Master Associate Vet Relationships: Top 4 Strategies to Ensure Sales Success

The Importance of Associate Veterinarian Relationships

Building strong relationships with your Associate Veterinarians is a major component to having a successful vet practice sale, especially amid today’s doctor shortage. By getting to know their goals, offering the right protections, staying clear in your communication throughout the process, and providing good incentives, you can help make the transition smooth and keep your practice thriving.

Table of Contents

1. Understanding Your Associates’ Goals
2. Hospital Protections – Non-Competition and Non-Solicitation Provisions
3. Sales Process – Communications with Associates
4. Sales Process – Associate Veterinarian Economics

1. Understanding Your Associate Doctor’s Goals

First things first, as an owner, you need to understand each employee’s individual goals. Aligning benefits, pay, and opportunities with what matters most to your Associates doesn’t just boost job satisfaction—it also helps build loyalty.

And today’s doctors have different priorities, like maximizing their income, finding a better work/life balance, or seeking mentorship and skill development. There’s no need to treat everyone the same if their goals and skills differ. Here are some ideas for Associate compensation that are targeted to align their goals with their pay and benefits.

H3: Key Points to Address in Associate Veterinarian Compensation:

• Targeted Continuing Education: Invest in skills training that supports revenue growth. For example, paying for ultrasound or hands-on dental training can be beneficial but may cost $4000+. In that case, it’s reasonable to ask Associates to commit to staying with the practice for 12-24 months after such training.
• Flexible Vacation Time: Today’s market, you likely need to offer at least 3 weeks of vacation and maybe more. If they are on production pay, the extra time off is less important if they are reaching production, and the additional time off shows you care about their well-being.
• Incentive-Based Production Pay: Typically around 20-21% for Associates. Consider increasing production pay by one percent every 2-3 years, capping at 23%, to incentivize longevity.
• Comprehensive Employee Benefits: Providing healthcare and contributing towards the cost is important. Contribution levels vary by region, with higher contributions in high-cost markets.

As an owner, it’s really important to chat one-on-one with each Associate instead of guessing their priorities, since those can (and often do!) change. Customizing benefits and pay packages is key, and having these discussions shows you support them individually. Expect your team to talk to each other, so make sure they each know their packages differ based on seniority, personal preferences, and other nuances.

2. Implementing Hospital Protections: Non-Competition and Non-Solicitation Provisions

Protecting your practice’s interests is necessary, and securing non-compete and non-solicitation agreements from Associates is a standard industry practice. Nobody really likes these provisions, but they’re a necessity to protect your businesses, and most importantly, every buyer will expect them. When you hire a new vet, you’re giving them access to your clients, training, and marketing support to help them grow their skills and income. The investment a practice owner makes in a newly hired veterinarian is a strong rationale for asking for the non-compete protections.

It’s important to explain why you’re asking for a ‘reasonable’ non-compete and non-solicit, especially to new graduates. The specific terms of non-competes can vary by geography, with California having effectively outlawed employment based non-competes. Most other states allow them and the FTC’s effort to eliminate non-competes is likely to be stuck in the court system indefinitely.

Key Terms of an Associate DVM Non-Compete:

• Territory: The radius around the hospital where the Associate doctor cannot practice. This varies by geography.
• Duration: The time after employment terminates during which the Associate cannot practice in the territory. Typically, this ranges from one to two years.

In a densely populated area like New York City, a non-compete territory might be about 30 blocks in each direction. In busy suburbs, a 5-7 mile radius makes sense, while in rural areas, up to 20 miles can be reasonable. A good rule of thumb is to double the distance that 80% of your clients travel to your clinic. So, if most of your clients live within 3 miles, then a 6-mile non-compete is fair.

The duration can be a sticking point. Typically, a minimum of one year and up to two years can be justified for practices that offer a lot of training, mentoring, and client access.

Lastly, having a non-solicitation provision is important. If an Associate leaves, you don’t want them to be able to contact clients (or employees) and take them with them. There are a lot of nuances to non-solicits, so it’s best to get a good attorney to help with the details.

*Update: On April 23rd, 2024, the FTC issued a final rule banning most non-compete agreements nationwide. However, a Federal District Court has temporarily halted the FTC’s Non-Compete Rule, delaying (and complicating) its enforcement. Higher courts and likely the Supreme Court will review the case, meaning it will take a long time before the rule is implemented, if at all. Until then, the situation remains uncertain for both practice owners and their employees.

No matter what happens with the rule, non-compete agreements are just one step in a series of many when it comes to protecting your veterinary practice. It’s better to focus on building goodwill and strong relationships with your veterinarians rather than relying solely on non-competes to do the job for you. Plus, the new rule doesn’t explicitly ban non-solicitation agreements, so you can still use those to stop former employees from reaching out to your clients.

3. Sale Process: Communications with Associate Veterinarians

Open and well-planned communication with your Associates during the sale process eases worries and builds cooperation. 

Before starting the sales process, it’s wise to have contracts in place with your doctors. These contracts should outline your expectations, such as the number of days they will work, their pay and benefits, and the non-compete and non-solicitation restrictions. If these contracts aren’t set up before you begin, you’ll need to allocate time during the sale process to educate your Associates on the buyer’s expectations for a contract. Sale transactions don’t typically go through without Associate veterinarian employment contracts, so having them in-place beforehand shows a buyer that your Associates understand why these agreements are necessary.

Communicating with your Associates and staff during a sale process can be a big source of stress for many practice owners, often needlessly. It requires some careful decision-making and depends a lot on your hospital’s culture and your comfort level. In rare instances, owners choose to share their plans to sell early on, even before picking a buyer. This can work out well for owners who know (and play an active role in) their team’s culture, and in cases where the staff understands the owner’s priorities and goals from the beginning. If you’re unsure about when to share the news, that’s usually a sign to wait because the culture is unlikely to support early disclosure.

As you go through the sale process, make intentional decisions about how you’ll communicate with your staff, and coordinate with the buyers and your advisors. Practice owners usually talk to their Associate Veterinarians first, but only if they’re confident the info won’t get leaked to the rest of the staff. Buyers want stability with the Associates and team, so they’ll work hard to ensure there are no glitches in the transition, especially with payroll and benefits.

Tips for Communicating with Your Associate Veterinarians

Adjust your communication to fit your practice’s culture and what feels natural to you. Working closely with buyers and advisors also helps keep the message consistent.

• Timing: Typically, disclose plans to sell after a buyer is selected and legal documents are nearly final. In essence, when it’s almost certain the sale will close.
• Reassurance: Remind staff that a corporate buyer values the existing team and their success.
• Added Ease: If you’re keeping some ownership in the clinic or getting buyer equity, you’re essentially bringing in a partner, not selling the whole business. This often feels better to the doctors and staff. Most owners stay on as medical directors with multi-year commitments, so it’s important to highlight that you’re not leaving and will maintain day-to-day leadership.
• Stability: Reassure the staff that a corporate group isn’t bringing in ‘replacement staff and veterinarians’ to take over. The buyer is usually excited about the hospital’s success, and the staff is a big part of that success, so everyone will keep their jobs.
• Post Closing Issues: Many staff members have heard horror stories about buyers coming in and ruining a practice. While this can happen, it’s rare—if it happened often, corporations wouldn’t survive. Most of the time, it’s due to a disconnect in expectations between the buyer and the seller.
• Non-Compete Clarity: Lastly, the terms of a seller’s employment agreement are typically stricter regarding non-compete duration and distance, which is important to communicate to the Associate Veterinarians.

4. The Sale Process: Associate Veterinarian Economics

With the challenges of recruiting veterinarians and high prices for veterinary practices, buyers now expect sellers to offer specific retention incentives for Associate doctors. These incentives are in the sellers’ best interest, especially if they want to slow down or have deferred purchase price payments. When done right, these incentives help newly hired vets drive growth rather than just replace those who leave, allowing practice owners to step back sooner.

Owners might have mixed feelings about offering these incentives since the staff didn’t take the same financial risks or put in the same management hours, and that’s valid. However, the purchase prices are typically at high multiples of profit (high valuations), so allocating a piece for your team to ensure stability, helps justify the high purchase price. Even though these incentives are a small part of the sale price, they’re essential for completing a sale, especially in smaller practices where losing one Associate can derail the process.

Retention incentives can come in various forms, with cash being the most popular. Offering ownership in the practice to top Associates is becoming more common, and some groups provide TopCo equity alongside cash. These incentives build loyalty, align goals, and keep the practice thriving after the sale.

Cash Bonuses: This is the simplest form of retention incentive and easy to explain to Associates. Typically, cash incentives are paid out over time—some at closing, and more at one, two, and even three years after closing. The amounts vary based on the practice size, the importance of the Associate Veterinarians, and the seller’s goals. Sometimes, the buyer may also contribute to these cash incentives, as there are many details to work out between the Associates and the buyer.

Equity Ownership in the Practice: A handful buyers will focus on joint ventures and offer ownership opportunities to strong, long-term Associates (at least 3 years). Each corporate buyer has its own approach or ‘flavor’ to these buy-ins and structures them differently. The key considerations include:

• Taxes: Gifting equity usually results in a taxable gain for the recipient, meaning they might owe taxes without having received any cash. Creative structuring can help avoid this tax bill, ensuring Associates don’t end up with equity and a tax burden at the same time.
• Purchase: Some groups look for Associates to invest cash in exchange for equity and may help them secure a loan to cover most of the purchase price. Often, associate purchase prices are discounted compared to what the buyer is paying the seller because paying full value might not be economically viable for associates. In these cases, Associates might later sell the equity at a discounted value too. Sometimes, owners sell to Associates at a discount and also finance the sale.
• Profit Interests in the Hospital: Some groups offer ‘profit interests,’ similar to stock options. Associates receive a share of future profit distributions, and upon sale, they may only receive value related to the hospital’s increased value since the time of the grant. These profit interests are complex but beneficial, as they incur no tax at the time of the grant.
• TopCo Equity: Granting equity in the parent company (TopCo) usually creates taxable income for the Associate. Sometimes, these grants include cash to cover the tax bill. Some groups offer ‘profit interests’ in the parent company, providing an upside on the current valuation without immediate tax payments. These profit interests typically vest over time, encouraging Associates to stay with the practice and including buyback provisions if they leave. Understanding the timing and potential return of a likely recapitalization or sale of the buyer is crucial to gauge the TopCo equity’s hold period.

It is important to match the appropriate retention incentive with each Associate based on their goals and contribution to the hospital. We see different approaches within the same transaction, depending on the buyer.

Don’t Let Associate DVM Issues Mess Up Your Sale!

As you prepare to enjoy the benefits of your hard work, keeping your Associates happy should be a top priority. With practice values high and a shortage of vets, it’s really important for sellers to appreciate their Associates to make sure the buyer gets a good return. Personalized communication and well-structured retention incentives not only help with a seamless sale but also support the ongoing success of the practice with its new owners.

Expert advice can make navigating these issues much easier and ensure a smooth transition. Reach out to us, and we’ll guide you through negotiations, terms, and communication plans, taking the weight off your shoulders for a hassle-free experience.