Animal Health Solutions

34 Covetrus | ph: 855.724.3461 | fx: 888.329.3861 | northamerica.covetrus.com SUCCE SS 1 Clinic appraisal – What is your clinic worth? Various factors play their part. Location, your patient base (goodwill), the value of technology and equipment, and your veterinary office lease agreement all contribute to and uniquely affect the sale price of your animal hospital/vet clinic. Many veterinarians are shocked to learn that their clinic is worth much less than they expected due to poorly setup terms and clauses within their lease agreement. The specific language contained in some common lease terms that can directly affect the value of a veterinary clinic include the demolition clause, landlord relocation right, options to renew, surrender provisions, and assignment language. Negotiating a healthy lease at renewal time, years before your planned retirement, is critical to a profitable transition. 2 Timing your transition – An action plan Often, veterinarians don't plan to retire until their late 60's or 70's, or when old age kicks in and begins to affect their ability to practice. A common reason for this, aside from the obvious love of animal health and emotional attachment to the clinic, is the simple fact that some veterinarians don't have the savings in place to retire comfortably. Having worked in healthcare/commercial real estate, and lease negotiations for over 27 years, we've found that many veterinarians fall into financial trouble due to poorly structured terms in their office leases. Every year, thousands of veterinarians across North America are forced to prematurely close their doors, work well into their 70's, or retire with little retirement savings due to the business- shattering issues they've faced in their leases over their careers. It is recommended to start planning for retirement in your 30's and 40's, giving you ample time to setup the lease agreement properly, to protect your investment and facilitate your eventual clinic exit. 3 Clinic sale implications – Traps in the lease There are several important lease provisions to note when planning for retirement, including personal guarantees, assignment language, and surrender provisions. Personal guarantees Your lease may list you personally, or your business as the lessee. "Personal guarantees" in the lease can leave you responsible for rental payments even after you have assigned it to a new veterinarian. Ensure that when your lease is transferred, that you, the original tenant, are no longer financially responsible for ongoing rental payments or liability as if you are still are the tenant. For example, many veterinarians are left on the hook financially for the clinic, years after the lease transfer, if the new tenant fails to pay rent. While it's recommended to try and structure the lease initially without any personal guarantees, if this is not possible, try to add a time limit to the guaranty post- assignment, with financial limitations as well. For example, adding language that prevents the landlord from approaching you for rental payments "x" number of years after the practice sale, for more than "x" number of dollars, would be of significant value in the lease. Assignment clause Although you are the business owner, you may not be entitled to 100% of your profits from the sale of your practice. This comes as a shock to many veterinarians; however, language in the "assignment" clause often entitles the landlord to 50% or more of the sale profits for consideration. For example, if your clinic is worth $400,000, your landlord may be entitled to $200,000 of the sale price. Ensure this provision is properly addressed well in advance of your retirement. Follow these tips to a smooth and safe transition to retirement

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