How to Know When It’s Time to Expand Your Facility

karen felstedBy Karen Felsted, CPA, MS, DVM, CVPM

When looking to make any expansion changes at your veterinary practice there are a few things to consider to make sure you are making the best choice for your hospital. The first question to ask when you’re thinking about expanding is: What is the problem you are trying to solve?

For example:
• “Clients are stacking up in the reception area and have to wait too long”
• “We are turning away business because we are fully booked”
• “Our workflow isn’t very efficient because we don’t have enough exam rooms”
• “We’re tired of stepping over boxes of medical supplies every time we enter the restroom”

Before launching forward with any solution, you want to be sure it will solve the problem you have. For example, if clients are stacking up in the reception area, you first need to figure out why. If it’s because you have a doctor ready to see them but there aren’t enough exam rooms, then this may really be a space problem. But if it’s because all the doctors in the practice spend 30 minutes with a client in an appointment scheduled for 20 minutes, then adding exam rooms won’t help. Instead you have a scheduling issue or a doctor efficiency issue. If you’re turning away business because you are fully booked, adding another doctor or using technicians more efficiently may be the first step in solving this problem. Do you have to have more space for these extra appointments? Maybe or maybe not; before launching forward with the expansion, make sure you are using your current space to its best advantage.

Assuming you really have a problem that will be solved with extra space, the next question to ask is: What will be the impact on cash flow of expanding? If you’re expanding to accommodate more clients, you will likely see a dip in cash flow in the short-run but a later increase as more pet owners visit the practice. If you’re expanding simply because the space is too cramped but don’t expect much client growth, then the dip in cash flow may take longer to recover from. This isn’t always a bad thing; simply having room to turn around can be worth the extra bucks. If you will need additional clients to make the project pay off financially, you need to be confident you can attract them. The days of “build it and they will come” are behind us. Of course, you can borrow the money needed for the expansion but unfortunately, lenders want to be repaid at some point and you need to make sure you’ve got enough of a cushion to weather any dip in cash flow once you have to start repaying the loan.

Answering these two questions in depth will help you make the right decision in determining it it’s time to expand.

Dr. Karen Felsted is a senior advisor to Community Veterinary Partners.


Do You Know What Your Veterinary Practice Real Estate is Really Worth? Part 1

Do You Know What Your Veterinary Practice Real Estate is Really Worth?

Part 1- Creating Liquidity and Building Improvements

Written By: Daniel Eisenstadt and Ian Widensky of Calico Real Estate

Thirty years ago nearly every owner of a veterinary practice owned (or wanted to own) the real estate where his or her practice was situated.  While this continues to be the norm for many owners, like so many other aspects of veterinary medicine, “the times they are a changing.”  Today, more practice owners are recognizing that their practice and building are different assets and that viewing each separately can create greater financial value and more flexibility.

In many other healthcare fields (dentistry, physical therapy, etc.) practice owners rarely own their own real estate, choosing instead to focus on building the business of their practices.  Most owners enter into long-term leases for well-equipped facilities in good locations.  In fact, most corporate groups that acquire veterinary practices utilize the same principles and negotiate long-term leases as part of a purchase agreement.

Similarly, certain consultants and advisers have come to view the separation of practice and property as a good way of creating options for owners.  Says Dr. Karen E. Felsted, CPA, MS, CVPM, president of PantheraT Veterinary Management Consulting, “Traditionally, practice owners have sold their real estate when they’ve sold their practice.  This is a good option for some practice owners but not necessarily for all.  An opportunity to cash in on the value built up in the real estate without having to sell the practice gives veterinarians more financial choices and the ability to customize their succession plan to their individual needs.”

Although no situation is alike, there are several scenarios where value can be created by viewing and treating the practice real estate as independent from the practice:

Creating Liquidity

After years of building a successful practice, many owners are content to practice for another decade (or more) and enjoy the stability of owning a healthy business.   But many admit to feeling a financial crunch as their children grow older and head off to college.   Many want to buy a second home or travel more, but feel unable to do so.

Some veterinarians may be concerned that selling the practice real estate separate from the practice may make a future sale of their veterinary practice less attractive.  In fact, as long as a lease is assignable by the practice owner to a future buyer of the practice, the sale of the real estate will not restrict the sale of the practice.  And, though some associates may be interested in buying real estate few associates and no corporate buyers will pass up the chance to buy a good practice because the facility is leased.

For most veterinarians their practice represents their largest financial asset.  But without selling the practice, many see no easy way to create liquidity.  Some veterinarians in this situation work harder to meet their increased personal financial needs while others put off personal needs and/or the responsible preparations for retirement.  For these veterinarians, a sale of their real estate to a landlord that will lease the property back to the practice can be a creative solution to address this financial need.

Building Improvements

After years in the same building, many practice owners recognize the value (or the impending need)  of renovating and/or expanding their physical plant.  But many of those same owners choose to defer these large-scale projects for financial reasons or because they don’t want to take on additional debt late in their careers.  Regrettably, the decision not to renovate can compromise their ability to recruit quality associates or future buyers, detract from the customer and patient experience, and  lead to a deterioration in the practice’s value.  Few consider the option of selling their building to a landlord who will invest and manage a renovation project and integrate these costs over the course of a long-term lease.

Coming Soon: Part 2 of “Do You Know What Your Practice Real Estate Is Really Worth?”- Diversification and Maximizing Value.