Own a clinic vs employed vs retire

[tomatoprincess]

I have a dilemma, a very fortunate one, but not one I could wrap my brain around and work out.

I am a veterinarian, currently I am self-employed and work at a few different clinics. The clinic I currently work the most for (35hour/week) has told me that they are planning to sale, hopefully in 2 years. They would like to give me first choice in buying the clinic if I want it. There is lots of opportunities for them to sale to giant franchises, but they would prefer to sale to someone they like. So I am flattered.

I've worked at this clinic as a student and have come back to it as a vet after spending 3 years at another clinic. This is a good clinic with wonderful staff, good clients. I've been around and have worked at at least 6 different clinics. They would like 800,000 for it, I don't have other details as I'm not sure if I want to own a clinic.

Financially, me and my husband has about 500k in real estate and money, the goal for me has been financial independence since 5 years ago. Likely we will reach that with 750k, which at most at our current rate will be another 5 years. We each make about 90k/yr. We spent about 85k this year, but this is an unusual year for us, we got married and so did 6 other friends which involved a fair amount of international travel and a honeymoon. Next year will likely see spendings more along 50k.

So, I don't know what I would like to do. Continue to work as a vet and be financially independent in 5 years or buy the clinic. I think ownership is a great opportunity, but also a great responsibility. If I were to own the clinic, I do want a partner vet that could shoulder some of the responsibility. One of the reason I haven't wrote it off is, I feel after financial independence, one still has to do SOMETHING with their life, and a small business like a clinic would be perfect. But, we are currently trying to have a baby, so the goal was always to spend as much time raising a child as possible and not miss out on their growth. Though this will be our first child, if it happens, so I am not certain what type of mother I will be. Maybe I won't want as much baby time as I thought I would.

My husband is supportive of whatever I choose to do. He does have his own opportunity to go work abroad for 1 year in about 2 years time, which we had always thought would be a great time for me to try out the FI life as I wouldn't be able to work and I would most definitely go with him. He has dreamed of this opportunity for a long time, but he's very supportive of me owning a clinic and will give up the opportunity if I do acquire the clinic.

Any mustachian small business owner that could chime in on owning a business and the FI lifestyle? OR anybody that is FI could advise if FI is what you thought it would be or are you itching to be back working somewhere. I dislike the idea of being tied down to a clinic, but maybe I just need a change of perspective.

Thank you for reading!

[terran]

I can't answer all your questions, but a couple of thoughts.

If you decide to pursue buying the clinic you should get information on their financials and do some research and/or talk with a business broker about what a fair valuation for such a business is. Different types of businesses usually sell for different multiples of revenue. If you end up buying try to "get in the weeds" on the business side of things as much as you can before the current owners are gone so you can learn as much as you can. Running a business that does a thing has a lot more to it than doing the thing.

Where did you come up with FI at $750k? At a 4% withdrawal rate you would need more like $1.25 Million. I would be more comfortable with a 3.5% withdrawal rate (Based on Early Retirement Now's safe withdrawal rate series) which would require a little under $1.5 Million. Remember that you also need to pay taxes, so depending on where this money is coming from (whether it's subject to tax) you may need more if you want to spend $50k. Also remember that you need to be able to spend this amount on average (adjusted for inflation) every year -- no $85k years mixed in unless you have a couple of lower spend years to make up for it.

[Meesh]

um not sure 300k+ in debt is conducive to retiring in 5 years. Neither is owning a business, it takes a lot of work, my guess would be even more so in the first year or so when everything is new. Businesses are also not great for up and moving to another country. Do you plan on selling it in 5 years, or if/when you leave? It's not usually easy to sell a business either. And lastly (and maybe most importantly) it doesn't even sound like this is your dream, just an opportunity presented to you.

If I were you I'd pass. Keep working there or somewhere else, retire. If you get bored start to work again or open your own clinic hopefully for less than 800k.

[Meesh]

I can't answer all your questions, but a couple of thoughts.

If you decide to pursue buying the clinic you should get information on their financials and do some research and/or talk with a business broker about what a fair valuation for such a business is. Different types of businesses usually sell for different multiples of revenue. If you end up buying try to "get in the weeds" on the business side of things as much as you can before the current owners are gone so you can learn as much as you can. Running a business that does a thing has a lot more to it than doing the thing.

Where did you come up with FI at $750k? At a 4% withdrawal rate you would need more like $1.25 Million. I would be more comfortable with a 3.5% withdrawal rate (Based on Early Retirement Now's safe withdrawal rate series) which would require a little under $1.5 Million. Remember that you also need to pay taxes, so depending on where this money is coming from (whether it's subject to tax) you may need more if you want to spend $50k. Also remember that you need to be able to spend this amount on average (adjusted for inflation) every year -- no $85k years mixed in unless you have a couple of lower spend years to make up for it.

Sounds like she will FIRE and possibly become a SAHM and he will continue to keep working...

[terran]

If I were you I'd pass. Keep working there or somewhere else, retire. If you get bored start to work again or open your own clinic hopefully for less than 800k.

That's a good point. As far as "after financial independence, one still has to do SOMETHING with their life, and a small business like a clinic would be perfect," starting a clinic from scratch would be a heck of a lot cheaper than $800k. What you're buying is probably mostly the client base (plus a bit of equipment), which would keep income coming in from day one, but if you start a business once you're FI for something to do it doesn't really matter if you have income coming in so you can take your time building up a client base without really worrying about it too much.

[YttriumNitrate]

I've worked at this clinic as a student and have come back to it as a vet after spending 3 years at another clinic. This is a good clinic with wonderful staff, good clients. I've been around and have worked at at least 6 different clinics. They would like 800,000 for it, I don't have other details as I'm not sure if I want to own a clinic.

After salaries and other expenses, how profitable is the clinic?

[Telecaster]

I do own a business and couldn't go back to being an employee.  Lots of freedom, call my own shots, do things the way I think they should be done.  Worth a lot to me.

A huge factor that you didn't mention was the return on investment.  I'd get that figured out first thing before pondering this much farther.  If it doesn't pencil out, then the decision is made for you. 

That said, there are a couple things I like about this.  First is it is an established business.  You don't have to hustle for clients, find a location, figure out vendors, or hire staff.  All that is done, you just step in and run it.  Another thing I like is the type of business: professional service.  You don't have to do any strategic planning if you don't want to.  You just service the clients.  And another thing about professional service is if the business is well run you don't have to be there full time.  The staff should know what to do, and the vets you hire should also know what to do.  They shouldn't need you to do a whole lot of oversight.   That means you should easily be able to switch to part time if/when you have a child and still collect your portion of the profits.   Not to mention keeping your health insurance. 

One bit of advice:  only hire the best.  Keep a position vacant as long as you need to until a stellar candidate comes along. 

[Telecaster]

If I were you I'd pass. Keep working there or somewhere else, retire. If you get bored start to work again or open your own clinic hopefully for less than 800k.

That's a good point. As far as "after financial independence, one still has to do SOMETHING with their life, and a small business like a clinic would be perfect," starting a clinic from scratch would be a heck of a lot cheaper than $800k. What you're buying is probably mostly the client base (plus a bit of equipment), which would keep income coming in from day one, but if you start a business once you're FI for something to do it doesn't really matter if you have income coming in so you can take your time building up a client base without really worrying about it too much.

That's true for some fields like say for a lawyer, but not with this type of business.  You need to lease (or own) a physical location.  Lease payments need to be paid no matter what.  Somebody has to answer the phone and make appointments.  They have to be paid no matter what.  The office has to be kept clean to sanitary conditions.  So cleaner needs to be paid on schedule.  Unless you want to do it.  You need vet assistants to do the low skill work so you can focus on the high value stuff.  They need to get paid.  And pets get sick on their schedule, not yours.  If you aren't open when an owner wants to come in, they'll call the next clinic and probably never call you back.   How do you build a client base that way?   And what about when pets need to be kept over night?  Do you stay up and do that?   Basically, you need to be well capitalized and willing to work full time right off the bat.  That sounds like work to me. 

That existing client base is the value of a business like this.  I don't know anything about the economics of the vet business but when the OP said $800K, I was thinking "why so cheap?"    It would be much easier to throttle back than to ramp up. 

[tomatoprincess]

Thanks for all your replies!
It's true I haven't gotten the financial aspect figured out with the practise yet, definitely if I do decide to buy it, it will be evaluated in terms of how profit things are, how much I could expect per year, how quickly I could pay off the bank loan etc. In my mind all those things are just logistics and doesn't interfere as much with the decision to own a practise. Simply because if it's not profitable to be worth the price, then the price needs to be lowered, or I'll pass. I will inquire more about this though and see how much info I could get before having to start paying for evaluations.

My husband and I going to another country vs buying a clinic is a one or other situation. If I were to purchase the clinic, definitely we wouldn't be going. It just doesn't make sense.

In terms of our retirement numbers, it's a rough estimate and probably over optimistic. I just threw it in to give a timeline to things. You are right, we likely need more, I'm hoping 2018 will give me a better idea of how much we need, since we are just starting our lives together.

When I was in school, our business course professor always told us to buy into a practise rather then start a practise. The benefits of stepping into an established one is profitability right away. You have established clientele that will (hopefully) continue to come to you, everything's already figured out in terms of staffing, equipment etc. Though that's only the case if you like what you purchase, if you buy a lemon, then it'll obviously take lots of work to reverse all the things you don't like. Starting a practise is for people that like everything a certain way, e.g. location, specific equipment etc. It takes I believe about 5 years to start seeing a profit for a new practise.

Certainly I don't have to buy this one and could decide to buy another one in the future. Don't know if there would be no worry about starting a clinic, I'd certainly still have to pay for staff and equipment, likely do the vet work by myself until there's enough clientele to make hiring another vet worth it.

So Telecaster, now that you own your own business, would you consider yourself FI and feel that you have the benefits of being FI? The main reason I want to FI/retire is because I can't stand having to work regular hours. The funny thing is I am a busy body, when I'm not "working" I am constantly doing things and I can't sit still. So I often wonder if I just hate the idea of "work", but would actually need something to keep me busy. I certainly don't want to miss this opportunity just to be doing the exact thing in 5 years.

Why is this clinic such an opportunity vs other clinics: I feel like because I've worked here for a while, I know all their dirty secrets, there's nothing much to hide from me. I know all the staff, I know who's grumpy/hard to work with. I haven't seen all their accounting books, but I could guess at how much is brought in. Other clinics could inflate their numbers and I'd have to compete with other potential buyers too, plus the staff and clientele would be hard to gauge at other clinics.

[trollwithamustache]

What is this business actually worth? do they own a building, equipment, service contracts and have lots of employees?  (it doesn't matter what your professor said, that was theoretical. what matters is what this specific business has)

or is it just an "order book" or list of customers and a bunch of independents like you that the pimp marks up?

As they say, Pimping ain't easy, but maybe you don't need to buy this business to go into it yourself...

[ooeei]

Do you want to own a business? There's a big difference between being an employee and being an owner. You'll no longer be just a vet, you'll be a boss/manager/accountant/customer service rep. Being a vet will now be a relatively small part of your job.

You get to be the one to fire someone for not performing, or due to a lack of business. Maybe it's a really nice someone who you've been friends with for years. You get to scrounge to get someone to cover for an employee who's sick or lazy and calls in the morning of. You get to be the one who responds to the person who's hysterical because their dog died when a vet said he'd be okay, and accidentally gave him the wrong meds. You get to be the one who checks over the accountant's work, and decides where to make budget cuts, which your employees will inevitably complain about because of how greedy you are. Etc etc.

Running a clinic is an entirely different job from being a vet. It's like a chef who wants to own a restaurant. Sure some can do it, but there are plenty of great chefs out there who don't have the skillset or desire to become the manager/owner.

[BigHaus89]

I do own a business and couldn't go back to being an employee.  Lots of freedom, call my own shots, do things the way I think they should be done.  Worth a lot to me.

A huge factor that you didn't mention was the return on investment.  I'd get that figured out first thing before pondering this much farther.  If it doesn't pencil out, then the decision is made for you. 

That said, there are a couple things I like about this.  First is it is an established business.  You don't have to hustle for clients, find a location, figure out vendors, or hire staff.  All that is done, you just step in and run it.  Another thing I like is the type of business: professional service.  You don't have to do any strategic planning if you don't want to.  You just service the clients.  And another thing about professional service is if the business is well run you don't have to be there full time.  The staff should know what to do, and the vets you hire should also know what to do.  They shouldn't need you to do a whole lot of oversight.   That means you should easily be able to switch to part time if/when you have a child and still collect your portion of the profits.   Not to mention keeping your health insurance. 

One bit of advice:  only hire the best.  Keep a position vacant as long as you need to until a stellar candidate comes along.

Good advice here.

I think you are massively underestimating what it takes to run your own successful business. You will end up working a lot of unpaid hours not doing anything related to vet work. If you are practicing as a vet full time, you will have another full time job managing the business, people, accounts, marketing, community involvement, etc. You don't get the luxury of taking time off when you want to when other people's jobs rely on you running the business side of things.

Also, another thing to look at if you are to go into business for yourself is the demand. Is the demand in your community really high for vet services? If so, it is likely much cheaper to start your own practice than it is to buy someone else's. This involves a little more work, but then you can establish how you want everything run and it may be easier to craft ways of working less through leverage.

[startingsmall]

Vet here.... and you couldn't possibly pay me enough to own my own business. I wouldn't want the huge responsibility that comes with being a practice owner - caring for hospitalized/boarding pets, coming in during weather emergencies when no one else is able, etc etc. If you're so close to escaping the profession, why do something that will shackle you to the career for even longer?

Have you considered asking about this on VIN or the Not One More Vet Facebook group?

[startingsmall]

Also, another thing to look at if you are to go into business for yourself is the demand. Is the demand in your community really high for vet services? If so, it is likely much cheaper to start your own practice than it is to buy someone else's. This involves a little more work, but then you can establish how you want everything run and it may be easier to craft ways of working less through leverage.

I would say this typically is not the case in veterinary medicine. A small animal hospital is expected to have a large amount of equipment to operate (bloodwork analyzers, digital x-rays, surgical suite, etc).... startups often don't see enough new clients to pay for this equipment. Many veterinarians who start their own practices draw $0 in salary for the first 3-5 years. An existing clinic, while more expensive, typically comes with some revenue.... meaning that new owners may be able to draw at least a small salary from the start.

[Telecaster]

So Telecaster, now that you own your own business, would you consider yourself FI and feel that you have the benefits of being FI? The main reason I want to FI/retire is because I can't stand having to work regular hours. The funny thing is I am a busy body, when I'm not "working" I am constantly doing things and I can't sit still. So I often wonder if I just hate the idea of "work", but would actually need something to keep me busy. I certainly don't want to miss this opportunity just to be doing the exact thing in 5 years.

That's a good question, and coincidentally one I've been thinking a lot about lately.   My wife and I have hit our FI number, a good bit sooner than we expected, so we weren't quite ready for it when it came.   My wife has a great job high paying job that she loves, and she really wants to work for a couple more years.  For her part, she told me I can be done if I want, but I don't want to retire if she isn't, so I've kept at it.  However, I've become more selective about what jobs I take and which clients I work for.  That's obviously increased by work satisfaction a lot.  But the interesting part is it has also increased my income. 

I'm sort of like you in some ways, I need a project.  So when it comes time to ramp down with my business, I'll want to ramp up with something else.  I haven't quite decided what that something else is yet. 

[stashing_it]

This post is a bit off topic,  however the question OP posted reminded me of a scene from the Heinlein Scifi novel "To sail Beyond the sunset" where the protagonist is asked by her husband if she thinks he should buy the mine inspection business that he is working at.

I was looking for the actual quote, but couldn't find it handily.   However she replies "What are you actually getting for the $xxxxx"   and it basically amounts to an office plus the goodwill of existing customers.  In the end the husband starts his own business.

For you in real life, the only advice I would offer that hasn't been posted by other people is that you should subtract your salary when you are comparing numbers.    I.e. if the clinic makes $200,000 per year, then the payback period on the 800K isn't really 4 years.  As the owner, you would now be making 200K per year, and that is likely instead of making 90K per year as an employee.  So you might have purchased an additional ~100K in income, not ~200K.  So the payback on that might be twice as long

Also, from a quick Google search, this site seems to suggest that an average vetrinary practice has $300K in revenue, and that they would value it around $250 K, plus the price of whatever real estate it was on if it owned the real estate.    https://www.valuadder.com/blog/2009/08/26/business-valuation-veterinary-practice/    By those metrics, an 800K vetrinary practice should be bringing in ~1 million in revenue.     

This site seems to be more in depth, and puts the price to revenue ratio at closer to 40%  https://www.ncbi.nlm.nih.gov/pmc/articles/PMC2034432/    i.e. a million dollar revenue business might only be worth 400k  (the basis for the estimate is 4x free cash flow)

(This all sidesteps the question of if you want to own a practice)

[MEJG]

There are a LOT of things to think about with this situation.

The first thing is to get an independent valuation of the practice with a company that specialises in veterinary practices.  Then take a few big steps back really look at the numbers.  You sound like you're pretty invested in this practice and have a long history there so you need to be impartial in your judgement of the numbers.  Then after you do that look at the numbers in context of the medicine they practice.  Are you happy with the standard of care? do you have a wish list of improvements?  How hard will it be to convert the staff to seeing you as the BOSS when you've been working there since before graduating.  The clinic culture in this regard will be a giant piece of the puzzle.

You also need to look at your total financial situation.  Do you still have student loans?  or other debt?  The people I know who've successfully owned small practices have gone into it paying themselves a salary, just like an associate, and not even looked at an owner draw or business income until they were 3-5 years into practice ownership.  Can you make life work on 20-22% of your gross income for the practice? and not pay yourself for all the other work owners do? There is work owners do even if they have a CPA, OM, good head tech, etc etc.  You will likely see a drop in business income just from change in management for a short period of time.

Further, you need to really think about lifestyle.  I've worked FT W2 as an associate.  I've worked doing vaccine clinics on the weekends, and occasional relief.  I've worked PT W2.  I find self employed relief based work to be the LEAST stressful personally.  When drama occurs then I can say "Not my circus, not my monkeys" easily.  It is much harder for me to detach from the office politics even working just 2.5 days a week at any particular place.  Further owners are ultimately responsible for all the HR decisions, which in my opinion, make or break vet clinic culture.  You could not pay me ENOUGH to be in charge of HR.

I've toyed with the idea of going into a partnership in a small practice, making it my own/our own, setting clinic culture the way I feel would be best, selecting clientele through pricing and protocol.  There is a huge seduction to that for me, but no one I've known to own can make a clinic run without hours I'm unwilling to work. 

I have kids, and quality time with them is super important right now.  Maybe when they're older the math will be different, maybe it wont.  I would urge you not to take on ownership before you have kids, you really have no idea what you're priorities will be once they arrive.  That's been true for every single female friend, vet or not, that I've know through the transition to parenthood.

[JetBlast]

While an interesting opportunity, from what you’ve said I don’t think it’s the right opportunity at this time. You mentioned the desire to have a child and be able to spend plenty of quality time with him/her. Now maybe isn’t the time to take a big financial gamble and make what will almost certainly be a large time commitment for at least a couple years until you have a good grasp on the business.

[ysette9]

I don’t know anything about business ownership or vets, but just listening to the tone of your post, I suspect you are flattered by being approached and somewhat intrigued, but not passionate enough to make this the right decision for you. You have too many other things that you may want to do with your time to tie yourself down to this risk at this point in your life.

Just my opinion from my armchair. :)

[tomatoprincess]

Thanks for all your comments, I really appreciate the insights.

As it turns out, we are expecting our first child in 2 months, so while still in the back of my mind I've not investigated further into owning.

The job market here for vets is good, according to recent survey, most locum have more work than they need.

Slight less related to me, but the other thing that motivates me to want to own a clinic is that VCA (big corporation) has come in and bought up a whole bunch of clinics in the area. Owning a clinic to me as an independent would be a way to fight back and ensure I could still make my own decisions as a vet. May be childish and has no basis, ie, I've never worked full time for a big company, but I feel it's important to take action than whine about big corp taking over.