What to know about joining a practice

By Jared M. Pelcic, Marsha L. Heinke, CPA, Inc.

With a new class of veterinary students graduating and entering the business world, we thought this was the perfect time to find out what accounting-related questions were left unanswered at graduation. Here are a few of these new-grad FAQs answered.


Can my practice make payments on student loan debt, and are there tax benefits?

While it is not common for practices to include student loan payments in their compensation package, they are able to include such a provision. However, those payments will be treated the same as normal pay when it comes to both business and personal taxes. Because there is no additional benefit to either you or your practice, it is probably best to focus on your potential salary rather than get bogged down in talks over student loan payments.

 

Should I get a business valuation before buying a practice?

Another common question stems from buying into a practice. This process will impact the rest of your life, so you need to make sure you get this right.

A proper valuation performed by an experienced firm that specializes in the veterinary industry provides veterinarians with many key benefits. The most obvious benefit is that as a young veterinarian with student loans to contend with, you want to make sure that you don’t overpay for your share of the practice. The last thing you need is to incur unnecessary additional debt. You may be tempted to skip over the valuation and base the purchase price on one of the many so-called “rules of thumb.” This may be a convenient shortcut now, but it can be costly in the long run. Following a rule of thumb may or may not lead to a fairly accurate number for practice value. Is it worth the risk?

There are additional benefits above and beyond establishing an accurate purchase price that a practice appraisal provides. By digging into the numbers, valuators can highlight problems that you probably did not know existed. A valuation will compare a practice’s operation and spending habits to industry averages, as well as averages of veterinary practices of a similar size. Without a valuation, you probably will not realize the extent of any cash flow problems, what their causes are or many other potential issues that your practice is having.

You may also want to include additional services like fee and budget analysis, compensation reviews and financial forecasting to get a solid picture of what is going on in the practice and what steps you can take to build upon your strengths and successes while neutralizing weaknesses and struggles.

 

What is goodwill, and should I really be paying for it?

Goodwill is an intangible asset that is a crucial element of a successful practice. If you are buying into an established practice, you’re purchasing a portion of a business that was built by doctors and staff who were there long before you. These individuals put in a lot of hours and hard work to create a solid reputation in the community and with clients. Any business with a brand name and proprietary procedures that have been time-tested requires a purchase premium—goodwill.

The alternative is starting your own practice from scratch and building up goodwill on your own. Goodwill is also another reason why a business valuation is important: it is tricky and complicated to estimate, and requires an experienced valuator with a lot of accurate numbers sitting in front of them. Rules of thumb can grossly over- or underestimate goodwill.

 

What do I need a CPA to do?

Finally, there is the issue of the value of a CPA. In what capacity should they be hired, and should they be industry-specific? CPAs are able to impart a wealth of knowledge and experience upon your firm and yourself. Many look at CPAs and someone to do their taxes while preventing them from paying more than they need to. A CPA, especially industry-specific, can provide so much more than that.

A CPA is a business analyst that can audit, consult, train bookkeepers, provide support for practice managers and owners during strategic planning, and even offer personal financial services. CPAs can help you set, understand and meet your personal financial goals while taking into account your actions on your tax liability.

A CPA that specializes in the veterinary industry will have a greater level of knowledge of the nuances of veterinary-specific issues, goals, legalities and planning. You will never find a CPA with intimate knowledge of every industry, so it is best to narrow your focus to a CPA with experience in your field. As you are well aware, a veterinary practice is much more complex and multifaceted than your average small business. If you want the best value for your money, paying for a CPA with experience in and knowledge of the veterinary field is the way to go.