5 Key Decisions to Make
5 Years Before You Buy a Veterinary Practice
Regional Sales Manager
Bank of America Practice Solutions
You’ve just graduated from veterinary school? Congratulations! After the celebrations are over, you’ll probably sit down and ask yourself, "How am I going to pay off these loans?"
According to a recent survey by the American Veterinary Medical Association (AVMA), the average graduate has $162,113 in student loan debt. A recent graduate can expect to make a salary of between $60,000 and $80,000 a year. That seems like a good living for someone just out of school – until you take into account all of your expenses: a roof over your head, food on the table and, oh yes, those student loans.
So unless you’re fortunate enough to have a wealthy benefactor, you’ll need to go on an income-based repayment plan, and with any luck your loan will be forgiven in 20 years. But, remember: Making timely payments is important due to late fees, penalties and maintaining a good credit rating.
Debt can seem overwhelming when you’re first starting your career, but don’t give up hope: Owning a practice can be your answer to spending much less time in serious debt. When you become the owner of a practice, there might be a dramatic change to your income:
- You might have the opportunity to produce anywhere from $600,000 to $800,000 in revenue. As the owner of a practice you might be able to earn at a rate of 21% on production, which can mean a salary of $120,000 to $160,000 a year.
- You can factor in hospital profits. For example, if your practice produces $1.2 million and your profit margin is 15%, you could be taking home another $180,000 in income.
Owning a practice can help you pay off your loans much sooner than an income-based repayment over 20 years. So with that in mind, here are 5 key decisions you can make now to help you become a practice owner sooner.
1. Pay attention to non-compete agreements
Imagine that your friend comes running into the lab room 3 days before graduation. She just landed a job at a large practice that will produce $500,000 to $600,000 in production right away, which translates into a salary of $100,000 to $120,000 a year. You’re working for a small clinic that is privately owned and you’ll be lucky to make $85,000 a year between production and bonus. Did you make the wrong career decision?
Take a closer look at your friend’s offer. Chances are, it includes something like a 3-year and 20-mile non-compete agreement while you have a 2-year, 8-mile non-compete. Now compare a 20-mile circumference (about 125 square miles) with an 8-mile circumference (about 50 square miles.) How many hospitals will be blocked from your friend when she goes to buy a practice?
When you’re presented with an offer, there's a lot to consider before making your decision. Take into account the terms of the non-compete and how it could affect your goal of opening a practice of your own down the road.
2. Consider home ownership and proximity to available practices
Imagine that you’ve landed a well-paying job at a great clinic. You’re building your savings, settling down and even thinking about starting a family. You’re setting yourself up to buy a practice in the next year or so – and you’re thinking now is the time to buy your dream home.
Did you realize that buying your home can limit the area where you might buy a practice?
For example, let’s say you live south of a major city. You begin looking at practices and find the right one, but it’s just north of the city. Though that clinic may only be 15 miles from your house, it could be an hour or more commute each way. Are you willing to commit to such a grueling commute each day? Do you want to walk away from your dream home or complicate matters by having to sell your home at the same time you’re trying to establish a new practice?
By not being tied geographically to a certain area before you purchase your practice, you can expand your search area and increase the possibility of finding the perfect practice.
3. Jobs, continuing education and relief work
Most veterinary associates who buy a practice do so within 5 to 10 years of graduation. This may seem like a long time, but it can go by in a heartbeat – think about being a freshman in college and being where you are today.
Job candidates often make decisions on what’s convenient and what pays the most – but this can be very shortsighted. The jobs you accept as an associate should be geared toward what can make you a better doctor. Ask yourself: Can the owner teach you their specialty? Will you see many emergencies? How much surgery are you going to do? These are all things to consider as you build your experience.
Direct your continuing education requirements toward learning a new skill or procedure. Pick up relief work and shifts at emergency clinics to expand your experience while you supplement your salary; you can see a variety of cases in one weekend shift a month at an emergency clinic. The extra time commitment may be hard to justify, especially if you’re already working lots of hours during your regular work week, but it’s a tradeoff. Taking opportunities now that can increase your knowledge could be seen as good experience later for significant financial payoffs.
4. Find a good mentor
Very few people become successful without some help and guidance. That’s why it’s wise to seek out a mentor, someone who can help you grow as a doctor and a professional. Find someone who can be both your cheerleader and your coach. Your mentor needs to have time for you and be committed to providing guidance, feedback and support. Finding a mentor outside of your employer can give you a fresh perspective on daily situations; that person can also stay with you as you move forward to another clinic and eventually open your own.
5. Make smart financial decisions
At the beginning of your career, it’s important to make financial decisions that will pay off in the long run. You can do everything else right, but if you can’t finance it properly, you can’t purchase or open a practice.
If you haven’t already, start a rainy-day fund – short-term savings that can also fund emergencies. This shouldn’t be a retirement account; while it’s also important to build retirement funds for your future, your rainy-day money should be held in a non-retirement account such as a savings account. That way, you’ll have access to cash that can help you qualify for a veterinary practice loan when the time comes to buy your practice.
It may seem alarming to put less in your retirement fund or other investments now, but the sooner you can buy a practice, the sooner you can increase your savings and the greater your savings balance will be in the long run.
Building your future as a veterinarian will require hard work and sacrifices (unless you have a secret benefactor). If you want to own your own practice, you can start laying the foundation for your dream now by taking the right measures and making good decisions for the future.
As your veterinary school commencement speaker most likely said (in some form or other): "You’ve got your whole life ahead of you, make something of it." Best of luck to you!