Top 5 Employment-Related Issues to Know in Veterinary Practice Transactions

For practice owners, there are plenty of strategies and safety nets that can be set up to protect your interests after the business changes hands. A key part of this process is making sure the key staff are on board to ensure the practice runs smoothly once ownership is transferred. Here are the five most important employment issues that can impact your practice sale’s success:

  1. Retention Bonuses for Associate Veterinarians and Staff
  2. New Employment Contracts for Associate Doctors
  3. Identifying the Medical Director for Your Veterinary Practice
  4. Additional Provisions in Employment Agreements
  5. Staff Employee Benefit Programs

1. Retention Bonuses for Associate Veterinarians and Staff

With the ongoing shortage of veterinary staff since 2021, retention bonuses have become a large component in practice sales. Buyers are now more inclined to offer substantial incentives to Associate doctors and key team members to make sure they stay on after the ownership changes hands.

These bonuses can be structured in a number of ways:

  • Cash Bonuses: Usually paid out over 2-3 years to motivate staff to stay longer.
  • TopCo Equity: Shares in the parent company that typically come with a vesting schedule and can be converted into cash during events like recapitalizations.
  • Combination of Cash and Equity: Provides immediate financial benefit and long-term investment potential.

The responsibility for funding these bonuses can fall on the buyer, the seller, or be shared between them, depending on how negotiations pan out. The magnitude of these bonuses is directly proportional to the ‘value’ key associates bring to the practice and can range from $30,000 to $250,000 for large producers.

2. New Employment Contracts for Associate Doctors

Buyers will typically expect your Associate doctors to sign new employment contracts by the closing date. In some cases, your existing contracts may be transferred to the buyer. These contracts should include reasonable non-compete clauses (if they’re legal in your state) to ensure that Associate veterinarians don’t leave the practice and take clients with them.

These non-compete clauses often extend for a certain period after employment ends and usually cover a specific radius around the hospital. Many practices already have such agreements in place, but if yours doesn’t, it’s important to address this early in the transaction process.

The single biggest factor since 2023 in delaying or terminating transactions after a letter of intent is signed has been the willingness, or lack thereof, of associate doctors to sign employment agreements with buyers. If an associate does not have an employment agreement, the seller’s leverage in getting an employment agreement in place with the buyer is severely diminished and the associate has disproportionate leverage in the negotiation. Having reasonable employment agreements in place is key to a successful transition for an owner.

3. Identifying a Medical Director at Your Veterinary Practice

Many corporate buyers look for a doctor to take on a medical leadership role at the hospital, offering a small annual salary or a higher percentage of production pay in return for the services.

Often, the selling veterinarian fills the role of Medical Director, but there are cases where a high-producing/high-performing Associate DVM is offered the chance to grow into this leadership position. We recommend carefully considering the specific dynamics of your practice before making such a decision, as each hospital’s situation is unique.

4. Additional Provisions in Employment Agreements

Most buyers will lay out the key details of the employment agreement in their Letters of Intent (LOIs), including:

  • Employment Duration: How long they expect you to stay post-sale.
  • CE Allowances: Their support for your professional development.
  • Professional Dues: Coverage of certain veterinary memberships and licensing fees.
  • Vacation and Personal Time: Policies on your time off.
  • Non-Compete and Non-Solicit: Buyers will insist, where legal, on a reasonable radius to protect the business they are paying a lot of money for.

Just a heads-up: If you’re thinking about changing your work schedule after the sale, make sure to talk about it with your buyer ahead of time. Being upfront is the best way to avoid any surprises. If you end up working fewer hours, another veterinarian can cover the gap to keep the revenue flowing.

5. Benefits for Non-Doctor Employees

As a seller, it’s a good idea to ask buyers what kind of benefits your staff will get once they take over. Buyers usually provide a range of employee benefits, like health insurance (with employer contributions), dental insurance (paid by employees), 401(k) plans with employer matching, vacation time, and holiday pay, among others. This could be great for your staff if the new benefits are an upgrade, which they usually are. However, if they’re not as good as what you currently offer (about 10% of the transactions), the buyer will typically look to make up the difference with salary increases to keep your staff whole.

Balancing Your Goals with Buyer Flexibility in Vet Practice Sale Terms

By and large, most sellers tend to deprioritize these employment-related terms in favor of items like valuation, TopCo equity, and other valuation-related factors. Regardless, these employment terms are extremely important to everyone’s satisfaction post-closing and need attention. Getting things ‘right’ for yourself and your team is critical to setting up your hospital for a successful transition. 

At Ackerman Group, we know the key terms where buyers have some flexibility, and our team can customize sale terms to meet your goals while satisfying a buyer’s concerns. Schedule a call to chat with us about your goals.

Considering selling your veterinary practice? Start here.

We offer options for veterinarians at any stage in the transition process.

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