Preparing Your Exit Strategy from Veterinary Practice
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Dr Mike Pownall presented a half day session during the Oculus Insights 2017 EU Summits in Amsterdam on planning an exit strategy for practice owners for any type of veterinary practice.
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Preparing Your Exit Strategy from Veterinary Practice
- 2. Our Goals Today 1. 3-5 year strategic exit plan 2. Maximize business value
- 3. On The Way Out? Current Practice Ownership ⢠Retiring Owners ⢠No Exit Strategy ⢠Private Equity solution?
- 4. Next Generation of Owner? ⢠Work/Life Balance ⢠Job Dissatisfaction ⢠Transition Challenges ⢠Large student debt (USA)
- 5. Market Challenges â˘Price Sensitivity â˘High Investments â˘Competition â˘Lack of Management Skills â˘Lack of Data Analysis
- 6. What is Strategy ⢠A description of how we can identify what our clients value and how we can deliver it ⢠It takes our vision & mission and puts them into operational terms that can be analyzed and acted upon
- 7. Goal of Strategy Compete with a sustainable advantage of distinctiveness over our competitors
- 11. Competition Bargaining Power of Suppliers Bargaining Power of Buyers Threat of Potential Entrants Threat of Potential Substitutes
- 12. Competition Bargaining Power of Suppliers Bargaining Power of Buyers Threat of Potential Entrants Threat of Potential Substitutes
- 14. Value Proposition ⢠What functional and/or emotional needs/wants can we uniquely fulfill for our customer? ⢠What pain points can we eliminate? ⢠What extra value can we add to our customerâs lives? ⢠Do we understand our customer jobs?
- 15. Customers/Services ⢠Who do we sell to? ⢠What we sell to them?
- 16. Core Activities â˘Activities your business does that supports your strategy. ⢠Could be invisible to clients? ⢠Could be a combination of things
- 17. MPES Goals - Hard â˘> 8% Annual growth â˘> 10% EBITDA â˘< 15% Employee turnover â˘Expense growth <50% of revenue growth â˘2 month operating expenses as cash reserve â˘NPS > 70%
- 18. MPES Goals - Soft ⢠Industry leader â known as resource for horse health education and advancement of profession (Business and Personal, use of vet time) ⢠Growth opportunities for staff ⢠Charitable involvement through money and time ⢠Recognize and prevent vet & staff burnout ⢠Support of horse industry through sponsorship and education
- 19. MPES Product Market Focus â˘Lameness â˘Preventative health care â˘Dentistry â˘MRI â˘Emergency care â˘Horse show care
- 20. MPES Product Market Focus â˘Horse owners/trainers that want the best medical care for their horses and want to be involved with that care. â˘Show horses â˘Racehorses â˘Referral veterinarians
- 21. MPES Value Proposition Courteous & personal equine veterinary care, education and services for horse people who value their horseâs health. Supportive environment for referring vets
- 22. Core Activities ⢠Scheduling ⢠Inventory management ⢠Cutting edge technology ⢠Skilled veterinarians ⢠Well trained staff ⢠Marketing ⢠Customer Service
- 23. Individual Strategy Exercise ⢠Work individually ⢠Share with someone else at your table
- 24. Building Practice Value Preparing for the Future 1.Increase Sales 2.Increase Operating Margin (EBITDA) 3.Lower Risk 4.Decrease Practice Debt
- 25. Valuation Factors Multiples of EBITDA ⢠Earnings Before Interest Taxes Depreciation Amortization ⢠3-6 X EBITDA ⢠Multiple is Related to Risk Higher EBITDA + Higher Multiple = Increased Value
- 26. Sample Practice Income Statement Industry Benchmarks PRACTICE 2016 100.00% Practice Income (Turnover) ⏠2,500,000 Expenses 26.39% Total Cost of Professional Services âŹ659,750 19.36% Drugs & Supplies 7.03% Hosptitalation, Lab costs, etc 73.91% Gross Profit âŹ1,840,250 5.67% Administrative Expense ⏠141,750 10.22% Facility and Equipment Costs âŹ255,500 45.04% Payroll Costs ⏠1,127,250 12.63% Operating Income (EBITDA) ⏠315,750 2.79% Depreciation Costs ⏠69,750 0.45% Other Income/Expenses (âŹ12,500) 9.39% Net Income ⏠233,500
- 27. Baseline EBITDA = âŹ315,750 Multiple = @ 5X Valuation = âŹ1,578,750
- 28. Increasing EBITDA 1. Increase Revenue 2. Lower Expenses ⢠Inventory/Cost of Goods ⢠HR ⢠Cash Payments ⢠Owners Expenses The greater the cash flow, the greater the value
- 29. 6% Increase in Sales Increase Sales 6% = âŹ150,000 COG Increase =âŹ40,000 EBITDA Change =âŹ343,915 = + 8.92% Practice Value Increase @ 5X EBITDA =âŹ140,825 PRACTICE 2016 Practice Income (Turnover) ⏠2,500,000 Expenses Total Cost of Professional Services 659,750 Drugs & Supplies Hosptitalation, Lab costs, etc Gross Profit 1,840,250 Administrative Expense 141,750 Facility and Equipment Costs 255,500 Payroll Costs 1,127,250 Operating Income (EBITDA) 315,750 Depreciation Costs 69,750 Other Income/Expenses -12,500 Net Income ⏠233,500
- 30. Lower Expenses
- 32. Inventory Days How many days it takes to sell inventory or The number of days money is tied up in inventory (Inventory/Cost of Sales) x 365
- 33. Inventory Days (Inventory/Cost of Sales) x 365 (125,000/659,750) x 365 = 0.1894 x 365 = 69
- 34. Inventory Turnover How many times inventory is sold in a year Cost of Goods Sold/Ave Inventory 695,750/125,000 = 5.6
- 35. Goal Ave Inventory Days = < 30 days Inventory Turnover = 12 +
- 36. Goal ⢠Reduce quantity on hand ⢠Reduce order time ⢠Reduce expired medications ⢠Reduce interest payments
- 37. Holding Costs 20 - 40% of cost
- 38. Holding Costs Item cost âŹ10 Holding cost âŹ2-4 Actual Cost âŹ12-14 Selling Price âŹ20 Profit âŹ6 to âŹ8 not âŹ10
- 39. Reducing Holding Costs â˘Minimum & Maximums â˘Inventory Counts â˘Weekly orders â˘Measure & compare
- 41. Inventory Counts AA â top 5% of items sold A â next 20% B â next 20% C â All the rest
- 42. Inventory Cycle Counts AA - Weekly A - Quarterly B â Semi-annual C - Annual
- 43. Measure Ave Inventory Days = < 30 days Inventory Turnover = 12 or less
- 44. What Does Improvement in Inventory Look Like? Ave Days Inventory (Inventory/Cost of Sales) x 365 (125,000/659,750) x 365 = 0.1894 x 365 = 69
- 45. What Does Improvement in Inventory Look Like? What does each day in improvement look like? 125,000/69 = âŹ1,812
- 46. PRACTICE 2016 Practice Income (Turnover) ⏠2,500,000 Expenses Total Cost of Professional Services 659,750 Drugs & Supplies Hosptitalation, Lab costs, etc Gross Profit 1,840,250 Administrative Expense 141,750 Facility and Equipment Costs 255,500 Payroll Costs 1,127,250 Operating Income (EBITDA) 315,750 Depreciation Costs 69,750 Other Income/Expenses -12,500 Net Income ⏠233,500 2% Reduction of Inventory Costs Inventory Cost - 2.0% = âŹ50,000 EBITDA Change =âŹ365,750 = + 15.8% Practice Value Increase @ 5X EBITDA =âŹ250,000
- 47. Examples â Increasing Value ďź Decrease Drug Costs by 2% ⢠EBITDA increases by 15.8% ⢠Practice Value Increases by ďź Increase Revenue by 6% ⢠EBITDA increases by 8.9% ⢠Practice Value Increases by ⏠250,000 ⏠140,825
- 48. The Problem with Owners 11/26/2017 48 The Problem with Owners
- 49. Getting Ready to Sell Cash âŹ25,000 Valuation Change âŹ25,000 Reduced EBITDA -âŹ125,000 @ 5x EBITDA PRACTICE 2016 Practice Income (Turnover) ⏠2,500,000 Expenses Total Cost of Professional Services 659,750 Drugs & Supplies Hosptitalation, Lab costs, etc Gross Profit 1,840,250 Administrative Expense 141,750 Facility and Equipment Costs 255,500 Payroll Costs 1,127,250 Operating Income (EBITDA) 315,750 Depreciation Costs 69,750 Other Income/Expenses -12,500 Net Income ⏠233,500
- 50. Risk
- 51. Reducing Risk â˘Consistent Growth â˘Consistent EBITDA â˘Consistent Staff â˘Excellent Brand â˘Loyal Clients
- 53. A Healthy Brand â˘Increase revenue â˘Increase multiple of EBITDA â˘Happier staff â˘Loyal clients â˘Decrease risk
- 54. What is a Brand The expectation a person has when they hear your company name, or see your logo
- 60. The Superstar??
- 62. The Net Promoter Score
- 65. The NPS â˘Promoters (9-10) â˘Passives (7-8) â˘Detractors (0-6) Promoters â Detractors = NPS
- 66. The NPS ⢠Promoters (9-10) 30% ⢠Passives (7-8) 60% â˘Detractors (0-6) 10% Promoters â Detractors = NPS 30%(P) â 10%(D) = 20% NPS
- 67. Good Profit vs Bad Profit
- 68. The NPS â˘4 questions â˘constantcontact.com â˘Surveymonkey.com â˘Target clients â˘Results shared McKee-Pownall Equine Services Customer Feedback Survey 1. How likely is it that you would recommend our company to a friend of colleague? 0 - Not at all likely 1 2 3 4 5 - Neutral 6 7 8 9 10 - Extremely likely 2. If you scored us above 8 on the above question, what is the primary reason for the score you gave us? 350 characters left. 3. If you scored us below 8 on the above question, what is the primary reason for the score you have us? If you would like to discuss your recent visit and how it impacted your score, please add your name and number. 350 characters left. 4. How long have you been a client of McKee-Pownall? 1 year or less 1 - 3 years 3 - 5 years 5 + years Finish
- 73. Results â˘Ave NPS score = 84% â˘Ave response rate = 33%
- 75. Our Staff
- 76. Questions ⢠How do your vets and staff make you money? ⢠How do your vets and staff cost you money?
- 77. Unhappy Staff = Expensive Staff
- 78. Employee Turnover # employees left during year Average # employees x 100
- 79. Employee Turnover 3/9 x 100 33%
- 80. Cost of Employee Turnover ⢠50-75% of salary ⢠âŹ30,000 salary ⢠âŹ15,000-22,500 annual cost each 3 = âŹ45,000-67,500 http://www.zanebenefits.com/blog/bid/312123/Employee-Retention-The-Real-Cost-of-Losing-an-Employee
- 81. âClients do not come first. Employees come first. If you take care of your employees, they will take care of the clientsâ Sir Richard Branson
- 82. Profit Benefits Disengaged Employees = 0-1% Highly Engaged = 10-15%
- 83. Employee Management Impact Practice Value Increase @ 5x EBITDA =âŹ305,000 Decreased Turnover = - âŹ45,000 = + 14% Employee Engagement If 5% Improvement = âŹ16,000 PRACTICE 2016 Practice Income (Turnover) ⏠2,500,000 Expenses Total Cost of Professional Services 659,750 Drugs & Supplies Hosptitalation, Lab costs, etc Gross Profit 1,840,250 Administrative Expense 141,750 Facility and Equipment Costs 255,500 Payroll Costs 1,127,250 Operating Income (EBITDA) 315,750 Depreciation Costs 69,750 Other Income/Expenses -12,500 Net Income ⏠233,500
- 84. Our Cash Flow Now
- 85. Initial Valuation Initial EBITDA âŹ315,750 Multiple 5 Practice EBITDA Value âŹ1,578,000
- 86. Revised EBITDA 6% Sales Increase 28,165 2% Decrease Inventory 50,000 2% Increase Sales EE 16,000 Decrease Employee Turnover 45,000 Add back Cash 25,000 âŹ164,165
- 87. Revised Valuation Initial EBITDA âŹ315,750 Additional EBITDA âŹ164,165 âŹ479,915 Multiple 5 Revised Valuation âŹ2,399,575 Difference âŹ821,575
- 88. âŹ821,575
- 89. Exercise ⢠Answer questions on handout ⢠Make a realistic 3 year plan ⢠Justify any increases ⢠Justify a new multiple if there is one ⢠Present to group
- 90. What would you need to do to sell your business at a maximum value in 3-5 years?
- 92. Thank You
- 93. Thank You
Hinweis der Redaktion
- Use examples to show this.
- Show effect of cash on EBITDA
- Use slides of Ronaldo and Real Madrid
- What is the question? Who uses it How we found out about it
- Picture of somehting useless
- Show equation
- Show equation
- Photo to show this. Q house with a shaky foundation
- Show equation
- Show Survey
- Show Survey
- Show Survey
- Show Survey
- Have the crowd calculate their turnover (privately) ~5 minutes
- MIT article