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Buying or Selling a Practice? What You Need to Know

November 15, 2017

Buying or Selling a Practice? What You Need to Know

Synopsis
5 Minute Read

MNP’s Tim Dawson, CPA, CA, discusses key tax and financial consideration for buyers and sellers of veterinary clinics.

Tim Dawson
Tim Dawson, CPA, CA
Partner, Professional Services
Insight
Progress Insight
Are you planning to put your veterinary practice up for sale? Or are you thinking about purchasing a practice of your own? A major trend in the veterinary industry today is the preference of many young veterinarians for a balanced lifestyle, which plays a strong role in how they chart their professional future.

More than 80 per cent of veterinary graduates in Canada are female and they are typically looking for lifestyle balance between their professional and personal lives. Often, three or more female veterinarians will purchase a clinic that was previously run as a one-owner veterinary practice.

When purchasing or selling a veterinary practice, there are two types of sales: asset sales and share sales.

Sellers’ Perspective

Sellers typically prefer to sell the shares of the company, which, if they qualify, would allow them to:

Claim the Lifetime Capital Gains Exemption on the disposal against taxable capital gains, up to $835,714. This amount would come to them personally, tax free.

To qualify, the following criteria must be met:

  • At the time of sale, more than 90 per cent of the assets must be active;
  • Twenty-four months before the time of sale, more than 50 per cent of the assets must be active;
  • The shares must not have been owned by anyone other than the individual, or a person or partnership related to the individual.

Buyers’ Perspective

Buyers typically want to purchase assets for two main reasons: liability protection and a tax write-off.

An asset sale carries much less risk for a purchaser, since any liabilities (disclosed or undisclosed), as well as any contingent expenses (e.g. pending litigation or tax reassessments) remain with the selling company. The due diligence can then focus on vetting the fair market value of the assets being acquired, as well as the quality of the contracts and employees being transferred over.

Bank Requirements

Before banks will lend on the purchase, they will require two years of accountant-prepared cash flows. Having the right advisor - an accountant who knows the market and can assist in putting together a cash flow statement that will satisfy the bank – can help make the purchasing process easier and timelier.

Whether you are a clinic purchaser or a seller, it’s a good idea to deal with an experienced team of advisors - bankers, lawyers and accountants - who are familiar with the veterinary industry. This can help make the purchasing / selling process more efficient and cost-effective.

To learn more about how MNP can help, contact Tim Dawson, CPA, CA, Partner, Professional Services at 780.451.4406; toll-free 1.800.661.7778 or [email protected]

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