Pamlico Animal Hospital has a rich history of serving their clients and their community. The small animal practice was founded in 1978 and acquired by Dr. Marty Poffenberger in 2006. The practice provides digital x-ray services and comprehensive and compassionate medical care, including preventive medicine, hospitalization, surgical care, boarding, and grooming. The practice is supported by 4 DVM's using extensive in-house diagnostic and surgical equipment which allows them to offer complete and timely treatment options for patients.
Dr. Poffenberger wanted to incrementally sell part, but not all, of her practice to her associate. This would allow her to benefit from additional practice management assistance, lock in a future buyer of the remaining part of her practice, grow the practice with the help of her new partner/co-owner, and have more time off. She wanted to accomplish this without it being an adversarial proceeding; causing all sides to pay costly attorneys, appraisers, accountants, and lenders.
Unlike a seller about to retire, Dr. Poffenberger would be sharing practice responsibility and profit with her new partner for years to come. Instead of having all of the responsibility and keeping all of the profit, she would be splitting these. Dr. Poffenberger also needed to know how much of the profit, if any, she was giving up to improve the quality of her life and over what period of time.
If the sale is an incremental sale taking place over a number of years, the challenge is establishing value for not only the first year but all succeeding years of acquisition. If she is selling portions of the practice over numerous years, it is not enough to have an agreed-upon value for the first year. Therefore, the challenge was to determine an agreed upon value for every year.
Dr. Poffenberger wisely measured how much she would be losing against what she would be gaining. The process began with a clear understanding of current revenue, future revenue trends,
expenses and profit. This resulted in the establishment of a fair market value for the practice. The trajectory of practice revenue was up for the foreseeable future. Thus, while she wanted assistance with management, she also wanted to benefit from this upward revenue trajectory for as long as possible. Dr. Poffenberger elected to sell her associate half of the practice, but the actual transfer was to take place in stages over a certain period of time. This option allowed her to retain a portion of the practice profit over a longer period of time while giving her the assurance that she had her eventual successor in place. Knowing practice fair market value, Dr. Poffenberger could determine how much money she would be getting yearly for each incremental sale and whether that would offset any profit she would be giving up.
The practice hired Praxis as a neutral third-party to guide them through this complex transition. While the solution itself was complicated, the transition process itself only took eight weeks from start to finish. This accomplished Dr. Poffenberger's goal of avoiding confrontational negotiations which could have negatively affected everyone's working relationship - and the sale. With the help of Praxis, they agreed upon a sales price, a sales structure, and an operating agreement.
The sales agreement governed the sales price and structure while the operating agreement governed the relationship after the sale. This money-neutral event allowed Dr. Poffenberger to divide the management responsibilities, put her eventual successor in place, and substantially improve her quality of her life. Having another invested business partner allowed her to have more time away from the practice and improve her work-life balance.
Share this story