Does an employee get a discount if they buy into your practice?
The valuation of veterinary practices is currently a very busy space, but the nature of the work has changed over the last four years. Four years ago, walk in, walk out sales were fairly common, where the business owner sells everything and walks away. However, in the current market employees buying into the practice is making up over 50% of the valuation requests. From a sustainability perspective succession planning in the veterinary industry of this nature makes sense to us. We believe that the wellness and care decision making in the industry needs to stay in the hands of people who actually care about pets. There is no better way to maintain the culture and quality of a well run practice than doing it this way.
One of the more common questions we have from an employee buyer is: “Because I have worked at this business for a few years, should I be getting a discount for my efforts?”. Generally the belief amongst quite a few employee buyers is that they feel quite a strong entitlement to some sort of discount, this is often fueled by third party coaches who know nothing about the commerciality of buying and selling businesses, but are determined to appease their client and prove their value by negotiating down a significant transaction. Unfortunately the inevitable end result of this poor advice is: 1) a sale that never eventuates 2) a business owner who does not sell and 3) a potential young entrepreneur who never realises their full wealth potential and remains an employee.
So lets get some clarity on this somewhat contentious topic using some real numbers and facts. The general answer is that an employee has absolutely no entitlement to a discount when buying. We know this because we perform between one and two veterinary business valuations a week, making us the accounting firm with the greatest exposure to buying and selling of veterinary practices in Australia – even with this volume of transactions, it is extremely rare that there is a discount applied to an employee buyer.
But that is the general answer, the very few situations that would override this are:
- If the seller/employer has promised a discounted buy in to a team member during the period of employment so as to entice them to stay longer.
- AFTER the valuation is performed, the seller decides to discount the sale to their team for the simple reason that they want to do it – and we have seen this a few times, but it is entirely driven by the seller.
Other than small variations to the above situations, these are the only 2 situations where an employee discount effectively happens.
From both a buyer and sellers perspective there are clear take home messages:
If you are a seller: If you are one of the few that promise your team a discounted buy in, you should honour that. Whether that was a verbal or written promise makes no difference, because the end result of loss of trust between you and your team will have significant financial ramifications. But if you have not made any promises (which is the case for most sellers), then you should feel no pressure or obligation to discount.
If you are an employee wanting to buy: We would advise that you ask any promises made by your employer with regards to discounts in purchasing the practice be written down rather than verbal. This will clarify any confusion when the time comes for the sale, often a few years later.
On a completely commercial basis, when an experienced veterinary valuer values a business, the main factor that they look at is the ability of an individual buyer being able to purchase that business at the stated price AND be able to service their loans AND still have residual profits afterwards. This puts the buyer in a better financial position than when they were an employee and also means that banks are likely to loan the money for the purchase. So if you are buying into a good practice that has been accurately valued, no discount should be required, you will be better off. Essentially you being prepared to take this leap and risk is your first test of whether you are truly “business owner material”.
