Dismantling a Practice

Dismantling a Practice

Veterinary Business Advisors, Inc.

Abstract

Current trends in veterinarian demographics, ownership rates, and corporate consolidation have left many small practices with aging owners and no viable succession plan. As a result, the frequency of veterinary practices closures is increasing. Closing a practice is a complicated endeavor and not one that should be undertaken lightly. This article is meant to serve as an introduction to many of the complex issues surrounding closing this process—including ones related to employees, clients, medical records, insurance accounts receivable, controlled substances, equipment, inventory, and facilities—and to provide guidance on steps to take while navigating those issues.

Introduction

In 2021, Dr. Robert Bogan, a 74-year-old mixed animal practice veterinarian in Faribault, MN wanted to retire. Unable to sell his practice after five years of looking, Dr. Bogan resorted to something almost unheard of: he offered to give his practice away; his clinic, equipment, pickup, and even the clinic cat Annie were all part of the deal1.

Veterinary professionals are getting older, ownership rates are dropping, and many older veterinarians are retiring with no one willing/able to buy their one to two doctor practice that falls below the $1.2 million threshold set by many corporate consolidators2. As a result, Dr. Bogan’s situation is becoming more common. Either you give your practice away or close the practice.

Fortunately, Dr. Bogan found a taker, Dr. Zach Adams, a recent graduate from nearby Iowa State University, but not everyone would be as lucky. The reality is, a larger number of veterinary practices are closing their doors, but it is not as simple as locking the doors and putting up a sign. The following is a how-to guide for closing a veterinary practice, highlighting key issues to consider and ensuring that the practice is closed legally and effectively.

Decision

Making the decision to close a veterinary practice is a difficult one. Typically, plenty of blood, sweat, and tears have been put into making the practice a success, and so to retire/walk away can come with a lot of emotion. Before deciding to close a practice, we recommend meeting with an advisor or broker to explore the sale of the practice. While there are typical benchmarks that consolidators use in purchasing decisions, they may be willing to go outside of those benchmarks if the practice holds significant strategic value for them. There is no way of identifying this without exploring the market. Plus, there are still private buyers in the market who may be specifically looking for practices that corporations aren’t interested in as a way of avoiding the high premiums that corporate buyers often pay. By finding a buyer, you can provide continued employment to your staff and provide your patients with the benefits of receiving care in a familiar place with familiar staff.

If you still have no desire to sell or are unable to sell your practice, meet with legal counsel and establish the appropriate procedures and documents needed before announcing your closure, including to your staff.

Announcement

We recommend telling staff, clients, and the public that the practice is closing all within a short time frame. No matter how tight-lipped your staff, word tends to get out quickly, and it is much better for word to come with the official documentation and procedures to save you and the staff time answering repeated questions, and this also saves clients from the anxiety of being uncertain of the continued care for their animals. Notify staff first and train them on how to manage questions related to the closing of the practice. Express gratitude toward the staff for helping through the transition and offer as much support as possible in finding new employment. Once everyone is trained, announce the closing to your clients and to the public.

Employees

How to manage remaining employees depends largely on what type of employee they are, whether or not they are under contract, and whether or not you want to offer severance.

Veterinarians are often under contract, and their contracts may dictate that certain notice be given to them in advance of terminating their contracts. This may limit how quickly the clinic is able to close or it may require you to keep paying the veterinarian past the closing of the practice. Other contracts may have the veterinarian locked in for a yearlong period with the company only being able to terminate for cause. In this instance, discussing the option of severance pay to waive the remainder of the contract may be reasonable.

Veterinarians may have a non-compete in place as part of their contract even if they are an at-will employee. Typically, there is not language in these non-competes that waives them in the event of termination although some may. So, read the non-compete and interpret if the remaining veterinarians are bound by the non-compete, and then decide if the closing business wants to waive the non-compete. The non-solicitation may be more complex; if there are multiple doctors remaining and they plan to go to different practices, competition for clients and remaining employees may occur, so it is recommended to keep the non-solicitation of employees and clients in place.

Non-veterinarians in the practice may have less complex contract situations, but they are an equally important part of the dismantling process. Commonly, non-veterinarians are at-will employees without contracts. Employees without contracts are not required to receive severance pay under the Fair Labor Standards Act (FLSA)3, but it is still something the company can consider when appropriate. Severance benefits may include a salary continuation based on years of service, paying COBRA health care premiums, or providing time-off flexibility for employees to search for a new job before the closing of a practice.

Clients and Pet Medical Records

Dealing with clients and the medical records are perhaps the most important part of closing a practice. Clients may have had many pets undergo a lifetime of care, and ensuring clients are taken care of throughout the closing process is one last piece of high-quality service you can provide. The medical records of their pets are equally as important. These records will be needed to ensure continued quality care of the patients and often are surrounded by many legal guidelines that must be navigated.

First, it is important to stop accepting new clients. You can decide to stop accepting new clients before announcing your closing, but the staff and clients may catch wind of what is going on before proper documentation and procedures are in place.

In the AVMA Principles of Veterinary Ethics4, it is prohibited to abandon a patient with ongoing medical issues. Under the annotated principle 2 it states, “If there is an ongoing medical or surgical condition, the patient shall be referred to another veterinarian for diagnosis, care, and treatment. The former attending veterinarian shall continue to provide care, as needed, during the transition.”

This is an important piece in dismantling any practice. Care should be taken to identify any patients with ongoing medical issues. Attempt to complete as many as possible before closing the practice. For those that are unable to be completed, they need to be referred to a veterinarian capable of overseeing the ongoing medical issue and appropriate information pertinent to the case must be provided. This can be accomplished by ensuring the client has a complete copy of the medical record prior to the closing of the clinic, and the client has a list of local veterinarians deemed capable of managing the condition.

Certain states have specific requirements about how owners are notified of a practice closing, mainly in regard to what is done with their medical records. New Jersey offers one of the more comprehensive examples, per Title 13, Chapter 44 – 4.9 (i) of the New Jersey Administrative Code.

“Whenever a veterinary practice is to be closed due to the retirement or death of the veterinarian in charge, or the practice will be closed for more than six consecutive months, the licensee or the executor or administrator of the licensee’s estate shall:

1) Establish a procedure by which patients may obtain treatment records or agree to the transfer of those records to another licensee who is assuming the responsibilities of that practice;

2) If the practice will not be attended by another licensee, publish a notice of the cessation and the established procedure for the retrieval of records in a newspaper of general circulation in the geographic location of the licensee’s practice, at least once each month for the first three months after the cessation;

3) Notify the Board, in writing, of the impending closure and the established procedure for the retrieval of records;

4) Make reasonable efforts to directly notify the owner of any patient treated during the six months preceding the cessation of the practice to provide information concerning the established procedure for retrieval of records;

5) Conspicuously post a notice on the premises of the procedure for the retrieval of records for at least one month prior to the cessation of the practice; and

6) Arrange for the storage of any records that have not been retrieved by patient owners for one year from the date the practice closes.”

Interestingly, with section 6, New Jersey’s veterinary medical records typically have to be kept for five years since the last treatment or examination, but it appears an exception has been made for retiring or closing of a practice. If your state’s regulations don’t specify, default to the standard record retention for your state (quick reference available here).

For comparison purposes, in Pennsylvania, Title 49, Chapter 31.22 subsection 10, it states that “A veterinarian shall notify clients, in writing, at least 30 days prior to the date of a planned retirement or closing of a veterinary practice. The written notice must include instructions on how to obtain copies of veterinary medical records from the veterinarian or other custodian of the records and the name, address and telephone number of the person purchasing the practice, if applicable.” The records must then be kept for three years after the date the veterinarian retires or the practice is closed. This is consistent with the state’s law of keeping the records for three years after the patient is last seen by the veterinarian.

Written Notice

Most states require “written notice” to clients about the closure of a veterinary practice, so it is important to explore that definition. Under most state’s laws, “written notice” generally constitutes a letter sent to each client’s address. Emails can potentially count but only if there is a way of confirming the email has been received5. This can be accomplished through a reply (by email, letter, or in-person visit) that speaks to the content of the email. Read or delivery receipts are generally not sufficient proof. A sign posted on the premises is typically not sufficient notice, either, as it is difficult to confirm receipt by the clients.

Where to Store Records

Say you live in a state where you are required to hold your records for three to five years after closing. What are you supposed to do with those medical records all that time? Paper records can take up a lot of space and, even if you have transitioned to electronic records, who is going to sort through the record every time you get a request from the patient for the next three years? If this burden is something the practice owner is unable or unwilling to take on, there are services available that offer storage and management of medical records. Most focus on human medical records but can also manage veterinary medical records. When searching for services, be sure they offer the ability for the client to retrieve records, and that they will act as the custodian of the record, including providing appropriate confidentiality and destroying the record after the appropriate time frame. Many of the services do charge a fee to the client so, in the letter detailing the process of how they can retrieve their records, it is good practice to advise them of the fee and give them a reasonable amount of time to pick up a copy of the record from the clinic before the records are transported.

Fees

If it is decided that the practice owner, manager, or other employee shall remain the custodian of the records for the appropriate amount of time after closing, it may be possible to charge a fee to cover the time and expense associated with retrieving and/or mailing the records. Check with your state board for what fees are allowed. For example, in New Jersey, a licensee may charge a fee for reproduction of records, which shall be no greater than $1.00 per page or $100.00 for the entire record, whichever is less. If the record requested is less than ten pages, the licensee may charge up to $10.00 to cover postage and the costs associated with retrieval of the record (N.J. Admin. Code § 13:44-4.9).

Insurance

Every insurance plan is different and terminating the plan may involve fees or require additional steps taken by the practice owner. It is best to contact the provider of each specific plan, discuss the situation, and individually determine how to deal with each plan.

Health Insurance

If there is any type of health plan in place for employees, it is important that steps are taken to ensure they are prepared for when the practice’s health insurance ends. The Consolidated Omnibus Budget Reconciliation Act (COBRA) requires most group health plans to provide temporary continuation of group health plans that might otherwise be terminated 6. This commonly used option applies to all group health plans for private sector employers with at least twenty employees, but many states have similar laws in place for employers with less than twenty employees (mini-COBRA). An important feature of COBRA: the health plan must continue to exist for employees to be eligible for coverage. So, if the health plan ceases to exist once the practice closes, employees cannot get COBRA. However, if the premium has been pre-paid for a period that exists past the closing date, employees would be eligible for COBRA until the end of that period. The Department of Labor has a guide for employees regarding COBRA that details when they must enroll, benefits of the coverage, alternatives to COBRA, and more.

Another option for employees would involve searching for healthcare options available through healthcare.gov. There are several options available for unemployed individuals, and they are also eligible for a special enrollment period, meaning that they can enroll in plans outside the normal enrollment time, provided they apply within sixty days of becoming unemployed7.

What if I get sued after the business is closed?

You may be concerned about what happens if a client or employee attempts to sue you after the practice has closed for something that happened before the closing. In this scenario, what type of insurance you have is important. There are claims-made policies in which the insurer only covers claims made during the policy period. In this scenario, while normally you wouldn’t be covered for a claim made after closing, you can apply for a tail policy, meaning the insurance company would still help cover the claim.

On the other hand, in occurrence-based policies, only the date of the incidence of the claim matters. If the client is suing you for something that happened when the practice was still open, because the event occurred during the coverage period, the insurance company will still help cover the claim. For example, AVMA PLIT is generally occurrence-based.

Practice Assets

Although notifying staff and clients of the closing and helping them through the transition can be the most emotionally challenging aspect of dismantling a practice, dealing with the leftover assets remaining in the practice can be among the most time consuming and frustrating tasks. Creating a checklist and being methodical while also possibly seeking out professional help can save time, money, and stress in the long run.

Accounts Receivable

Just because the doors are closing doesn’t mean the clients’ debt is washed clean. When sending out notices of closure, it may be a good idea to include an additional note to clients with any outstanding balances. Give the clients a due date (probably the closing date of the practice) and advise what will happen if they don’t pay. A collection agency could be used post-closing to follow up with unpaid clients.

Controlled Substances

It is important to contact the U.S Drug Enforcement Administration (DEA) when deciding to close a practice. If the retiring veterinarian has an active DEA number and wishes to close it, they can do so by sending written notice to the DEA asking for deletion of their number on a certain date. If the retirement will take place shortly before the renewal date, look on the renewal form for this notation: “non-renewal due to retirement” 8. The DEA must also be contacted for guidance on how to destroy or transfer remaining controlled substances in the practice.

Equipment & Inventory

There is no shortage of companies that are looking to buy used medical equipment and unused medical inventory. Using a search engine can quickly help you locate companies that would be willing to provide a quote on your equipment and/or inventory. It is also possible that the company rep that sold you the equipment or inventory may know of a company buy-back program. Certain states do have laws regarding registration of equipment, which may impact how you can sell or dispose of the equipment. For example, in New York, all x-ray machines need to be registered with the New York State Department of Health. If you are no longer using the machine for any reason (such as selling or scrapping), you must notify the department by filling out a form on their website 9.

Your equipment may or may not also be tied to a reference lab contract. Reach out to the reference lab to determine the process for ending the contract. Like other contracts, there may be an early termination clause and/or a fee associated to end the relationship early.

Facility

If the facility is leased, examine the contract to determine reasons for which early termination of a contract can occur. If there is no provision for early termination, a buyout can often be negotiated. After negotiating, the tenant and the property owner must sign a deed of surrender to formally end the lease.

When land is owned by the practice or the practice owner through a separate entity, it may be possible to rent the facility, but veterinary clinics are highly specialized facilities, so that is an unlikely outcome. More likely, the facility can be destroyed, and the land held as a real estate investment, or it can be sold. A real estate appraiser can help you to better understand the value of the land with and without the facility and possibly advise on potential courses of action. It is also important to reach out to your state’s building commission to ensure the building and land is up to code.

Regardless of the plans for the facility, it is important to notify the utility company and postal service to discontinue service and coordinate mail forwarding, respectively.

Ancillary Services

Ancillary services like boarding or grooming may have the potential to outlast the practice. Exploring the option of keeping the boarding facility open or allowing the groomer at the practice to keep the client list and move to a new facility may help ease clients in the transition and allow certain employees to maintain a revenue stream.

Outstanding Circumstances (e.g., death)

In the unfortunate event of an owner’s death, the state that the practice is located in as well as the structure of the practice (e.g., sole proprietorship, professional corporation, etc.) play a major role in what happens next. If the practice is in a state where veterinary practices are not allowed to be run by a non-veterinarian (“a regulated state”) unless the beneficiary of the estate is also a veterinarian, the estate is most likely unable to maintain ownership and operating responsibilities of the practice. Most states do allow for a transition period that will allow the estate to continue operating the practice (if possible) while they facilitate ownership transfer to a licensed party. In New York, this time frame is six months10. The mechanics of how ownership is assumed are often spelled out in any agreement created at the formation of the entity, so it is advisable to seek counsel to help interpret the agreement and any applicable laws.

References

  1. Huppert, A. B. (2022, February 22). Rural veterinarian who offered to give away his practice gets what he wanted: A successor. kare11.com. Retrieved July 25, 2022, from https://www.kare11.com/article/news/local/land-of-10000-stories/rural-veterinarian-who-offered-to-give-away-his-practice-gets-what-he-wanted-a-successor-blue-earth/89-2b4d7995-1b3f-47b9-a8a0-9d746ea0c502
  2. Nolen, S. (2018, November 14). The corporatization of veterinary medicine. American Veterinary Medical Association. Retrieved July 25, 2022, from https://www.avma.org/javma-news/2018-12-01/corporatization-veterinary-medicine
  3. Severance Pay | U.S. Department of Labor. (2019). Dol.gov. https://www.dol.gov/general/topic/wages/severancepay
  4. Principles of veterinary medical ethics of the AVMA. (2019). American Veterinary Medical Association. https://www.avma.org/resources-tools/avma-policies/principles-veterinary-medical-ethics-avma
  5. Can an Email serve as “Written Notice?” (2015, June 3). Martin|Hild, P.A. Can an Email serve as “Written Notice?” (2015, June 3). Martin|Hild, P.A. https://www.martinhild.com/can-an-email-serve-as-ldquowritten-noticerdquo.html
  6. (2020, September). An employees guide to benefits under COBRA. Department of Labor. https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/publications/an-employees-guide-to-health-benefits-under-cobra.pdf
  7. Get Marketplace health coverage outside Open Enrollment only with a Special Enrollment Period. (n.d.). HealthCare.gov. Retrieved July 25, 2022, from https://www.healthcare.gov/coverage-outside-open-enrollment/special-enrollment-period
  8. Butcher, T. (2016, November 23). Closing a Medical Practice, Part 1. Total Health Law Blog. https://www.totalhealthlaw.com/closing-practice-part-1/
  9. Damiani, A. (2022). Disposition of X-Ray Equipment. NY Department of Health. https://www.health.ny.gov/forms/doh-2126.pdf
  10. Death of a Veterinarian: Implications of the Veterinary Practice. (2016). New York State Veterinary Medical Society. https://cdn.ymaws.com/www.nysvms.org/resource/collection/E45CA734-8B73-4255-B861-5BED0FCBBAC9/deathofveterinarian.pdf

How to Manage Narcissistic Personality Disorder

How to Manage Narcissistic Personality Disorder

Veterinary Business Advisors, Inc.

www.veterinarybusinessadvisors.com

*Principles of this blog are based off the National Business Institute’s course on “Dealing with Narcissistic Personality Disorder in the Legal Practice: Clients, Counsel, and Others”.

Whether a client or a coworker, unhealthy narcissism can derail an otherwise straightforward experience together.

In 2020, there were 7 million American adults who have NPD or narcistic style. People who have this tend to see others as objects for their personal gratification, or as potential threats.  Their world view tends to be win or lose. When those diagnosed with NPD, behavior traits include:

      • Lack of empathy
      • Grandiose sense of self-importance
      • Excessively concerned about their image
      • Dirven to seek attention and admiration
      • Largely superficial relationships
      • Feel entitled to manipulate or exploit others
      • Rarely admit they are wrong
      • Become enraged when they feel disrespected or humiliated
      • Play the victim or martyr

How do you know or feel in the presence of narcissists? You can feel often belittled, under scrutiny or even judged, as if nothing you are doing is good enough, among many other feelings. Unfortunately, narcissists hide behind a façade of fear.

Working with Narcissists & Communicating with Clients with NPD –

The Narcissist’s Code – have you ever had a client or colleague that you sense may exhibit these traits? It’s helpful to know what may be motivating them, especially if it’s not obvious. One of the key points is that image is everything for them.  Next is getting attention – it’s often when they feel listened to or admired – they feel expansive and fueled. If they are not at the center of attention, they can feel depressed, and often aggressive. Honesty is optional for them! Narcissist’s can be great liars as they seek image enhancement, being incredibly convincing in the moment. Next, they tend to believe others are either against them or out to get them.  Narcissists tend to be driven by emotions and impulses. Winning is everything for them. Knowing these traits can allow you to be aware, and even create strategies to respond.

What could this look like with a potential client? Clients could think they know more or better than you as the veterinarian or technician, and will even demean or manipulate other members of your staff.  They expect to be admired and rules are an exception to them.

Key Tip: A practical tip to respond include sharing that their treatment doesn’t feel respectful, which can ultimately interfere with helping them achieve their goals.

DON’T DO
Argue with them Authentically praise their strong points
Try to get them to accept responsibility Educate them on possible consequences, then let them choose
Take what they say personally Recognize that they are like this with everybody
Argue for a win-win approach Focus the narcissist on his/her interests rather than what the opposing party receives
Respond to dramatics or ultimatums Return to the narcissist’s goals and interests
Take the bait when criticized Reassure them that you are on their side, and refocus on the case
Overlook any failures to follow your policies Document, document, document. Make exceptions to your policies sparingly, if at all.

It can often be incredibly mentally and emotionally draining when dealing with someone who exhibits NPD.  It’s important however, to hold onto your voice and set boundaries.  It is not your responsibility to fix them. Dr. Dan Neuharth shares the “11 Things NOT to Do with Narcissists”:

  1. Don’t take them at face value
  2. Don’t over-share personal information
  3. Don’t feel a need to justify your thoughts, feelings or actions
  4. Don’t minimize their dysfunctional behavior
  5. Don’t expect them to take responsibility
  6. Don’t assume they share your values and worldview
  7. Don’t try to beat them at their own game
  8. Don’t take their actions personally
  9. Don’t expect empathy or fairness
  10. Don’t expect them to change
  11. Don’t underestimate the power of narcissism

Many of this can be easier said than done, but try to remember: in most cases, it’s not your responsibility to satisfy their cravings for admiration and praise. We can have compassion for the suffering of narcissists, but it does not mean excusing them for their narcissistic actions. Rather, focusing on the patient or case at hand, focusing on facts and trying a tip or two from the above table.

Compensation Best Practices in 2021

Compensation Best Practices in 2021

Veterinary Business Advisors, Inc.

www.veterinarybusinessadvisors.com

It would be so simple if practice owners could open a fortune cookie for each one of their employees and find the method by which to fairly compensate them.  While there are commonly accepted methods of compensation, their implementation in veterinary practices varies because different entrepreneurs have different business goals.  Also, “fairness” is a relative term that introduces variability into an equation that might otherwise be consistent from practice to practice.  This article describes the factors that practice owners should consider when determining compensation for veterinarians and paraprofessional staff.

Benchmarks

Below is a table that provides a snapshot of current key indicators available for small animal companion practices.  It is not meant to be all-inclusive, but rather to provide some guidelines that enable managers to take the practice’s compensation pulse. They can then determine if the practice is on track for the next year or needs to perform some diagnostics to prevent a fiscal derailment.

Veterinary Compensation

Many periodicals and books discuss the factors one should consider in establishing a compensation policy for veterinarians. Of particular importance is the question of whether compensation should consist of a fixed salary, a percentage of the revenue generated by the veterinarian and collected by the practice (i.e., commission-based), or a combination of the two. If a commission-based component is present, it is also important to consider how the revenue figure will be calculated. Will it be limited to revenues generated from professional services, or will it include revenues generated from items like over-the-counter medications and foods?    Percentages can also vary in relation to the magnitude of the revenue number that is generated.  Implementing compensation systems in practice requires attention to the details of production calculation and timing of payment. The key to remember is there is NO one size fits all when determining the appropriate compensation for veterinary and non-veterinary staff.  There are numerous factors that go into assessing the actual method used for compensation, which often requires the assistance of an advisor.

National starting salary information is generally published annually in the Journal of the AVMA. (See: Employment, starting salaries, and educational indebtedness of year-2013 graduates of US veterinary medical colleges, October 1, 2013, Vol. 243, No. 7, Pages 983-987; Employment of male and female graduates of US veterinary medical colleges,  JAVMA October 1, 2011, Vol. 239, No. 7, Pages 953-957.) See also the latest biennial edition of the American Animal Hospital Association’s Compensation and Benefits-An In-Depth Look and the AVMA’s Economic Report on Veterinarians and Veterinary Practices (Wise, J., Center for Information Management, AVMA, Shaumberg, IL (Tel: 847-925-8070). Two periodicals, Veterinary Economics and Veterinary Hospital Management Association Newsletter, also regularly publish helpful articles. In addition, Wutchiett Tumblin and Veterinary Economics published Benchmarks 2019 Well Managed Practices.

Paraprofessional Compensation

Paraprofessionals are often compensated on an hourly basis and the industry has yet to develop widely adopted performance-based compensation models. Paraprofessionals generally report low job satisfaction and high turnover rates. In the 2016 NAVTA Demographic Survey, 38% of veterinary technicians left the practice due to insufficient pay, 20% due to lack of respect from an employer, 20% from burnout and 14% because of the lack of benefits. Full time technicians reported a salary between $15-20 per hour, while part-time technicians reported $14-16 per hour. After taxes, even the well-paid veterinary technicians are only slightly above what is considered the poverty line for a family of four in the United States ($24,300).

According to the United States Bureau of Labor Statistics, the median pay for veterinary technicians was $16.55 per hour in 2018. By comparison, a JAVMA published study on Jan. 1, 2016 of certified veterinary technician specialists reported that the weighted mean pay rate in 2013 was $23.50 per hour.

In AAHA’s 2020 Compensation & Benefits survey, average veterinary employee turnover was 23%.  Turnover was 32.5% for receptionists, 23.4% for veterinary technicians, 10.3% for managers, 16% for associate veterinarians, and 32.9% for all other staff. To compare with the national workforce, Compdata’s Annual Compensation Survey showed that national average turnover was 15.9% in 2010 and 19.3% in 2018.  The chart above can be helpful to calculate a practice’s turnover expenses. Turnover is a pervasive and expensive problem that can be mitigated by learning how to properly motivate employees.

 

Welcome, Generation Z

Originally Published in Today’s Veterinary Business October 2019

Millennials are often in the news—and they have been for quite some time now–with countless articles discussing their impact in the workforce. But what about Generation Z? This is the group of people born between about 1995 and 2010. They’re also in or entering the workforce, and their perception of the world and their participation in the workplace is definitely different from that of the Millennials who came before them.

Gen Z, as they’re called, is about 57 million strong in the United States. Other names include Post-Millennials, Founders, Plurals, the iGeneration, and the Homeland Generation. This article will describe, overall, what they value and how they perceive life, with the understanding that not everyone in this generation (or any other generation, for that matter) ever thinks exactly alike.

Core Values & Behaviors

An in-depth survey of this generation conducted by McKinsey & Company determined that Gen Z has several core behaviors in common, each of which center on their search for truth. They avoid labeling; opting to focus more on individuality, honesty and competence of people. Thus, making them more willing to understand different types of people; enabling them to differences of opinion and interact with organizations that don’t match their personal values. They want to spend their energy on causes that matter, such as homelessness, poverty, world hunger, identity, human rights, and gender equality. They want brands to behave in ethical ways, being transparent, and having actions match what company officials say.

As such, it makes sense that diversity is considered the norm by this generation, to the degree that Gen Z often don’t readily think about the demographics of a group, whether that means racially, or religious preferences or sexual orientation. To put this into perspective, Business Insider and Axios predicts that by 2045, the United States will be majority minority; meaning, this may be the last generation where the majority of people in the United States identify as white and, for much of Gen Zs’ lives, the president identified as a black man.

Additionally, Gen Z expresses a desire to be financial stable; this, combined with their aforementioned appreciation for diversity and the changing demographics in the United States, likely attributes to their overall mix of beliefs and can include fiscally conservative points of view combined with socially liberal ones.

Overall, Gen Z can be considered pragmatic, practical, and analytical; believing that most conflicts, including global issues, can be solved through effective uses of communication. Through simple conversations, they are able to learn, strategically gather information, and make highly informed decisions about what their next step(s) should be.

Workplace Values

About 36 percent of Gen Z will be in the workforce by the year 2020. According to statistics quoted by HR Magazine in November/December 2018, 58 percent of them hope to own a business someday (and 14 percent of them already do).

When looking for employment, here’s what matters to Gen Z:

  • Good salary: 35%
  • Enjoyable work environment: 26%
  • Flexible schedule: 14%
  • Opportunity to create new products: 11%
  • Chance to learn new skills: 8%
  • Community focus: 7%

Most have been exposed to the internet and social media their entire lives, making Gen Z very comfortable with the virtual world and with seamlessly crossing from online to “offline” experiences. This ease will certainly have an impact on how technology will continue to evolve in the workplace.

More specifically, Gen Z have always lived in a world where information comes at them, fast and furious: they’ve learned to rapidly process information but may not have long attention spans. They multi-task, shifting from one activity to another, often in a way that people from previous generations may find distracting.

Transforming the Workplace

Millennials have done an excellent job of shedding light on the high costs of higher education plus the student loan debt incurred from the pursuit thereof. From this observation, many from Gen Z may choose to not pursue traditional educational pathways. People of Gen Z may, instead, opt to go straight into the workforce, attend classes online, pursue entrepreneurship, or choose paths that vastly differ from the paths ventured by previous generations.

Assuredly, Gen Z will have a significant impact on the development of workforce, as companies need to manage complex, multi-generational teams consisting of younger Baby Boomers, Gen Xs, Millennials, and Gen Zs. Each generation has different values, workplace expectations, life goals, and more. For example, people of Gen Z have a strong desire for work-life balance and appreciate developing personal, and maintaining, technological connections. In fact, AdWeek recently reported that Gen Z are 1.3 times more likely to buy products if their favorite celebrity advertises it on social media. This is important for companies, as company branding and marketing primarily occur on social media and, as such, if your company has no social media footprint, then your chances of reaching Gen Z diminishes; this represents a significant shift from strategies enacted by past generations’.

In light of this, companies must find strategic ways to take advantage of the human resources they currently have. For instance, employ a strategy that combines mentoring and reverse mentoring; where those who are from Gen Z can educate those from other, older generations and vice versa. Thereby preventing, and potentially wholly avoiding, generational gaps and conflicts that damage productivity, efficiency, and workers’ value.

Alternatively, you can cater to Gen Z’s interest in forming a personal connection. When they work for a company, Gen Z has been shown to prefer regular, in-person feedback from their supervisors; this feedback can be short and sweet, as long as it’s prompt and regular. They also want to interact directly with managers often, even multiple times daily. This shouldn’t be surprising, given that they are used to texting, conversing on social media, and so forth, which can be considered real-time conversations.

When Recruiting

When your practice is recruiting new employees, it can help to think of it as a brand, and then demonstrate your brand visually to attract Gen Z job candidates. Think about what makes your practice unique, what makes it interesting. How can the candidate you’re interviewing contribute to your practice? Make that clear.

People of Gen Z typically read online reviews about companies before they interview with them, and they are attracted to reviews that show how the workplace can be a fun place to be, even when working hard at the job. Flexible schedules and paid time off are attractive to many Gen Zs.

Young adults from this generation often make great employees; especially because Gen Z has the ability to adapt to change in the way that would make most people from older generations uncomfortable. You can consider them to be “radically inclusive”; wherein they value individual expression and don’t readily distinguish their online and offline experiences in the way that other generations do. They don’t differentiate between their friends in the physical world and those they’ve only known online. This is likely true, at least in part, because of the rapidly changing technology that’s always been part of their lives which likely contributes to their ability to quickly learn, their comfort levels with technology, and how much they can contribute to a company’s bottom line.

Although they bring strengths to the workplace, they may need guidance and training on soft skills that previous generations possessed so readily possessed. These are skills like how to handle clients calling your practice and how to respond to them via email, to name a couple. You’ll have to think of other ways to truly address these areas that caters to their inherent abilities like instructional videos, role-plays with co-workers, or even one-on-one training could be appreciated by this tech-savvy generation.

14 Issues Your Veterinary Practice Partnership Documents Should (Have) Address(ed)

What happens when you die? Will your heirs receive a fair price, or any price for your investment in the practice? Will they remain locked into that investment forever? Will your heirs collect profits from the practice? What if the other partner (who is getting paid under his practice employment contract) has voting control and decides not to distribute profits?

If your heirs are to be bought out, who sets the purchase price? How and by whom is it paid? If part of the purchase price is paid with a promissory note, is same secured? How? What if the practice is not profitable enough to pay the note?

What happens when your partner dies? Your deceased partner’s heirs are now your new partners.

Barring a fluke, your new partners will not be veterinarians. Does your State permit non-veterinarian practice owners?  Will they want to be bought out or stay and collect profits from the practice?  (Without contributing to profit generation of course.)  If the deceased partner was a large shareholder, or the majority interest holder, the heirs will also inherit your deceased partner’s voting rights.  Do you want to share practice management with, or be managed by, such persons?  What if the heirs squabble among themselves, leading to management paralysis and/or litigation? Do you fancy having the practice run by a court-appointed receiver?

If the heirs are to be bought out, who determines the purchase price? How and by whom is it paid? If there’s a note, is it secured? How?

What if you are permanently disabled? Will you receive a fair price, or any price for your investment in the practice? Will you remain locked into your investment forever? Will you collect profits from the practice? What if the remaining partner decides not to distribute profits?

If you are to be bought out, who sets the purchase price? By whom and how is it paid? If there’s a note, is it secured? How?

What if your partner is permanently disabled? Will your disabled partner want to be bought out or stay and collect practice profits (without generating any of same)? A disabled partner’s interests will be different then yours, so if he was the managing and/or majority partner, how will he run the practice? Will he be able to run the practice? What if the disabled partner is mentally disabled?

If your disabled partner is to be bought out, who determines the purchase price? How and by whom is it paid? If there’s a note, is it secured? How?

What if your partner goes nuts? You don’t want a mentally unstable person practicing veterinary medicine. But if such partner is the majority partner you can’t fire him, because he, not you, controls the practice entity. The same problem arises for equal partners. Sure your mentally disabled partner could voluntarily remove himself, but can you rely on that? What if the majority partner has a guardian? How will the guardian run the practice? What if the majority partner or guardian fires you?

What if your partner should be fired as veterinarian-employee? Suppose your partner becomes lazy or his child becomes ill and decides to work significantly less hours or stop working altogether. Suppose your partner becomes a substance abuser and consequently unfit to practice veterinary medicine. Or he steals from the practice. Or he harasses employees and/or abuses clients and/or patients.  The foregoing would be grounds for terminating a veterinarian employee.  But if your partner is the majority or an equal partner you can’t fire him (as explained in the preceding paragraph).

What if you no longer get along? Should the practice be dissolved? If not, who should leave? At what price should the departing partner be bought out? How and by whom is it paid? If there’s a note, is it secured? How?

In a 50/50 practice how are disagreements handled? What happens when each party has equal voting/management rights and a serious disagreement arises? How will the resulting deadlock be resolved?

What if your partner wants to drop out, buy a boat and sail around the world? Should your partner be permitted to withdraw? If not, how do you keep your partner from just resigning as an employee (in light of the constitutional prohibition of involuntary servitude)?

What if your ex-partner discovers he’s chronically sea-sick and comes back to set up a veterinary practice next store (using the client list he kept when he left)?

If a partner is permitted to withdraw, who determines the purchase price? By whom and how is it paid? If there’s a note, is it secured?  How?

What if your partner divorces? If the divorced spouse has, or is awarded, a portion of your partner’s practice equity interest, the divorced spouse becomes a partner. Ménages à trois make great literature and film themes but ALWAYS end badly.

What if your partner goes bankrupt? Do you fancy your partner’s creditor as your new partner? It won’t be fun to have a bank running, or having a say in running, the practice. Worse, the bank likely will want to sell your partner’s share to a competitor. 

Who’s got the land? The small animal practice’s most valuable asset is its location, because most clients won’t travel far for pet treatment. As zoning restrictions get ever tighter, good practice locations become ever rarer (and more expensive). If, as is frequently the case, one partner owns the practice premises, what happens when he dies, is disabled, withdraws, resigns, divorces and/or goes bankrupt?

What if another veterinarian wants to buy your partner’s interest in the practice? Should your partner be allowed to sell without your approval?  Should you have a right of first offer?  A right of first refusal?

IF YOUR PARTNER IS NOT YOUR RETIREMENT PLAN, THEN WHO IS? If you don’t have a firm  agreement with your partner to sell your practice interest to him (or someone else) upon your retirement, then how are you going to retire using your investment in the practice as your nest egg?  What if both partners want to retire at the same time?

Practice Entity-Which Organization Is Best For You and Why it Matters

Choosing the correct structure for your veterinary practice is an important decision with consequences reaching far into the future.  Selecting your practice structure is definitely not a “do it yourself” project.  Substantial tax, legal and accounting expertise is required.  Veterinarians nevertheless need to stay active in the process to ensure the experts’ narrow technical proposals get folded into a coherent plan that reflects your needs and goals.

  • It’s Mostly About Tax. Tax considerations are the primary drivers in choosing a legal structure for a veterinary practice.  The two key aspects are taxation of income/profits and taxation upon the sale or transformation of the practice.  Don’t paint yourself into a corner by choosing a business structure without establishing a succession or exit strategy.  Exit strategies should focus not only on your richly deserved retirement, but also on contingencies such as death or disability).  Since the transformation of an existing business structures in anticipation of a sale or the buy-in of a new partner usually triggers adverse tax consequences, it is usually better to choose an initial structure with the necessary flexibility to handle new arrivals, departures and divestitures at minimum fiscal cost.
  • Liability Shield. In some structures such as partnerships, the owners are personally liable on their individual assets for the debts of the business.  In others their personal assets generally are not at risk.  Business structures, however, do not insulate veterinarians from liability arising from malpractice claims.[1]  But the shield works for almost all other claims, which in our litigious society are increasingly frequent.  Unless you are an equine or food animal veterinarian, you generally have greater exposure to claims from your client’s “slipping and falling” in your hallway, than malpractice.
  • Flexibility and Formalities. Some structures allow more management flexibility and/or are less burdensome to administer than others.  Veterinarians generally tend to ignore formalities which is a serious mistake.  Courts regularly have looked past the liability shield and held owners personally liable when the owners have failed to observe the formalities separating their personal affairs from those of the practice entity.

AN OVERVIEW

The accompanying table compares the more common business structures from a liability, management and formality perspective (in simplified form).  Following is a brief and much simplified overview of the tax characteristics of each entity.

  1. Sole Proprietorships.  Since sole proprietorships are not legally separate from the single owner, there is no separate tax return.  The practice’s profits are included in owner’s total income and are taxed at his ordinary income tax rate.  In addition to federal and (if applicable) state income tax, the owner must also pay self-employment tax equivalent to the payroll taxes due as if the owner were an employee of the practice.

Upon the sale of the sole proprietorship practice’s assets, the IRS will recapture all depreciation/amortization deductions taken by the owner/seller thereof and tax such amount at the seller’s ordinary income tax rates.  In the unlikely event that any gain remains on the assets (after adding back any depreciation/amortization to their respective “bases”[2]) they will be taxed at the lower 20% long term capital gains rate (assuming the relevant holding period is met).

The buyer receives a “step-up” (increase) in his basis in the assets proportional to the amount of (purchase price allocated thereto) allowing him to re-depreciate/amortize them.   Thus, asset sales usually are a better deal tax-wise for the buyer than for the seller, and all other things being equal, buyers will prefer to purchase assets rather than stock (in a C corp).

  1. Partnerships.  Partnerships are “pass-through” or “flow-through” entities for tax purposes, meaning that each partner includes in his own taxable income the profits (or losses) of the partnership, which are taxed as ordinary income at the partner’s individual rate (much like the owner of a sole proprietorship).  Note that each partner’s share of partnership income is taxable each year, whether such share was distributed to the partner or retained in the partnership.  If the latter, then the partner may not have the cash to pay the tax.

A consequence of the pass-through principle is that the sale of partnership interests are treated for tax purposes similarly to the sale of the underlying assets of the partnership (i.e., the assets are subject to depreciation recapture as in sole proprietorships).

  1. Corporations.  All corporations must file separate tax returns.
  • “S” Corporations. “S” corporations are corporations that elect to be taxed as a partnership. As “pass-through” entities, profits will be taxed in the hands of the shareholders whether distributed or not. An advantage of S corporations is that shareholders may take a portion of their profits as “S corporation profit,” free of payroll or self-employment tax (i.e., subject only to income tax).  Profit corresponding to what the veterinarian shareholder would have earned as an employee is subject to payroll taxes in addition to income tax.  (Sole proprietorships on the other hand must pay self-employment tax on all profits.)  S corps are popular with veterinarians for this reason.
  • “C” Corporations. “Plain vanilla” corporations (called “C” corporations to distinguish them from “S” corps) are not “pass-through” entities and are subject to corporate income tax, usually at the 35% rate for veterinary practices.[3]  Distributed profits (dividends) are taxed as ordinary income in the hands of the shareholders.  This “double taxation” discourages the distribution of C corporation profits.  On the plus side, C corp profits are not taxed until distributed, pension plan contributions are not subject to the S corp limits, and employee-shareholders’ health benefits are not taxed.  Veterinarians wishing to maximize their benefits will choose a C corp over an S corp.

If the holding period requirement has been met, the sale of C corporation stock is taxed at the favorable 20% long term capital gains rate.  The buyer does not receive a step-up in the basis of the underlying assets since he is buying the corporation stock. (The buyer can under certain circumstances elect to treat the transaction as an asset sale for tax purposes (a.k.a. a Section 338 election).)

  1. Limited Liability Companies.  Limited Liability Companies are very quite tax-wise.  Single member LLCs can elect to be taxed either as a C corp or a sole proprietorship.  Multi-member LLCs can elect to be taxed either as a C Corp or a partnership.  Unfortunately, not every state allows veterinarians for form LLC (ie, California).
  2. A Word Regarding Real Estate.  If the practice owns its own real estate it’s better placed in a separate entity held by the owner(s) or held individually by the practices owner(s).  This allows the owners to receive rent (which will be deductible from the practice’s income).  Moreover, placing the real estate and the practice in the same legal entity frequently leads to problems because the buyer can’t afford to buy the real estate in addition to the practice.

Choosing the correct business structure for your practice is important.  Don’t treat it lightly.

SIMPLIFIED PARTIAL COMPARISON OF DIFFERENT BUSINESS STRUCTURES

(Ex tax issues)

Structure or Entity Type\Issue Liability Formalities/Flexibility
Sole Proprietorship

No entity; business co-mingled with personal assets

No liability shield

 

None.  Just open your door and you’re in practice!
Corporations (“C” or “S” Corp)  A Professional Corporation (“PC”) is identical to a C Corp in all respects except that only members of the same profession (e.g., vets) can own its shares

 

Shareholder not liable for debts/liabilities of corporation (unless “corporate veil is pierced” because shareholders fail to separate their personal affairs from corporations (e.g. by ignoring formalities) Must file documents with state secretary of state.  Formalities are the most cumbersome of all entities. Less formal flexibility re management/profit sharing issues
Limited Liability Company (LLC)

(Created to provide more management flexibility than S Corp and “pass through” tax treatment )

Member not liable for debts/liabilities of LLC (subject to piercing corporate veil doctrine) Must file documents with state secretary of state; but management, profit sharing can be flexible.
General Partnership[4] Partners liable for debts/liabilities of Partnership; no liability shield Must file documents with state secretary of state, but management; profit sharing can be flexible.
[1] Salvation lies in adequate malpractice insurance.

[2] The basis of an asset is it’s original cost to the owner, as adjusted pursuant to IRS rules.

[3] Because veterinary practices usually are personal service corporations.

[4] Limited partnerships are different from general partnerships.  An LLP generally is formed among several limited partners who are normally passive financial investors and one general partner responsible for managing the enterprise. Limited partners normally are not liable for the debts/liabilities of the LLP, whereas the general partner is.  Contrary to the motion picture business, real estate or oil and gas exploration, LLPs may not be appropriate for a veterinary practice where all the members are actively engaged in the enterprise.