FOR VETERINARY SURGEONS
WHO ASPIRE to ultimately become
practice owners there is good and bad
news. The good news, rstly, is that the
banks very much view veterinary as a
“green light” sector and are prepared
to offer generous terms to rst-time
buyers.
The bad news is that there is
currently an under-supply of practices coming to the
market to keep
pace with the
demand for
clients seeking
to purchase.
Unfortunately for
purchasers, under
the law of supply
and demand this
has resulted in
higher and higher goodwill values to
such a level that in certain cases the
subject practice may not now be a
viable acquisition.
That said, the majority of practices
are “fundable” although key for any
purchasers is to ensure they plan and
prepare in advance to present the bank
with as comprehensive a proposal as
possible.
This should reflect both purchaser
and the practice in the best possible
light, to outline how you will run
the business and to demonstrate the
practice is (or will be) pro table to
ensure a positive lending response and
to secure best funding terms.
Where do I start?
Before you even view or place an
offer on a practice you need a rough
idea of the level of nance you could
raise. Can you purchase a practice for
£250,000, £500,000 or £1 million plus?
By asking a number of questions
about your clinical and employment
background together with details of
your personal financial position, most
advisers should be able to provide a
guide as to the level of bank support
you can expect – which in turn can
steer you towards suitably sized
practices.
It is vital to ensure you work with an
Independent Adviser who is authorised
by the FCA and as such can work with
all of the banks. There are currently 13 high street banks who have a policy
to lend against veterinary goodwill, together with a number of smaller
“niche” lenders.
Do not make the mistake of
approaching just one bank direct
though as they will only outline what
their own lending guidelines will
permit, which may not be the most
favourable: the banks are all different
and there are currently some very
competitive and flexible terms available but only if you
approach the
right lenders.
What do
I need to
prepare?
A CV is
quite often
overlooked by
clients who approach banks direct but is one of
the most important items the banks
consider. Yes – this will include your
clinical background, especially covering
any specialisms, but most importantly
should cover aspects of managerial
experience be it in veterinary or
elsewhere.
You need to clearly demonstrate to
the bank you are a serious business
prospect and can take the step up from
an assistant role to owning and running
a business and to cope with all of the
headaches that will entail. It would
be prudent to run your CV via your
business adviser who can provide the
necessary “enhancements” the banks
like to see.
Your personal financial position. The
banks will very much focus on your
personal assets and liabilities as well as
your personal drawings requirement.
Please take your time and detail
everything on these forms and do not
try to gloss over certain areas you feel
may be an issue.
Not everyone’s personal finances
are perfect but a big no-no is to keep
certain information back only for it
to be “spotted” by the bank at a later
date. Disclose everything – but again
speak with your adviser in advance
who should be able to put a positive
spin on most situations.
Cash savings. In almost every case you
do need to ensure you have funds put
aside to put towards a purchase. For
smaller sub £500,000 purchases a cash
contribution of between 5% and 10% may be possible and indeed on smaller
freeholds 100% funding may still be
achievable.
For £500,000-plus purchases, as a first-time buyer you need to budget for
10% to 20% unless of course you have
additional security to offer. Bank of
Mum and Dad has come into play in
recent years. If you are in a fortunate
position where family financial support
is available, do ensure you let the
banks know as in most cases they are
happy to use this as your contribution
towards the purchase.
Business plan and forecasts
You need to demonstrate firstly to
yourself and then the bank that the
practice is worth purchasing – and it is
true to say that not all are.
Compiling a pro t and loss forecast
(P&L) is vital: it would normally take
a vendor’s most recent accounts as
a starting point (or average of last
three years if available) and effectively
personalise it to show how the business
would look financially if you took over.
You would add back costs which
are personal to the current owner
(depreciation, spouse’s wage and
vendor’s nance costs). You must
then include your own costs – largest
of which is likely to be the bank loan
repayments.
It is the all-important bottom line
pro t after all deductions that both you
and the bank will focus on: are loan
costs comfortably covered and is there
enough left to cover tax, your drawings
requirement and for future investment back in the business?
Most banks would also expect to see a business plan which is effectively a
summary of the above points covered
in this article; background on you
(CV, financial position and earnings),
background on the practice you are
looking to purchase, the changes you
are looking to make and the impact
this will have on practice income and
profits (the P&L).
Working with experts
Working with an FCA registered
independent adviser will not only give
you the peace of mind of a whole of
banking market overview, they will help
you prepare your business plan and
P&L. They should also negotiate on
your behalf with the banks to ensure flexible and competitive terms and then
hold your hand to the very end, liaising
with accountants, solicitors, sales agent,
the bank and bank valuer to ensure a
smooth and seamless purchase.
The current market dynamics
and high values certainly do make
it challenging for first-time buyers;
however, it is possible and I hope
these tips and suggestions will assist
you achieving your dream of practice
ownership.
- FTA Finance is a trading name of
FTA Finance Ltd which is authorised
and regulated by the Financial Conduct
Authority. - The FTA Finance team will be at
the London Vet Show next month on
Stand G1.
