Veterinary Practice Valuation | Appraisals | Calculator (New)
What is Vet Practice Valuation?
Vet practice valuation is the professional assessment of a veterinary clinic’s financial worth, considering factors such as financial performance, assets, liabilities, and market trends to determine a fair and accurate value.How Much is Your Vet Practice Worth?
You have probably asked yourself, ‘How much is my vet practice worth?” or even thought, “How much is a vet clinic worth?“. Whether you are looking for valuation of your veterinary practice or just trying to understand the capitalization rate in the veterinary sector, or seeking insights on veterinary financial benchmarks, this blog will help you in answering these questions and guide you through the evaluation process. As a veterinarian, you have worked hard to build your vet practice. You have invested in equipment, hired and trained staff, and established a name for yourself among clients. Now it’s time to think about how your practice will be valued when you decide to sell your veterinary practice.Vet Practice Valuation: Tailored Insights for Every Region
We know that vet practices are different in each place, so we’re talking about how to value them no matter where you are in North America. Whether you’re in a big city in California or Ohio, the beautiful areas of Colorado, or busy places like New York and Florida, we’ve got tips that work for everyone. If you’re in Arizona, Maryland, New Jersey, Washington, Georgia, Illinois, or even in big cities in Texas like Houston, Dallas, and Austin, this article is for you too. We want to help everyone in the USA and Canada understand their vet practice’s value, whether they’re in a small town or a big city. With this regional understanding, let’s delve into the key factors influencing vet practice valuation. Hear from our clients who’ve navigated this journey with us. Get to know Dr. Sharon Gorman, Dr. David Graeff and Dr. Lonnie & Naomi Davis who have experienced the incredible benefits of partnering with Transitions Elite when it comes to practice valuation and selling. Discover why understanding the true value of your practice is crucial and why Transitions Elite is the best choice when looking to sell.“I had previously looked at selling the practice on my own, and I had talked to five different companies about this and had gone through the process individually, and none of it turned out to my satisfaction. After I signed up with Tom, he marketed me to these interested companies. There was competition amongst those interested. It was so relieving at the end of it to know that I got the very best deal possible!” David Graeff, Cedar Rapids, Iowa
I knew that I would get the best value for my practice if I had a professional helping me. And it definitely turned out to be true that having Tom in my corner. I have zero doubt that I would not have gotten the value for my practice if I didn’t have him on my side as well as the ease of it. It was such an easy transition and he made the entire process very simple. Sharon Gorman – Las Vegas, Nevada
Transitions Elite holds your hand and guides you through the whole process. Even though it’s a stressful time and situation, they make selling so easy. Dr. Lonnie & Naomi Davis – OhioDon’t miss out on your chance to discover the true worth of your practice. Click here to request a free valuation.
Now that we’ve gained some insight from our satisfied clients, let’s dive deeper into the various factors that contribute to veterinary practice valuation and how to maximize the value of your practice before selling. In this article, we will cover:
Before we delve further into this discussion, here is a limited-time opportunity for practice owners to understand the true value of their practice
With a comprehensive understanding of these topics, you’ll be better prepared to know your practice’s worth and make informed decisions when it’s time to sell.
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- What is Vet practice valuation?
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- How To Determine Your Practice Value.
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- Why You Need To Value Your Veterinary Practice.
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- The Factors That Affect Practice Valuation.
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- How To Calculate The Value Of Your Veterinary Practice.
How To Determine Your Vet Practice Value – Overview
When you put a price on a veterinary practice, there are three standout valuation methods often used by appraisers, both of which share a common factor: emphasis on the practice’s earning or profitability. What are they? We will get to that later. We would like to use a minute to clear the air on some vital notions in the sales process.Profitability Of A Veterinary Practice
Most veterinarians will tell you that their practice is making money. And in a sense, they may be right. As most vet doctors rarely do accounting, they merely assume that since they see pets, check boxes, pay bills and work hard, they must be profitable. In other words, don’t mistake profitability for income. From an appraiser’s standpoint, the “profitability” of a veterinary practice is determined by subtracting all the expenses like rent and wages from a practice’s revenue. And the more cash a practice generates, the more valuable it will be.Veterinary Practice Valuation: Tangible Assets And Intangible Assets
When you want to sell a veterinary practice, you have two options. You can sell as an asset sale-i.e, you sell the assets and liabilities of the practice, or you can sell the stock in the case of a corporation ( stock/entity sale). The stock represents the corporation’s equity and is equivalent to the assets of the practice minus its liabilities. The stock represents the equity of your practice exempting liabilities, unlike an asset sale. Whether an asset or stock sales, the value of a veterinary practice is made up of two types of assets: tangible and intangible. Tangible Assets: Tangible assets are items that can be physically touched, estimated, or possessed. For vet practice, tangible assets include things like: equipment, inventory, supplies, and the likes. You can determine your practice’s value by totaling its assets’ fair market value and subtracting any liabilities. Intangible Assets: These are the intangibles that contribute to the value of a vet practice and cannot be easily appraised. They include goodwill, business reputation, your practice location, the value of your clients, and patents. Determining intangible assets’ value is vital because they can amount to a lot- sometimes up to 85% or even more of the practice value.How Much Is My Vet Practice Worth?
The simple answer is that there is no single way to determine what someone will pay for a veterinary practice. To get to the heart of your practice’s value, you have to peel back several layers of factors:-
- The size and location of your practice – Is it in a desirable area? Is there room for growth?
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- Practice reputation – What are people saying about your services offline and online? Are they happy with their experience?
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- Specialization- Generally, small animal veterinary practice tends to be of more than others owing to sheer number of pet owners in the U.S.
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- The assets – What kind of equipment does your practice have? Does it need updating or replacement?
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- The staff – Do you have a good team working for you? If so, great! But if not, then this can be an important factor as well.
Why Do You Need To Value Your Veterinary Practice?
Simple: to protect yourself. To avoid losing money on the deal when you plan to sell. How else can you get paid what your business is worth if you are selling? That’s not all. Other reasons for a veterinary practice valuation include:-
- Help you decide if additional investment in the business would be worthwhile.
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- To get a loan. When you apply for a bank loan or other financing, they will want to know how much money they can lend on the value of your business.
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- Partnership insurance: If you have partners in your business, having a valuation done will help protect them if one owner wants out or retires. This is especially true if owners had no written agreement before opening the practice together.
Veterinary Practice Valuation Methods
There are many ways to valuate a veterinary practice. Some methods are more appropriate for certain situations than others. The three main methods for valuing a veterinary practice are:-
- Market Approach
- Asset Approach
- Income Approach
Market Approach To Veterinary Practice Valuation
The market approach is based on the comparable sales of similar businesses in the area where your practice is located. Keep the following in mind:-
- The market approach is easy but the least accurate method of valuation.
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- This method is best suited for situations where much sales data is available within the same market area or region.
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- The market approach can also be used as a starting point of other valuation methods by identifying how much other similar practices are selling for and considering any differences between those practices and your own.
Asset Approach To Veterinary Practice Valuation
The asset approach uses the fair market value of all assets, including tangible assets like goodwill, at the time of sale as the basis for value. Some of the selling points of this method include:-
- It’s simple and requires less information than other approaches.
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- It is relatively easy to understand and use.
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- It provides a clear benchmark for buyers and sellers alike by allowing both sides.
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- It can account for any non-cash assets that may be part of the deal.
Income Approach To Veterinary Practice Valuation
The income approach uses historical financial statements, projections of future earnings, and other information to estimate future cash flows from which an intrinsic value is derived. The approach assumes that the buyer will pay a price they anticipate would be fair. This is determined by the size of the anticipated financial returns, growth potential, and risk of return. The problem with using this method is that it requires detailed financial information from at least three years to calculate an accurate estimate of future cash flows. This makes it difficult to estimate values for those practices without audited financial statements.Vet Practice Valuation Calculator
Find below an example of how to use valuation multiples to calculate the value of veterinary practice.Parameters | Amount *($) | Multiple Value* | Practice Value ($)* |
Net Sales | 450,000 | 0.5 | 225,000 |
New Income | 45,000 | 5.1 | 229,500 |
EBITDA | 61,000 | 3.3 | 201,300 |
SDE | 180,000 | 2.0 | 360,000 |
Average practice value | 253,950* |
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- Annual Net Sales: This is your total revenue from operations.
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- Net Income: This is your total revenue from operations minus expenses like salaries and supplies. Net Income = Total revenues- Total costs.
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- EBITDA means Earnings Before Interest, Taxes, Depreciation, and Amortization.
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- SDE ( Seller’s Discretionary Earnings) is the total financial benefit you would derive from your business yearly. SDE = EBITDA + Income and benefits ( of the owner).