Nonveterinary ownership: A new option for practice owners


Nonveterinary ownership: A new option for practice owners

New practice owners have big shoes to fill—only it might be team members filling out those size 12s. Don't miss out on your next potential partners: your own employees.
Jan 01, 2011

Marianne Mallonee was a practice manager in a veterinary hospital near Denver three years ago, sitting in a board meeting listening to the partners talk about exit strategy. They were making a list of associates who might be interested in ownership. The list wasn't very long and her name wasn't on it.

When practice owners talk about exit strategy these days, their voices aren't often filled with hope. The discussion is familiar: Not enough associates are interested in owning a veterinary practice. Money is tight. It's tough to maintain profitability in this economic environment. What will they do when the time comes to retire? Sell to a corporation? Close the doors and walk away?

Mallonee moved to Denver for two reasons—the mountains and the opportunity to become a practice owner in a state where nonveterinarians are allowed to own 49 percent of a veterinary practice. She raised her hand.

"You have an exit strategy sitting right here at the table with you," she said. After all, she was 10 years younger than the four partners and she could bring a good deal of management expertise to the venture. After the meeting she realized something important: Veterinarians who own practices may not intuitively think of team members as potential partners. Nonveterinarians may have to raise their hands to be recognized.

Communication tool: Talk is cheap—and valuable
The rules governing ownership by nonveterinarians are complex, fluid, and anything but universal. In some states, like California, Colorado, and Florida, it's relatively easy. In others it's considerably more difficult, and in some it may be impossible. But if you're willing to negotiate the legal maze with the help of a good attorney, bringing one of your team members into partnership may solve your problem and, at the same time, give your best employee a stake in the future.

Today, Mallonee is a senior partner (owning 15 percent) at Wheat Ridge Animal Hospital northwest of Denver, a 24-hour, 20-doctor, 100-employee, high-tech teaching hospital. When the other three owners invited her to join the partnership, they said, "You're treating this practice as if it were your own; now let's make it your own."

Although the buy-in has created a somewhat uncomfortable debt load for Mallonee, at least right now, she focuses on the mountains and the long run. And she knows she's building something for her future.

"We knew him and trusted him"

Jim Nash, hospital administrator at Community Pet Hospital, also located in a Denver suburb, came into practice ownership through a different kind of arrangement.

Nash was hired at Community Pet Hospital in 2004 with a background in human healthcare administration. During his first annual review, he broached the subject of ownership with his employers, Drs. Wade Smith and Bill Stonehocker. He wanted to be a partner and a part of the hospital's legacy. The seed was planted.

Over the next several years the practice added emergency services and grew, and soon the need for expansion became clear. Drs. Smith and Stonehocker decided to grow by developing satellite facilities. Their method? Create a separate corporation and bring Nash in as a full partner in the new company.

After all, Nash was spearheading the business side of the practice every day. But bringing in a nonveterinarian as an owner broke the mold for the 50-year-old practice. Did the doctors have some trepidation about bringing in a partner without a veterinary degree? In a word, no.

"It wasn't really a concern," Dr. Stonehocker says. "More than anything, our discussions were about whether it would be legal. But we found no legal barriers as long as he didn't own more than 49 percent. A huge deciding factor was that we knew him and trusted him."

Dr. Stonehocker joined Community Pet Hospital in 1987, a time when practice ownership was a widely shared goal among veterinarians. When he was offered the opportunity to buy in, he took it—and appreciated the opportunity, like many in his generation. "When I graduated, everyone wanted to buy in," he says. "As owners, we felt some responsibility to the community. And we had no desire to sell to corporations."

But now interest in ownership isn't as common, Dr. Stonehocker says. When he started to think about an exit strategy, he found himself underwhelmed with offers to buy, despite the practice's growth and success over the years. Which is partly why he and Dr. Smith were so open to bringing on Nash as a partner.

And despite the challenges, ownership was the right choice for him and his partners—both veterinary and nonveterinary. "More and more, a business becomes part of you," he says. "Individuals can exercise a lot more control, particularly over quality, than a corporate entity would. You can guide the practice."