butlervetinsurance.com/
https://www.linkedin.com/in/billbutler-cic/
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quite frankly, you have to have a vision of what is your retirement, what is the exit, what's on the other side?
Speaker 2:Welcome to the Veterinary Blueprint podcast brought to you by Butler Vet Insurance. Hosted by Bill Butler, the Veterinary Blueprint podcast is for veterinarians and practice managers who are looking to learn about working on their practice instead of in their practice. Each episode we will bring you successful, proven blueprints from others, both inside and outside the veterinary industry. Welcome to today's episode.
Speaker 3:Welcome to this episode of the Veterinary Blueprint podcast. I'm your host, bill Butler, and today we're joined by Travis York, from three and one Veterinary Advisors. Travis grew up in the veterinary world, working in his father's animal hospital in Iowa. He later got a degree in accounting and worked for a number of lenders. Over the course of his past 20 year career, he's had experience and helped more than 500 veterinary practices with acquisition, expansion and exit strategies. He's a certified exit planning advisor and Travis is going to bring a wealth of knowledge today, navigating the complexities of selling or acquiring a veterinary practice or just thinking about exit strategies in general. So let's get started and we're going to welcome Travis to the podcast. Welcome, travis.
Speaker 1:Thanks, bill. Thanks for having me. I'm excited to be here and dive into some of these fun topics.
Speaker 3:Absolutely so. We were just chatting before hopping on, as we generally do. So for those people listening all of our listeners we always have the pre-call call. You know we have a list of questions, but I think, just diving into start, Travis, why don't you give the listeners a little background? You know I gave the 50,000 foot view. What have you been up to in the last decade or so, working with veterinary practices and helping them with your expertise?
Speaker 1:Yeah. So I mean it's been a very fun, you know fun and exciting time in veterinary medicine over the last 10 years. We've been learning a lot. I kind of over that 10 year period was a part of Live Oak Bank so got to experience, you know, the use of SBA lending a lot of construction financing. You know, in that realm worked with a lot of hospital owners who were two and a half. Three doctor hospitals had started five to seven years ago and expanding into a 5,000, 7,000 square foot freestanding building.
Speaker 1:You know also over the last 10 years spent some time with a company called Calico which is now inside of Suvedo. So got, you know, a real taste of some creative acquisition structures you know, including, you know, some subordinate debt. That was maybe a little bit more stretch. We, you know, worked with seller notes. We utilized some retained ownership in some of those strategies, spent a you know, very, you know short time also working alongside of, you know, the team that built Suvedo, so got a little bit of a firsthand, you know seat at some corporate acquisition world and then over the last two and a half years, been working with, you know, some of my clients on just thinking about exit and you know best business practices and, quite frankly, just you know what are the nuances and, like any entrepreneur, trying to figure out where is their, where's their opportunity and inefficiencies in this evolving, in this evolving space.
Speaker 3:I'm glad you bring that up. So you know, as we chatted about right before this, we said, well, we got some questions, but we'll just kind of let the conversation float where it goes to, because you have your own podcast. Just plug your own podcast right now and then we'll mention it at the end. So you have your own podcast as well.
Speaker 1:Absolutely. I really appreciate that I host a podcast with a good friend of mine, a gentleman by the name of James Yost. That podcast really came out of connecting with James, who works with a company called Signature FD. Signature FD focuses on wealth advisory for veterinarians and, as a lot of veterinarians were, you know, obtaining kind of generational type of wealth, their needs were different and so the podcast really launched there out of hey, how do we help veterinarians who are experiencing life changing liquidity events have the right knowledge base to, a, obtain those if they're interested in them, and then, b, if they do obtain that, how do you, how do you be prepared for it? And you know not, not kind of be one of those stories of hey, this generation got generational wealth and, because we didn't put the right systems and processes in place, the next generation is, you know, back to the short.
Speaker 3:We gave 60% away to the federal government and now that money is gone into two generations or generations gone right.
Speaker 1:Yeah, absolutely so. That's kind of the foundation of that podcast. It's evolved a little bit, you know, over time. I'm sure you experienced this with your podcast. You're always trying to find new and interesting topics, right, you can't go find that horse and just keep beating this, beating the same thing, you know. But so we brought in some new topics. But you know that's a lot of. It is kind of, you know, how do we, how do we think about some of these things that are new to veterinary medicine and how do we think about, you know, creating some of the best business practices you know to obtain, you know, the value that's aligned with you.
Speaker 3:So I just in my own world. You know we were talked about similarities and dissimilarities between the insurance industry and veterinary industry and I think you know, as we mentioned before we got on the call here on the podcast, business principles or business principles. You know I have a P and L, a shoe store has a P and L, a restaurant has a P and L, a veterinary practice has a P and L and it's going to have things on it like payroll and cost of goods. Now I don't have a cost of goods because what I'm selling is a intangible product. But you know, I think at the end of the day, for for veterinarians, I think you know we'll probably spend a lot of time talking about figuring out, you know the extra strategy planning that you've got a certification in that and background in that, and I went through this at my own practice, my own agency, planning for the future, right, so I'm under the age of 50. And but I know at some point I'm not going to sell insurance until I'm dead.
Speaker 1:Yeah. I mean look father time is undefeated right.
Speaker 3:Yeah, yeah.
Speaker 1:No matter how good Nick Saban and the Alabama Crimson Tide are, father time is more undefeated than Nick.
Speaker 3:Saban, he's going to, he's going to win, he's going to hold the trophy up. And so you know, I purchased another insurance agency and that was a seven-year-old gentleman that hadn't done a lot of preparation I won't go into a lot of detail on it but it got to a point where he had to make a decision and there was no preparation, didn't have a P&L, didn't have some of these things in place. And so I think, when you're a small business owner and correct me if I'm wrong, from your own experience, travis you get to a point one day, if you haven't prepared, and said, hey, I'm done, I want to cash out, and if you haven't done the prep, you've now discounted your business or practice. If you're a veterinarian, right.
Speaker 1:Absolutely right. I think back to the story my dad tells about the first time he had the opportunity to buy a veterinary hospital, right, and this was in Wisconsin in the late 70s and really the way the profession traded didn't require prep work. For my dad, who's a baby boomers generation, to buy kind of that silent right, the guy came in one day and said, hey, I'm ready to retire. And my dad said well, okay, I'm very interested in buying your hospital. Can I get your tax returns? Well, no, you can't. Right, you can either here's my number, I'll finance it, I'll get a life insurance policy on me to protect my family and you can buy it, or not, but you're not gonna get into the financials. And that's really the way a lot of veterinary hospitals trade and you didn't have to do prep work, right?
Speaker 1:We've also kind of gone through a period where consolidators were coming in and if you were a three plus doctor hospital didn't require prep work because the valuations that they were paying relative to your expectations were significantly higher, and so you achieved success without prep. But we're really in a new environment where that prep work is critical. Right, you have to have the business in place. Right, you need to understand. Operationally, the business is set up. You've invested in the right equipment. The facility is up to date, so that it's attractive, so that a young doctor would want to buy that facility.
Speaker 3:You need to I don't wanna buy all your old equipment.
Speaker 1:Right right Now. And what you can't do is, a year before you get ready to sell your hospital, go put new equipment in it. So you need to be continuously planning and thinking about that. You need to continuously be building systems, because today's doctor doesn't wanna have to be the one doing reminders, paperwork on Saturday.
Speaker 3:They don't wanna have to build the innovation into your business that you ran for 35 years.
Speaker 1:Absolutely. So you gotta think about that. You have to, quite frankly, you have to have a vision of what is your retirement, what is the exit, what's on the other side. I mean, I have a lot of colleagues who they exited for incredible multiples but they had no vision of what they were gonna do and they're almost, like you know, like a car stuck in the mud at this point in time, just kind of spinning their wheels with a big pile of cash in a checking account, but not really a vision of how to use that and how to make that matter. And so that personal vision is huge. And then connecting that personal vision to where most of these entrepreneurs are going to get their retirement funded is out of their business, and so we've gotta make sure that we have the right.
Speaker 3:I mean that's me right, yeah, so, yeah. So I did a fair market valuation to say, okay, I mean I'm nowhere close to retiring or selling my agency or anything like that. I mean, you know, because the venture capital money also plays in the insurance world, I get offers all the time and I always say 35 times EBITDA. When I'm on the phone with them and they laugh at me, I said, well, I'm not selling today, I'm selling, you know, 15 years down the road, so I have to future value this thing. And they're like, well, we can't do that. I was like, well, then, I'm not for sale, right, that's the truth.
Speaker 3:But you know, as a business owner, I have to think about, okay, where am I gonna be, where's the ball gonna be? Or, gordy Howe, I'm a big hockey fan, where's the puck gonna? You know, I have to skate to where the puck's gonna be. And so for a small business owner who has a lot of skin in the game, you think you know, a lot of times you're not paying yourself because you're putting money into the business on that future investment. The investment is not your 401K, the investment is the asset that you're going to sell off one day, either internally to an internal sale or external to an external sale, whether that's a third party associate who's gonna come in, or, you know, corporate I mean, because the corporate world and the insurance thing is the same. And so, okay, I'm a minimum of 10 years out. So I have a three year like, okay, here's my benchmark, here's what I need to do for the next three years, here's what I need to do for the next five, and then, five years out, do another fair market valuation and say, okay, what's the next 10 to get me to retirement.
Speaker 3:And one thing that I was told by the firm that I had due my fair market valuation was three years prior to your exit. Pull out everything you pay yourself as an owner to put it into the bottom line and show it as revenue instead of business, travel, car expense, meals, education you know all the fluff that business owners and I know veterinarians are in the same boat. They use your business as a lifestyle. If you're a small business owner, there's a lot of tax advantage. Pull all that out three years prior so it shows up as income, to help you not have to say well, I pay myself a lot of money and here's all the 50 different ways. What do you think about that Kind of that thought process for exit planning?
Speaker 1:No, I mean, I would take it even a step further, right, and?
Speaker 2:again.
Speaker 1:We're in a very transitional period in the veterinary space. I think in the veterinary space and I don't have any depth of knowledge in, you know again, business principles are the same, but I don't have a depth of knowledge in the insurance space. But in the veterinary space, we come out of an environment where it was a seller's market and you could get a lot of people to lean into projected and adjustments and the market was so aggressive that you could get those accepted right. What we're seeing now is kind of that black and white EBITDA number is the black and white EBITDA number that people are willing to look at and these are even corporate buyers, right? So you have to have clean financials. Now is it? You know, two years, 18 months, you know again, bill, I think that all depends, you know, beauty's in the eye of the beholder on that.
Speaker 1:The other area that I see is I had a lot of people who they were off on margin, right, they're like they just hadn't tightened up some of their business operations, right. They always knew it, fully, acknowledged. I run this a little bit loose, I just don't want to put in the extra effort to drive three or 4%. So they made a decision in 2021 that hey, I'm going to tighten the ship, I'm going to get that 12 clean months Not anything to do with personal or any of that, but like, maybe even personal, you can make an argument and all of a sudden they're like OK, well, I'm going to tighten it up so I can go sell at 18 times EBITDA and with a 3% higher margin on a $4 million hospital and that matters right. And now all of a sudden hospital, that four-doctor hospital, is not selling for 18 times EBITDA, it's selling for 9 to 10 times EBITDA.
Speaker 3:So for our listeners out there, what is EBITDA?
Speaker 1:EBITDA would be earnings before interest, taxes, depreciation and amortization. I always like to think of it kind of in simple terms, as it's like the discretionary cash flow that's available to you as the owner right. If you own the business, what are you going to be able to get out of it?
Speaker 3:Yeah, in the insurance world it's always, you know, they used to say, well, premium, I sold for X times premium, two and a half times premium, or two and a half times revenue. Well, you know, whatever that number is. But insurance agencies want to talk about premium versus revenue. So I've, you know, I've got a $10 million book of business. Well, you're, $10 million book of business may only revenue $50,000. I've got a $5 million book of business that revenues a quarter of a million dollars, and so it's, it's where the profit comes in and that's that EBITDA numbers, really the, the bottom line number of, as you, as you mentioned, discretionary number at the end. So when we say EBITDA, for our listeners it's, it's a, it's really the true measurement of profitability at your business, right.
Speaker 1:I think it's basically, you know it's your revenue less everything it costs to run the business right, paying for all your costs to good soul, paying for your staff, paying for your doctors, paying yourself a reasonable wage as a doctor, right, if you don't pay yourself as a doctor and you go to sell your hospital, we're gonna back out something for you to be paid as a doctor your rent and then all of kind of those other ancillary costs. They're all backed out and then what's left is what you have as a business owner.
Speaker 3:And then that's the number multiple. So whether that's 18 or 9, it can make a huge difference, because that's what that generational wealth you're talking about, right? So you spend 25, 35 years running your practice and when you say, okay, I'm done, you want to be prepared. So you know, I think you had you talked about spectrum of ownership as one of the things that that maybe we want to cover today, and what you know, for if I'm a veterinarian and I come to Travis and say, hey, you know, I'm interested in in, in engaging your services, you're gonna talk to me about spectrum of ownership, whether I'm an associate or I own the practice. What is that? What does that mean to you?
Speaker 1:Well, I like always kind of my first question when you talk about spectrum of ownership. So so, bill, I'll just kind of ask you a simple question if you own a hundred shares of Coca-Cola, are you an owner of Coca-Cola?
Speaker 3:Technically yes, but not really.
Speaker 1:Okay, so what you have is you have economic ownership. Okay like that and so always. My first question on spectrum of ownership is when you talk about ownership, what is it that you want? And you answer that question very much like an entrepreneur. Right, because entrepreneurial ownership is the choice and the opportunity to have. The buck stops here, all the decisions are mine. Right? Historically and veterinary medicine ownership has always been attached to only and exclusively Entrepreneurial ownership. Right, we say, hey, I'm an owner in this hospital. You're that means your decision maker.
Speaker 3:Yep.
Speaker 1:To your point, technically, if I own a hundred shares of Coca-Cola, I am an economic owner in Coca-Cola and I always want to understand for my clients what is the objective of ownership. Right, because if I own a million shares of Coca-Cola I'm gonna do pretty well economically. But even if I own a million shares of Coca-Cola and it's funny I know they're not gonna give you the secret formula.
Speaker 3:You don't get the combination to go.
Speaker 1:I always used to joking when I was I was doing some kind of talking with vet schools and some of the veterinary students. I'm like if I owned a million shares of Coke. I'm not calling the CEO of Coke and saying, hey guys, we need to go make, you know, coffee flavored Coca-Cola. And now all of a sudden they have coffee flavored Coca-Cola. So but like the CEO is not taking my call, he's laughing me out of the room, right.
Speaker 1:And so, as we've seen veterinary medicine evolve, we're seeing more opportunities for minority ownership. We're seeing more opportunities for profit interests. We're seeing more interests, like you know, just different structures in ownership where you may not be an entrepreneurial owner. Does that mean it's a bad? I'm not gonna say it's a bad thing or a good thing. I want to help people understand what are your goals from ownership? Or, if you're an owner of a hospital, if you're giving a doctor ownership or having them buy ownership, what are your goals and what are their goals? Because if your goals are to retain them or to compensate them better economically and you don't want them to be an entrepreneurial owner, then I wouldn't be giving them like getting them in as a minority owner, because they're only gonna be disappointed. And then you have a financial marriage that you've got to break up and I'm sure as an insurance person you've dealt with some of those.
Speaker 3:Well then there's a whole host of ways to you can do. Deferred compensation plan, say, hey, you know, I want to give you a slice of pie that's bigger than all the everyone else here, and some sort of unqualified Plan that you get a little bit more than everyone else because I want to keep you around for 10 plus years. There's different ways to do that than giving up a stake in your business.
Speaker 1:Absolutely right. And if you have somebody who is entrepreneur driven and you talk with them and they want entrepreneurial ownership, they're never gonna be happy.
Speaker 3:As a 15% shareholder of your know, they see themselves in your chair someday right, they want your chair right, and so then you've just given them that.
Speaker 1:Now I'm not saying it's not a way to sit down. Where you can, you can win and they can win and you guys can all come together. I like, I'm a big believer that. You know, if you have those open dialogues, you set appropriate expectations, you can find a way and, quite frankly, the pie and veterinary medicine is big enough that it can go around. It's just you can't be too, too greedy on how much pie you want.
Speaker 3:Yeah, absolutely so.
Speaker 3:Creating an exit plan, I mean, you know I think there's a lot of conversation around that right now in the industry as a whole.
Speaker 3:I'm not gonna pretend to understand all the nuances, but just you know in from where I sit In my chair and in networking.
Speaker 3:You know there is a lot of conversation about the consolidation within the veterinary industry and exit planning strategy and I think it weighs heavily on some owners where they look at that generational wealth and it's hard to say I don't want generational wealth. But in some respects and this is my own personal opinion with my own business if I want generational wealth and I want to perpetuate that internally, it's up to me to build the model versus just say, okay, I'm done, one day, hey guy working for me or a woman working for me at the agency buy me out, but I didn't put a mechanism in there for them to buy me out at the level that I want, right? So talking about planning and creating exit strategy and how that works in the veterinary world, I mean, what are one or two key things that that owner should be thinking about when they number one, when and number two, what are a couple of things they should be doing?
Speaker 1:Well, like I'm a big believer in that statement, you know you got to begin with the end in mind, right?
Speaker 3:Yep, what is done? Look like.
Speaker 1:Like I think you know, day one you buy a business day to you should be building your exit plan. Now that exit plan is going to change because, in case you didn't know it, as an entrepreneur the minute you, you should never start a business without a business plan, but the minute you finish your business plan it's garbage, correct, right. So, like you know, again, you should not enter ownership without an end game in mind, knowing full good and well that that in game will probably change. So you know, to me it's something you want to start regularly, right, and it starts with, like what you said you did Understand the fair market value of your business. Understand what the different options are. Right, like we've heard, esops floated in veterinary medicine. You can sell to a corporate under four or five different structures. Right, you can have a joint venture. You can have 100% cash exit. You can get topco. You know platform equity.
Speaker 3:You can be a top under. You can do all kinds of stuff.
Speaker 1:You can do all different kinds of things, right, you can sell to an associate in an earn out process, like there's a lot of different ways. You know, maybe it's family, like I have some doctors now who want to look at family structures where you know it's maybe a non DVM and they've got a larger network of. But understanding what are those eight different exit options? Then assessing your hospital and your personal place right, what is the profit gap in your hospital? What's the best hospital like you operate at and where do you operate? So then you can compare, okay, how close am I and how ready am I to sell and what do I need to do to get to best in class? You need to understand the value gap, right. What is if?
Speaker 3:what is the risk? Right, like, if you've got one DVM at your practice generating 60% of the revenue and I'm going to come by your practice and they're not going to buy it, that DVM leaves.
Speaker 1:I'm done it's an un-stallable asset.
Speaker 3:Yeah.
Speaker 1:Right, and then understanding the last thing is understanding your vision. And for all these small business owners, what's that wealth gap? Right, and the wealth gap is how much are you worth today yourself, outside of your business, and how much do you need to fund out of your business to obtain your retirement vision? And that changes over time. Right, because, like, if you sold today Bill that number.
Speaker 3:That's why it's that's why you know, yeah, if somebody wants to buy me today, it's the number I want to get when I'm 65, not the number you know. So you got to pay me. What I'm worth when I'm 65 is I continue to build this over the next 15 years not today's value, because I'm not retiring. If you give me money today, it needs to last the rest of my life, not from age 65 to death, age under 50 to death. And so and that's why I was very interested in your answer that question, because it's really what does done look like.
Speaker 3:You know, I did an acquisition inside the insurance world, as I mentioned, and it's it's figuring out what's important to the seller and what's important to the buyer, and those are going to be two different things.
Speaker 3:You know, obviously the buyer, they want to get returned on their investment and make sure that the money that they're investing in the acquisition is going to be returned over the period of time. And then, because, eventually, once the payout is done, as the buyer, obviously, well, that's when the owner gets a raise, or you get a raise like I'm going to eat lean while I'm doing the acquisition, but then, once the acquisition is done, I'm done paying it off, I'm going to get to eat a little bit better, and for the seller, it's well, I want my team taken care of, or I want my clients taken care of, or you know, I'm going to rent the building, or you know all these kind of things. But at the end of the day, it really does boil down to OK, well, what am I getting paid? Because I spent 35 years of my life, blood, sweat, tears, missed ball games, all the stress of all of it, especially in the vet world, with additional stress around the practice.
Speaker 1:No, I mean, there's no doubt right and it's, I think it's to your point. It's mentally and emotionally what is it worth, practically, what's the value worth? And then, in today's environment, it's a lot of times it's reconciling those two pieces together, because we'll talk with sellers who, well, when I bought my hospital, I paid one times revenue, so my hospital's worth one times revenue. Well, that's how hospitals were valued in 1983.
Speaker 3:Like I said yeah, it's insurance right, two and a half times premium I, or two and a half times revenue, whatever that is, whatever that number is.
Speaker 1:Yeah, you know, and in the veterinary hospitals it's what falls to the bottom line now creates value, not what comes in at the top. And so you know having that information earlier so that you can be prepared and then you can outline. Because the other issue is is you know you're trying to solve for retirement? You're weighing like what are my exit options? Do I want to sell, maybe corporately? Do I want to sell for legacy? The sooner you outline what that is, you write out a path to get there, the more options there are. If you show up at 63 years old and say, hey, I'm out in two years, well, I mean, we're looking for an all cash buyer to solve for your whatever your wealth gap, whatever value it is you need out of the hospital. If you start at 53, we can build a whole roadmap and now you could have five different options available.
Speaker 3:Well, you know, from an acquisition standpoint right and I talked a little bit about that where you have to build, if you want to sell internally, you've got to build the mechanism internally for somebody to be able to buy that.
Speaker 3:Because if I just come and say my practice is worth, you know, $6 million, hey, associate, working for me, I'm going to sell this to you in 18 months. Number one did you pay them enough to qualify for a loan and jump through all the hoops? You know you have a lot of experience, 20 plus years experience lending money to practices for acquisitions and stuff. It's not just snap the fingers, get a $3 million loan anymore, it's. You know you're putting it all on the line. And how much is going to be seller finance for the veterinarians holding the note, and how much is bank finance and SBA lending versus traditional and all those things that come into play. If you didn't take time to prepare to have the cash available inside the practice for the associate or the person who's going to buy it internally be able to use the revenue for the business to buy the business for them, you have to go somewhere else.
Speaker 1:Absolutely Well, I mean again, one of my favorite stories is a veterinarian who kind of started the process 10 years ahead of time. Probably end up, you know, because he started that process and made that commitment. May have extended a little bit early, but when he started the process he was working a six day, you know, six days a week, 65 plus hours and managing the stress of a, you know, two and a half doctor, three doctor growing hospital had a couple of great associates, gave them a path to ownership over the next 10 years where basically he gave them responsibilities. Now he did something that veterinarians really don't like to do. It's called delegating. You went down that road of delegating these management responsibilities. At the time he started the process they were three doctors. Usually when he exited they were six and a half, seven ish doctor hospital. They moved from a least facility to a free standing facility. The doctors bought it. I did.
Speaker 1:He get like absolute optimal value. I'm sure he could have gone out to the market and pushed a little bit harder and squeezed another million dollars out of it. Right, and for some people they, they, like you know, they sent their flag in the ground and look, I win by getting the biggest number. But if you want that flexibility, like I don't think there's anything he couldn't do in his retirement that he wanted to achieve and oh yeah, by the way, he got to continue to own 15% of the hospital and get a dividend out of it Right. So there's. If you start early and you empower team members, you either flush out they want it or they don't. And if they don't want it, then when you have to create that exit, like there's nothing that they can really be upset about you don't get 18 months before exit and go hey, are you?
Speaker 3:okay, you want to buy this? Now I'm going to get out and they go. I have no interest in doing it. I just want to be an associate. I love practicing medicine. I want nothing to do with ownership, management, hr You've done a really good job with that and I want nothing to do with it. But in that owner's mind that that veterinarians bend their exit strategy for the last 10 years and they get to that exit part and they go oh, that person doesn't want to buy it. Now what?
Speaker 1:Well, and you've, I've seen it play out. You know, on both sides, right, like in the smaller two doctor hospitals, the associate was always the exit strategy. The owner started to take their foot off the gas. And what was it? You know, it's a million, five million, six revenue hospital. For the longest time, the owner was the million, million to million one producer and the associate was the four to 500, right.
Speaker 1:And then the last three years, the associate, the associates going to buy the hospital, like I get communication never communicates to the associate but starts to take his foot off or she starts to take their foot off the gas. And now, all of a sudden, the associates, the million one producer, super happy, they're making $200 plus thousand a year. No management, no headaches, no, nothing. The owner is now the $400,000 producer and they go to the associate and say, hey, I'm going to. You know it's the start of 2024. I'd like to be out by the end of 2024. Are you ready to start the process? Well, I'm not your buyer. Well, now, all of a sudden, you have that revenue concentration problem. The new buyer can't fire the associate.
Speaker 3:Yeah, cause that's the. They're the rain maker, they're making the money, yep.
Speaker 1:They're making the money, and so now, all of a sudden, this doctor has a worthless hospital.
Speaker 3:Yeah.
Speaker 1:Right, or or you've got you know the scenario where it's a really large hospital and they never have that conversation to start the mechanism in place. And then they go to the doctor and they say, hey, yeah, like absolutely I'll sell it to you. And let's say they're going to sell it for five times earnings at the banquet finance. I've got a you know $6 million hospital that does a million dollars of EBITDA earnings. I'd like to sell it to you for $5 million. And the associates eyes just get big cause. There's like no way I can run that. Well, if you would have started with them three or four years ago and demystified everything that happens in the back room absolutely a hospital with the right systems, the right team and it's not a complex business.
Speaker 1:It is a cash in, cash out business and I don't I don't want to oversimplify a very complicated no correct, Because it takes significant human skills and significant relationship skills to make that work. But strictly from the business things, I mean we're not dealing with accounts receivable, we're not dealing with prepays, we're not dealing with invent, like a time. I mean, yes, there's inventory but you know we're not buying raw goods, Like a lot of those business principles that you and I talked about aren't present in a veterinary hospital.
Speaker 3:Yeah, yeah. So you know I guess that the end thinking about everything. We just kind of chatted about the last 10 minutes. It's never too early if you're a veterinarian looking or thinking at some point I own, so for all the owners out there or partners, you're not going to be farther time and at some point you're going to say I'm done and the best time, the best day to plant in oak trees today, and so you know it's the thinking about. Okay, I'm at a certain level now. I'm done, five, eight, 15 years away from retirement or selling.
Speaker 3:What does that look like and what are some things that I can do to start planning that? And you know, quite frankly, it's as simple as because there's two conversations right, if you're an employee anywhere, it's the mindset of doing my job and what my role is to accomplish the task in my role. If you're a veterinarian, is practicing medicine. However, there's also the mindset of the entrepreneur or the business owner, and it's a different mindset and a different conversation about how you handle a specific situation with an employee, with a client, with a vendor, whatever that might look like of. Well, from the employee standpoint, this is the conversation, but from the owner standpoint, this is my mindset in approaching that decision and mentoring the team of yeah, this is the decision, why we're making it, and here's the mindset. File that away for if you're ever sitting in my chair, and so that way, if they ever do want to sit in your chair, they've. You've trained them up so it's not brand new, fresh for them on the outside, but really the best time to plant the oak trees today, right?
Speaker 1:Absolutely. Hey, you can't start early enough.
Speaker 3:So, talking about the management piece and transitioning a little bit to that, to kind of wrap things up, what are some areas of hospital management that are frequently neglected? I mean, so you know we're talking about that mentorship piece when do you see things that are frequently neglected in the veterinary management role?
Speaker 1:Well, you know, the business of veterinary medicine has changed so much over the years, right, Like it used to be a business where you gave away your services and sold your products, and that's a fairly simple business, right, Because the product comes in. You know how much you have to market up to make a make a living, and you know we have chewy and pet met express and we can be upset that somebody came and took our business. But welcome to entrepreneurship and business ownership, right, Everybody's always looking for inefficiencies to capitalize on, you know. So where I feel, I mean again, I think there's a lot of components of management. I think we could deal with you and I could spend probably hours talking about HR and we could talk about, you know, but from a simplistic standpoint, like I think we've almost tried to make fee schedule and our understanding of fee and profitability like too simple, right, Like if I just go step on fees, it'll all work out.
Speaker 1:Well, I mean, what happens?
Speaker 1:Are we accounting for the fact that we've just been through this period where, to retain quality staff, we didn't raise staff wages 6%, we may have raised staff wages 25% and our largest cost is staff wages and our staff is spent is spending time doing procedures.
Speaker 1:So I've been very intrigued, you know, kind of been working in this project related to trying to break down fees where they're understandable, right, when we're looking at what is the cost to deliver a service and applying some cost accounting principles to fees, because to me that is really the driver A strong fee schedule that you create a regular process in reviewing, is the foundation of how you can ensure that your business isn't just healthy in a short period of time, but that process is how you ensure that A you maintain trust with your team so your team doesn't feel like you're just profit driven. You maintain trust with your clients, which is huge right. We can't erode the trust between veterinarians and their clients. It's one of the biggest concerns that I have in the veterinary space as we head forward is can we maintain veterinary medicine as one of the most trusted professions in the country?
Speaker 3:Especially so. I'm in an industry that is not trusted. I just you know, I know what I sell, right, and if you look at everything out there in the marketplace, it's make it easy save money. You just need to get this product and check the box. And I think there's some commoditization that's happening in the veterinary industry as well, where you look at telemedicine, different services for well visits being offered at different locations that aren't traditional veterinary practices, where it's just show up, get your vaccine and walk out.
Speaker 3:Without naming any big major brands, but you know, we know the ones that are out there that are trying to dip their toe in this because they see how big the marketplace is and that what happened with you know Chewie and some of these other places coming in where you can come in and order all your dog food and everything. Now it's well, I don't have to schedule an appointment with my vet. I can go grocery shopping, bring my dog in, get a vaccine and walk back out without having to go through all the rigmarole of scheduling an appointment at my vet practice because they're booked out four months.
Speaker 1:Well, you tapped another thing that's huge to me, that people need to focus on, like have you ever stayed at a hotel?
Speaker 3:Yes, I have.
Speaker 1:What do you? Do? You stay at the super eight.
Speaker 3:No, I generally like to stay at a little bit better than I've stayed at super eights Travis, but I generally don't like to stay at super eights. So every time you book the four seasons, no, I like to get the best value for my money.
Speaker 1:So a lot of people don't are kind of bothered. But veterinary medicine in my mind is a service business, right? We're selling a service that services medical care to a client and not. There's a reason. You just said you don't want to stay at the super eight, but somehow, some way, the super eight is a massive brand, or you know I. And again I'll pick my favorite, you know cause I always love Tom Baudet. You know the hotel six right. Absolutely. You know, I mean those that fills a need of a client base.
Speaker 3:Correct.
Speaker 1:There's a segment of the market.
Speaker 3:That's okay with the super eight and is happy to stay at the super eight.
Speaker 1:And when you think about veterinary medicine as a service business, we need to think about how we we meet each different group of clients where they're at.
Speaker 3:Sure.
Speaker 1:And I think you're going to see that need, that need to come out more and more in veterinary medicine as there's, it never used to matter because there wasn't the level of diagnostic tools available, there wasn't the cost to invest in those diagnostic tools Some of the you know, some of the end of life care, some of the routine care, even right Like, wasn't always where it is, and the the need to meet those clients that are looking for this level of service or that level of service, and then build your business model around. That is really I think it's really a very needed skill set and something that each person who owns a hospital should think about, because it's very difficult to be everything to every client base.
Speaker 3:Yeah Well, I really enjoyed our time today, travis, I think for for for our listeners out there as, as we wrap up here, what's what's the one you know if you're, if you were going to say anything to a veterinarian about exit planning or business planning for their practice, what's the one? What's the one thing that you generally tell all practices at all of your meetings?
Speaker 1:Thick skin? I think it's thick skin, right Like it's. You may hear some things you're doing great. If you sit down with an advisor or a guidance person and they tell you there's nothing wrong with your business and there's no area to improve, kindly get up, push the chair in and walk away, because you know exit planning is about having somebody help us see where our blind spots are and then putting team members around you to improve those blind spots.
Speaker 3:Yeah, there's a great quote from Doc Rivers Good players want to get by, Great players want to be coached and superstars want to be told the truth. And so you know you. You want to be told the truth. Well, I really enjoyed our time today, Travis, For our listeners out there, where can they find you online, and and how would they reach out to you and get ahold of you and then name your podcast again for us, just so it'll be in the show notes for everyone? But just where can people find you online?
Speaker 1:Yeah, absolutely so we are. We've got website. Love to go visit it. It's just three and one and that's three spelled out and one. Vet advisorscom. Email is the same Travis at three and one vet advisors. You know, certainly feel free. Anybody can give me a call, phone number 678-523-0234. Happy to happy to catch up and continue the conversation at a personal level with anybody.
Speaker 3:And then you, you and I connected on LinkedIn as well. So you're there, and and what's the podcast again for us.
Speaker 1:Our podcast is a vet worthwhile.
Speaker 3:Vet worthwhile podcast. Well, thanks so much for the time, Travis. I've really enjoyed connecting with you and and collaborating on exit planning and management for veterinary practices, and thanks so much and really enjoyed the time today.
Speaker 1:Thanks a bunch, Bill. I really appreciate it.
Speaker 3:Thanks for tuning in to veterinary blueprints. If you have any thoughts, questions or suggestions for an episode, I would love to hear from you. Email me at bill at butlervetinsurancecom. Don't forget to subscribe so you never miss an episode, and if you could do me a huge favor you know it helps with the algorithm. If you can like, share or comment on the post, leave a review, I would love it. Thanks for tuning in and until next time.
