Categories: General Practice Governance
October 6, 2019
Avoiding Malpractice Liability: A Guideline for Veterinary Practices
October 5, 2019
Surviving the Corporatization of Veterinary Medicine as an Independent Practice
While the veterinary industry remains comparatively fragmented to other parts of health care, the area has seen substantial consolidation over the last five years. The consolidation has largely been led by Mars, Inc., who are considered by many to be the lone strategic buyer in the industry. But, as more private equity firms begin to explore sales of their investments in veterinary hospital groups, new strategic buyers attempting to capture economies of scale could emerge. In this coming shift, how can a veterinary practice owner continue to grow their practice, or, if the time is right, obtain the best value for their practice?
Private Equity has been a persistent investor in the veterinary industry because of the lack of strategic buyers, the attractive private pay revenue stream, and the largely recession proof market for veterinary services. Over the past 5 years the industry has seen two stages. First, the Ares purchase of National Veterinary Associates for 13x EBITDA in mid-2014 until the Morgan Stanley investment in Pathway Partners. The second stage began with Mars Inc.’s purchase of VCA at a multiple of 18x EBITDA in late 2017 is continuing today. The current climate of large valuations are seen when larger groups can capture economies of scale, roughly at 20 clinics. However, the purchase price for smaller groups and add-on investments has also crept up to about 8x-10x EBIDTA from 6x.
Currently, the expectation is that the private equity firms will remain active in the space for another 6-8 years at which point the market is expected to have become more consolidated. This shift will occur as investments reach the end of their timeline and begin to sell to established corporate groups like Mars or new strategic buyer entrants.
A practice owner in this environment can find it stressful to grow their business with the economic pressure that can come from corporate groups or feel anxious that they are not getting the best possible price for the business they have worked so hard to build.
First, remember that what makes a veterinary practice successful has not changed in the current environment. Veterinary practice owners should continue to do what some large corporations cannot: practice better medicine and offer better and more personalized client services! But in order to continue to grow and be attractive to clients and potential buyers, practice owners should learn from the corporate model and focus on the business side of revenue and improving efficiencies.
A few areas that practice owners can learn from the big corporations are:
Corporations spend a lot of time marketing and it really matters. Spend time developing a marketing plan and thinking about strategic partners in the community.
Team and Client Education
Corporations do a great job and invest a lot of effort into making sure their teams are on the same page. Practice owners should develop training manuals for their employees on a variety of topics. Furthermore, corporations often have resources online to educate clients on major issues.
Talent Acquisition and Retention
Big corporations have the advantage when it comes from providing benefits to new and existing hires. Practice owners should educate themselves on benefit offerings and make the investment in the wellbeing of their associates and staff.
Lastly, practice owners shouldn’t shy away from investing in the physical appearance of the practice. While corporations might be able to invest more money into renovations, smaller investments into the facilities of the practice can pay large dividends down the road.
In the climate of corporate competition, remember to focus on what made your practice successful in the first place. The independent veterinary practice will continue to survive, but the corporate structure is here to stay.
For more information, please contact Peter Tanella at 973.243.7915 or email@example.com.
October 4, 2019
Maximizing your “Paw”-Fits: Structuring Your Veterinary Practice the Right Way
Choosing the right business structure for a veterinary practice is a vital decision that can have significant consequences for the future of your practice. If a veterinarian selects the wrong structure, it can cost their business a significant amount of money. Choosing a correct business structure for a veterinary practice is a fundamental decision that will impact your business daily and should be guided by an attorney. The main factors to consider when structuring your business are: (1) the financial issues and tax consequences; (2) limited liability; and (3) flexibility versus formality. Selecting a business structure is one of the most important decisions you will make for your practice. In selecting the right entity, substantial tax, legal, and accounting expertise is recommended. It is advantageous to start your business on a good foot, and while it may look daunting to hire expert consultants at the beginning of your endeavor, it is a valuable investment for your future success. The proper structure of your veterinary practice will allow you to reap all the possible benefits and increase your chances at a successful practice. However, it is recommended for veterinarians to stay active in the process in order to ensure that the expert’s proposals reflect the needs and goals of your practice.
Tax benefits are a primary driver when choosing a proper legal structure for a veterinary practice. Two key aspects include: taxation on income/profits and taxation on the sale/transformation of a practice.
Limited liability is another significant consideration when deciding between business entities. The majority of independent veterinary practitioners around the country have traditionally operated as a partnership or sole proprietorship. However, there is a growing trend towards incorporating a practice and/or forming LLC’s as a vehicle for running the business because the structures various benefits. This business structure combines features of a corporation and has elements of a partnership and/or sole proprietorship. Limited liability companies can be tactical from a tax standpoint. Single member LLCs can be taxed either as a ‘C’ Corp or sole proprietorship. Multi-member LLC’s can elect to be taxed as either a ‘C’ Corp or partnership. However, this can be dependent on the state, as not every state allows for veterinarians to form an LLC (for example, California). There are many benefits for the LLC Sub ‘S’ structure. These types of entities are treated the same as any other corporation under state law. Although under federal law, ‘S’ corps do not receive federal tax.
For certain veterinary practices, it can be advantageous to be the only owner and in complete control of the practice. There would be no requirement for seeking approval and or consent of any partners, members, or officers. With a sole proprietorship, there are also minimum to no reporting requirements. Sole proprietorships do not need to file an annual report with the state or federal government. However, under a sole proprietorship, a veterinarian will be held personally liable for all general debts and liabilities of the practice. Moreover, in a partnership, each partner is jointly and severally liable for the debts and obligations of the business. In comparison to sole proprietorships and partnerships, the significant advantage of a corporation or LLC is that the owners of the business (the shareholders/and or members) enjoy the benefits of limited liability.
There is one big exception; however, in that a veterinarian is always liable for his/her own professional negligence and negligence of other employees. Insurance is the only avenue to mitigate this kind of liability, and it a necessity in veterinary practices.
Benefits of Flexibility and Adhering to Formalities
Certain entities also provide more flexibility and can be less of a burden than others. Veterinarians often ignore these formalities, which can be a serious mistake. In certain instances, courts have looked past the liability shield and have held owners personally liable for failing to observe the formalities of separating their personal affairs from their veterinary practice.
July 1, 2019
In early January, Governor Phil Murphy and Democratic leaders of the Legislature struck a deal that would raise the minimum wage to $15.00 per hour in New Jersey. On Monday, February 4, Governor Murphy followed through on his campaign promise, signing the legislation that will increase the state’s minimum wage over the next few years. This deal places New Jersey among the most progressive states in the nation, joining California, New York, and Massachusetts, in phasing into a $15 hourly wage.
While the wage increases are seen to be beneficial for employees, numerous small to medium-sized businesses are apprehensive about the reforms and impact on company revenues. The good news is that the impending changes provide an opportunity for New Jersey employers to audit their pay practices and ensure that they are in compliance with all wage and hour laws. Below summarizes the potential impact of the new ordinance and provides some tips for adjusting to the wage increases:
I. Increases will continue through 2024
The new minimum wage ordinance will not occur immediately. Rather, the deal sets forth a gradual increase until it reaches $15 dollars per hour in January 1, 2024. The current minimum wage in New Jersey is $8.85 per hour. The following chart details the scheduled increases in the state’s minimum wage.
The minimum wage would then increase on January 1 by $1 each year from 2022 to 2024 until topping out at $15 per hour. The new minimum wage will apply to most workers in the state, although there are a few so called carve-outs. The deal calls for most wage earners to receive a minimum of $15 an hour by 2024, but includes a slower schedule for workers at seasonal businesses, small businesses with five or fewer employees, and farmworkers. Farm workers, for example, will see their minimum wage climb to just $12.50 an hour over five years. Seasonal workers and small businesses with five people or fewer would see their minimum wages reach $15 an hour by 2026.
II. The Business Impact
Although raising the minimum wage is generally seen as beneficial for employees, there can be certain costs for businesses operating in the state. Specifically, small businesses in New Jersey could feel the brunt of the minimum wage increases. Opponents believe that the announcement reflects another potential hit to small businesses who are already absorbing cumulative costs in other forms of new mandates by the Murphy administration. Nearly 70 percent of respondents to the latest NJBIA business-outlook survey said their businesses would be impacted in some way if the state were to enact legislation mandating a $15 minimum wage. To offset such a requirement, they said some businesses — though not a majority of them — would reduce staff and working hours, and enact price increases or turn to automation.
Overall, it is estimated that over 1 million New Jersey workers will be impacted by the minimum wage changes, according to the governor and lawmakers. As a result, employers and businesses should weigh the impact of a higher minimum wage on profitability, hiring, and overall finances.
III. Staying Compliant
Now more than ever, states, counties, and cities, who do not see movement at the federal level, are implementing specific minimum wage laws in their jurisdictions. As a result, employers must ensure that they comply with federal, state, and local minimum wage laws. While the federal minimum wage ($7.25 per hour) isn’t changing next year, the state of New Jersey and many other states will have new minimum wage rates throughout 2019.
These new minimum wage ordinances can increase compliance risks for employers, requiring new workplace postings and changes to existing workplace policies. Therefore, employers need to be cognizant of the legal liabilities they could face if company wage and hour policies are not in compliance prior to the increase. Compliance is essential; employers in violation of payroll regulations can face penalties, including steep fines and civil litigation. When dealing with questions about minimum wage and overtime statutes, it is recommended that all employers consult with experienced counsel.
IV. Preparing for the Changes: Adjusting Pay Structures
In states that have significantly increased their minimum wages, the financial impacts often occur immediately and can be burdensome for small business owners. Employers should find ways to manage the effect on increase of pay structures. For example, if the minimum wage increases and jobs that currently pay $10 an hour are not entry-level positions – but a next level up – there could be a compression issues. Thus, employers should adjust their payment structures and account for them to be shifted up. The best way for making this wage shift can depend on the specific company and its compensation structure. Employers do not have to adjust all levels, but it is important to consider adjusting lower-paid jobs from a certain hourly rate on down.
V. Employees Earning More than the Minimum Wage
When the minimum wage increases, some employers wonder if they should also provide a raise to employees already earning equal to or more than the new rate. For example, if the minimum wage increases from $9 per hour to $10 per hour, should an employee already earning $10 per hour also get a raise? While the employer is under no obligation to provide a raise, some employees may be expecting one. In this scenario, the employer should consider the potential impact on labor costs, employee morale, internal equity (how employees are paid when compared with other employees within your company based on skills and experience), and the typical merit increase schedule.
As a result of Governor Murphy’s new deal, New Jersey’s minimum wage will continue to increase, starting July 1, 2019. With the patchwork of federal, state, and local minimum wage laws becoming more complicated, employers and organizations will need to pay more attention to the these issues and payment structures. Paying small business employees fairly begins with gaining a good understanding of the minimum wage laws. In doing so, employers need to remain compliant and cognizant to changes at the federal, state, and municipal level. Advanced legal planning will help employers – both public and private sector – to comply with the new minimum wage thresholds.
Enlisting the help of outside legal counsel can assure compliance with the complex patchwork of different minimum wage laws. Mandelbaum Salsburg P.C. is a full-service law firm focusing on providing exceptional legal counsel to its clients. Our labor and employment attorneys are uniquely qualified to assist you and your business in achieving full compliance with New Jersey labor laws. Please feel free to contact us if there are any issues that we can assist you with.
Mandelbaum Salsburg P.C. provides legal alerts to inform readers regarding trending legal issues and developments in the law. This communication does not create, offer, or reduce to writing the existence of an attorney-client relationship. This communication is not legal advice and may not apply to the specific facts of any particular matter.
 New Jersey Becomes 4th State to Increase Minimum Wage to $15, CBS News (February 5, 2019), https://www.cbsnews.com/news/new-jersey-gov-phil-murphy-minimum-wage-increase-today-2019-02-04/.
 Nick Corasaniti, In New Jersey, the Minimum Wage is Set to Rise to $15 an Hour, new york times (Jan. 17, 2019), https://www.nytimes.com/2019/01/17/nyregion/nj-minimum-wage.html.
 Mike Catalini, New Jersey Governor, Lawmakers Make $15 Minimum Wage Deal, nbc philadelphia (Jan. 18, 2019), https://www.nbcphiladelphia.com/news/local/New-Jersey-Governor-Lawmakers-Minimum-Wage-Deal-504542452.html.
 Murphy, Dems Reach Minimum Wage Deal, nj herald (Jan. 18, 2019), https://www.njherald.com/20190118/murphy-dems-reach-minimum-wage-deal.
 NJBIA’s 60th Annual Business Outlook Survey, New Jersey Business & Industry Association, https://www.njbia.org/wp-content/uploads/2016/05/NJBIA-2019-Business-Outlook-Survey-Handout-V5.pdf.
 David Levinsky, Murphy, Legislative Leaders Reach Deal on $15 Minimum Wage, (Jan. 17, 2019) https://www.burlingtoncountytimes.com/news/20190117/murphy-legislative-leaders-reach-deal-on-15-minimum-wage.
June 26, 2019
The Veterinary Divorce: The Considerations When Leaving a Veterinary Practice
While departing from a veterinary practice may seem like a trivial task, it can often be a complex decision and process. When dealing with a “veterinary divorce”, both parties should engage in careful considerations to protect both the clients and the veterinarians. This article will provide a brief overview of the best practices to consider for a veterinarian leaving his/her veterinary practice – from both the perspective of the veterinary practice group and the individual veterinarian(s).
First, the veterinarian and surviving practice should review their existing contracts in the event that a veterinarian leaves. The two most important agreements to consider is the employment agreement and a shareholder buy-sell agreement (if one exists). These two contracts can have a significant degree of importance if the departing veterinarian wants to continue their practice.
The Employment Agreement
Veterinary practices commonly require their employees to sign an employment agreement when they begin working for the veterinary practice. When dealing with the termination of a relationship, both the employee and employer should understand the details of their employment contract.
When changes in veterinarians causes an economic divorce, a buy-sell agreement can provide a fair resolution. A buy-sell agreement is a contract between business owners that determines what occurs to business ownership upon a triggering event, such as death, disability, bankruptcy, or disputes among shareholders. A buy-sell agreement essentially is an agreement for exiting a practice, and veterinary Buy-sell agreements frequently require a mandatory buy-back of shares.
Thus, if a buy-sell agreement exists, it should be reviewed for any buy-back provisions. The buy-sell agreement would provide a share price, either by an accounting formula or arbitration process. The agreement may also cover the following events:
Additionally, as mentioned above, the parties should beware of any non-competition or non-solicitation clauses in a buy-sell agreement.
Compensation after Termination
When a veterinarian leaves a practice, the practice may provide compensation after the termination date. First, there could be a salary owed to the date of termination plus accrued vacation time. Second, there may be compensation owed for the veterinarian’s share in accounts receivable or collection of a pro-rated share of year end-bonuses.
Exit and Severance Agreement
When an employer decides to terminate its relationship with an employee, it can be advantageous for both sides to enter into an agreement defining their rights and obligations. This agreement is often called a severance agreement. A severance agreement acts as a contract for the employee; however, there is no law requiring employers to offer severance packages. There are two major parts of a severance agreement: the agreement and the release. The agreement outlines what the veterinarian would get in return for their release, and details what the severance package consists of. The release, in essence, is a statement that releases the company from any liabilities associated with the employees exit.
Exit and severance agreements are useful for both parties because they can prevent misunderstandings that can lead to litigation. The agreements may contain provisions against future competition (“non-compete” clauses) and confidentiality provisions relating to the agreement itself. For veterinarians, severance agreements often contain the content of notice by the departing veterinarian and can discuss the duties of retaining client records. Lastly, these agreements act a useful tool for employers because they can release liability. The exit and severance agreement can control and/or negate the veterinarian’s right to pursue claims for prior acts of discrimination, harassment, equal pay, or wrongful termination.
When the relationship of veterinarians and/or veterinary practices comes to an end, it is advisable that these considerations be addressed. If not resolved by negotiation, these types of disputes can result in protracted and expensive litigation. An experienced counsel can help the parties reach an acceptable division, which can be a victory for all of the parties involved.
For more information, please contact Peter Tanella at 973.243.7915 or firstname.lastname@example.org.