Buying a veterinary practice valuation can be an exciting opportunity for a veterinarian. There are several ways to get into the game, either by purchasing a large hospital, or by purchasing a small independent practice. Many veterinarians purchase their own practices to increase efficiency, decrease on-call responsibilities, and make more money. In addition, some veterinarians are nearing retirement age and want to purchase a larger practice with a predictable cash flow before retiring.
Maximizing Value and Minimizing Stress: Tips for a Smooth Veterinary Practice Sale Process
Regardless of the motivation for your veterinary practice acquisition, you should understand how valuations work to ensure you are being fairly compensated. Valuations are a complex process that looks far beyond a practice’s raw revenue. There are 3 fundamental valuation methods that are used to come up with a sales price.
1. The Asset Approach, which looks at all of the physical assets (medical equipment, laptops, furniture, etc.) and intangible assets (goodwill), which can account for up to 85% of the value of a successful veterinary practice.
2. The Comparables Approach, which compares the value of your practice to similar veterinary practices in the area. This method is often misleading as it only considers collections, not expenses. For example, a clinic with higher collections may have more expenses which can cause it to be less profitable than another clinic with lower collections.
3. The Earnings Capture Approach, which is a more accurate method that looks at the earnings (profit) generated by the veterinary practice. This method is the most difficult to apply as it requires a deeper understanding of the industry and a variety of risk factors.