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How Much Is Your Veterinary Practice Really Worth?

Woman unsure of the value of her vet practice.

How Much Is Your Veterinary Practice Really Worth?

Even if you’re not ready to sell your vet practice, it’s always important to know what your business is worth. It is important to note that “one size does not fit all” when it comes to determining veterinary practice value. In this blog post, we’ll go over a variety of approaches so you can choose the one that best matches your circumstances.

 

Valuation Approaches for Your Vet Practice

In short, valuation is a process of assessing the economic value of a business. A lot of factors contribute to the final figure; therefore, it is important to work with a certified valuation analyst who can accurately assess the value of your veterinary practice.

There are three valuation approaches we’d like to discuss:

  1. Market approach
  2. Asset approach
  3. Income approach

You can value your vet practice using just one or a combination of these approaches. Let’s go through each approach individually:

  1. The market approach consists of comparing the vet practice to other vet practices in the area.
  2. The asset approach implies calculating the estimated value of tangible and intangible assets.
    • Tangible assets include professional equipment, office supplies, and inventory.
    • Intangible assets refer primarily to the practice’s goodwill (reputation), location, customer base, and the value of long-standing client relationships.
  1. The income approach is based on the practice’s cash flow. The most popular valuation method, the income approach takes into account the following estimates:
    • Geographic risk, such as the risk of investing in an area prone to natural disasters.
    • Location risk, including dependence on the local economy for the practice to thrive.
    • Size risk, which is especially important for small vet practices.
    • Key-person risk, an important consideration for single veterinarian practices.

 

Additional Considerations that can Impact Veterinary Practice Value

Other aspects to consider before starting your valuation process include:

    • EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization)
    • SDE (Seller’s Discretionary Earnings)

EBITDA shows the profitability of your business, but it also acts as proof of the ability to repay debt. EBITDA calculations are part of your bookkeeping and should be done from day one. SDE is calculated by adding EBITDA to the owner’s income and benefits.

 

Why Valuation is Important — Even If You’re Not Planning to Sell 

PS Broker always recommends getting a valuation of your vet practice, even if you’re not ready to sell, so you always know where you stand.

Valuation as a business management tool helps you determine where your vet practice can improve. For example, what methods are bringing in the most clients at the least cost? With a routine valuation, you’re ahead of the game and you are able to act accordingly.

Valuation is also a must if you are planning to qualify for a loan. Also, if you have multiple business partners at your veterinary practice, valuation can help you determine each partner’s financial share.

 

Get Your Practice Evaluated with the Experts

Thinking of evaluating your practice? You are in the right place.

With over 20 years of experience, PS Broker is one of the top veterinary brokerage firms in the country, all while maintaining our distinctively boutique approach.

From analysis and practice valuation to assisting sellers and buyers as veterinary practice advisors and brokers on a national level, we have the experience and credentials that will help you step into the next stage of your veterinary business.

We will help you with veterinary practice valuation, whether you’re looking to purchase a veterinary practice, sell your own, or just do a routine check-up.

Contact our specialists today and let’s determine the value of your vet practice!