Veterinary Practice Valuation – The Complete Guide (2024)
What is Veterinary Practice Valuation?
Veterinary 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.
Introduction to Veterinary practice valuation
Valuation of a veterinary practice is more than a spreadsheet formula; the exact value of the veterinary practice—be it to sell your veterinary practice, merge, or retire—is important. Factors like new technologies, evolving client expectations, and economic shifts all play a role in determining what your veterinary practice is worth.
Before we get into the details of the veterinary practice valuation process, let’s review some of the FAQs around valuation and then we can review the process of practice valuation.
Veterinary Practice Valuation FAQs
How Much Do Veterinary Practices Sell For?
Veterinary practices typically sell for 8 to 13* times their EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization). Factors influencing the sale price include the practice’s size, location, profitability, growth potential, and quality of the client base. To maximize the value of a veterinary practice, focus on enhancing profitability, improving operational efficiency, and demonstrating strong growth potential.
Normally, practice owners are able to sell their practice at 4-8x their EBITDA, but with the unique Transitions Elite Selling Process™, you can sell it at 8-13x * EBITDA.
Why Transitions Elite?
What is the significance of obtaining a valuation for my veterinary practice?
The valuation will give you the current health of your practice. It will allow you to take an accurate stock of all areas of your business allowing you to make corrections and discover opportunities for improvement prior to the selling process.
What goes into the calculation of a veterinary practice value?
EBITDA, income, client demographics & retention, inventory, real estate, staff efficiencies—it all plays a role in determining the value in negotiation. The markget, income, and asset-based approaches are common methods formerly used for the valuation.
Is there a standard EBITDA multiple range practice sell for?
The sale price of veterinary practices can fall within EBITDA multiples of 4x to 8x, with variability based on factors like location, profitability, and market conditions. In competitive markets, corporate buyers could potentially present higher multiples.
Normally, practice owners are able to sell their practice at 4-8x their EBITDA, but with the unique Transitions Elite Selling Process™, you can sell it at 8-13x EBITDA.
What financial documents are needed for a veterinary practice valuation?
Like selling any business, reports and forms which reveal profit and loss, taxes, cash flow, inventory, etc. The chart of accounts which offer the complete financial picture of your veterinary practice.
How does location affect the value of my veterinary practice?
Urban and suburban practices in high-demand areas tend to be valued higher due to larger client bases and greater growth potential. Rural practices can still command high values if they serve niche or underserved markets.
How long can the valuation process take?
Assuming you are up to date with your accounting and operational reporting, it could take a few days with our valuation expert.
Can I improve the value of my practice before selling it?
Yes! In fact, at Transitions Elite, we will thoroughly evaluate every aspect of your practice’s operations and provide you with comprehensive, step-by-step guidance on how to enhance its value and appeal to prospective buyers. Our expert team will also help you identify key areas of improvement, ensuring that your veterinary practice is positioned for a successful sale at the highest possible valuation.
Is there a veterinary practice valuation calculator I can use?
Yes, several online veterinary practice valuation calculators are available. These calculators estimate your practice’s value based on factors like annual revenue, EBITDA, and location. Click here to get a free valuation of your practice.
Is there a formula used to determine veterinary practice value?
One common formula used in veterinary practice valuation is:
Practice Valuation = EBITDA x Industry Multiple
This formula gives a general idea of the practice’s worth based on its earnings and market conditions.
How much is my vet practice worth?
Your valuation will tell you what it is worth and will depend on several factors, including market forces, financial picture, staffing and technological efficiencies, among others.
“Half of the veterinary clinic market is still independently owned by veterinarians and there are ~20,000 clinics that can potentially be fetched. Currently, there are an estimated ~50 aggregators that own platforms with ~10+ units. Mars Petcare dominates corporate clinic ownership as insight into pet and pet parent data is seen as the new currency to drive more targeted interventions.”
Veterinary M&A industry trends – KPMG (2023}
Let’s take a moment to hear from veterinarians who have successfully navigated the sale of their practices with the assistance of Transitions Elite. These video testimonials offer a firsthand look at the benefits of accurately understanding the true value of your veterinary practice and selecting the right partner for your sale. Discover why Transitions Elite is the trusted choice for veterinary practice owners looking to maximize their outcomes during the sale process.
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 – Ohio
Overview of Key Veterinary Valuation Methods
Various factors contribute to an accurate veterinary practice valuation There is no single way to value a veterinary practice. Valuation depends on the characteristics and goals of your practice. Understanding these methods ensures your practice is valued correctly. The three methods of valuation mostly used are as follows:
Market Approach:
This is sometimes referred to as the method of comparing your practice to other comparable practices that have sold recently. You can estimate the fair market value of your practice based on the sale prices for the other comparable practices. The market approach works typically well in highly competitive markets with large volumes of comparable sales.
Income Approach
The income approach presents a determination in the present value of future earnings. This method is an especially useful method when practices have stable and predictable revenues. Buyers generally have a predisposition towards this approach if interested in long-term profitability because it covers cash flow and future return.
Asset-Based Approach:
This approach considers the value of your physical and intangible practice assets—property, equipment, and good will—less liabilities. The asset-based method is common to use in those practices that contain a lot of physical assets or in case of any liquidation.
Most veterinary practice valuations will include some or all of the above methods for a proper and well-rounded assessment. Being familiar with these approaches will better prepare you for the valuation process so the true value of your practice can be represented.
2023 Actual sales in the US. market. $147 billion spent in 2023 (AAPA)
Critical Factors Influencing Practice Value
Value in your veterinary practice is based on several other factors beyond revenue. Knowing where the critical value-enhancing factors lie will, therefore, make you aware of where opportunities exist for improvement to maximize value for your business.
Financial Performance
Another core value driver is consistent, sound financial performance. Good profit margins and histories of financial growth place practices with solid incomes in generally higher esteem than those that lack such stability. Financial stability means less risk and, therefore, more predictable returns.
A thorough financial analysis should not only involve current profitability but also performance over multiple years. Practices demonstrating a consistent upward trajectory or maintaining the course during downturns will command a better sales price. It can be helpful to highlight future revenue-enhancing areas, such as any new service line introductions or billing process improvements, to add to the evidence of long-term potential to potential suitors.
Client Demographics & Location
Practices in high-demand areas—like an urban or wealthy suburban area—are valued higher because they have a larger clientele and more room to expand. Location is one of the variables for calculating value; a rural or underserved area has less demand for veterinary services.
Beyond just physical location, take into consideration the demographic makeup of the local market. An area that includes growing rates of pet ownership, an increase in higher-income households, and growing populations can allow your practice to grow in value. In fact, for any practice located in a prime location offering immediate clientele and potential long-term growth, buyers are ready and willing to pay. Even practices in sparsely populated areas command high values—provided they are serving a niche or underserved community.
Client acquisition and retention:
A loyal, growing client base adds value to your practice. High retention of clients is evident in revenue stability, and this aspect is appealing to any interested buyer with potential growth in years to come.
Additionally, thorough demographics and visit frequency/retention records are greatly illuminating from a valuation perspective. Proving your practice has a core group of regular clients and can easily show an appropriate new-client acquisition strategy goes a long way toward making your practice more attractive to buyers. Those practices that apply client retention strategies—loyalty programs, consistent follow-up care—often see this as an addition to their purchase price since the efforts are directly related to future revenue.
Operational Efficiency:
A well-organized practice with staff that utilizes technology for efficiency and quality of care adds significant value. More operationally efficient practices will be lower-risk investments for the buyer.
It is important that the practices have metrics on patient throughput, staff productivity, and cost controls. Most attractive would be those practices that have already integrated automation tools into their functions, such as cloud-based management systems or telemedicine, because that denotes a forward-thinking and adaptable business model.
Reputation and brand strength
The community reputation and growth potential that your practice has, combined with a strong brand, will go a long way toward contributing to its valuation. A practice that consistently provides excellent care and customer service will be valued higher
Developing a high online presence and obtaining positive reviews across the board and practices with strong testimonials, highly rated reviews, and effective community engagement generally command high valuations. It also highlights your practice in highly competitive markets because of its recognizable and trusted brand. It would attract buyers looking for an already recognized business with built-in credibility and customer loyalty.
Veterinary care accounts for 27% of total pet spending, and the majority of practices are experiencing sales growth.
— Firstrust Bank: Veterinary Industry Trends (APPA 2023)
How to Get Ready for a Valuation of your Veterinary Practice
Preparation is key to ensuring your practice is valued accurately. Follow these steps to prepare your veterinary practice for a complete and accurate valuation.
Sorting and Reviewing Financial Documents
Your chart of accounts as well as your operational business intelligence collected in a KPI dashboard should be updated and reviewed by you and your accountant to get the accurate snapshot required to determine value and build confidence in potential suitors.
Evaluate Equity and Liabilities :
Traditional analysis: Conduct a detailed check of both the assets and liabilities in practice, which includes tangible assets and those of an intangible nature, such as goodwill and client relations. A good look at your assets and liabilities will help provide quite an accurate picture of the valuation.
Assess Operational Processes for Efficiency.
Review your practice operations and identify ways in which inefficiencies can be streamlined. A well-oiled practice with efficient processes supported by highly trained staff would generally tend to have a higher value.
Gather and Analyze Market Data:
Research recent sales of similar veterinary practices in your area. This will give you an idea of market trends and the valuation benchmark. It will also be instructive on what buyers are looking for, and give you realistic expectations of your practice.
“Buying a cash business like a companion animal practice is considered a safe, lucrative and generally recession proof investment – particularly to gain profit and diversity portfolios.”
— Veterinary M\&A industry trends – KPMG (2023)
Strategies to Grow Your Veterinary Practice’s Value
In this, we learn that maximizing a veterinary practice requires strategies that deliberately improve the many facets of your business. Whether one wants to sell soon, retire , or simply increase the overall worth of a practice, these strategies will help them reach those goals.
Better Performance Financially
The value of a practice can be enhanced by optimizing revenue streams while controlling the costs, hence increasing profitability. It means regularly reviewing the pricing strategy, offering new services, and cutting all unnecessary expenses for healthier financials. The fact is that practices focusing on the development of higher profit margins do indeed achieve higher valuations.
This, in turn, can be done by adding value-added services, such as advanced diagnostic testing or emergency care, which inflates the revenue taken per one client visit. Besides, operation costs can even get lower through re-negotiation with suppliers or adjustments of staff levels for further improvement of profitability.
Building and retaining a loyal base of clients.
A loyal, growing clientele will represent stability in revenue; thus, valuation is crucially important. Client retention programs, which may be loyalty rewards or personal follow-ups, therefore increase client satisfaction and, therefore repeat business. The second most important thing is to successfully market towards new clients to fuel the growth of the practice, therefore its value.
This would incentivize them to return for periodic check-ups and treatments, either through wellness programs or bundled service packages. Similarly, practices investing in CRM systems to track all interactions with clients can personalize their services, thereby enhancing retention rates and increasing the value of the practice over a long period.
Invest in the Best Machineries and Technology
Modern technology and advanced veterinary equipment enhance the quality of care and improve efficiency. Practices that have been invested in advanced diagnostic tools, EHR systems, and/or telemedicine capabilities are much more attractive to buyers and generally command superior valuations.
“When it came to when teams were using AI, the typical applications were imaging and radiology, administrative tasks, and voice-to-text transcription. The most common benefit of AI integration in veterinary medicine was an improvement in productivity and time saving, reducing workloads for administrative staff, and increasing efficiency when it comes to diagnosing and treating patients.” — DVM360 (2024)
For example, an increase in the current cloud-based management software would remove administration errors, thus making simple ways possible in which clients can book their appointments online. Additionally, investments in top-of-the-line imaging equipment or other advanced medical tools are sure to differentiate your practice and develop new clients while justifying premium service pricing—all things that enhance your practice’s value.
Optimize your practice’s brand and marketing
Having a reputable and popular brand can significantly enhance the value of your business. Setting your practice apart from competitors involves branding through community involvement and exceptional customer service. Numerous purchasers are ready to spend a significant amount for a business that has a strong market presence and a reputable image.
Building a level of trust and credibility requires active social media platforms, responding to online reviews, and sharing client testimonials on your website. Attending local events in your community or creating co-op opportunities with shelters and humane organizations can also help to boost your brand reputation and bring new customers into your practice.
“(Veterinary) practice revenue in veterinary practices increased by 5.2% in 2022 from the prior year, while visits were down 3.1%.”
— AVMA (2023)
Understanding the Sales Process of Your Veterinary Practice
Selling one’s veterinary practice involves steps important in proper planning, in which you can actually get the best value and close a deal.
Time the Exit to Maximize Value:
When ultimately selling your practice this will be a big variable. Look at recent industry trends, the conditions in the market, and the recent financial performance of your own practice. You would like to sell once the market is strong and your own practice performance is sitting optimally.
Again, timing shows when to make the sale at the right time-that the valuation multiples are increasing. A well-thought-out strategy—one that goes hand in glove with keen monitoring of the market—tends to bring better results because such deals can be consummated at the height of demand for the practice. Any consideration of tax implications in the timing of your sale needs consideration along with favorable economic times.
Identification and choosing the proper buyer:
It’s about finding that right buyer, one which speaks to everything in long-term success for your practice. Whether to a corporate group, another veterinarian, or private equity, what is important is to seek a buyer that matches up well with your values and vision for your practice. What this does is provide a softer landing for the practice in transition and ideally doesn’t violate your clients’ service expectations. In addition to values, you’ll want to assess the buyer’s financial capability and strategic intentions. Some buyers may be looking to expand their portfolio, while others might prioritize maintaining the practice’s core services. Perform detailed research on potential buyers to verify they have the necessary resources and dedication to maintain your practice’s reputation and client connections.
Negotiating a Fair and Profitable Sale Agreement
The real sale price, structure of payment, and any post-sale obligations will crystallize once you enter the negotiation process. In order to do this, you should be prepared with a very clear understanding of your practice’s value to help you get the best deal possible. It is also pertinent that legal and financial advisors protect your interests. Besides the price, negotiations also involve complex terms on payment schedules, non-compete agreements, and retained staff treatments. It would be nice if priorities were unequivocally stated when discussing these topics and to be open to creative deal structuring that may benefit buyer and seller. For instance, seller financing or phase transitions ensure smoother handovers and more secure future payouts.
Conclusion
The value of your practice is more than just a number, it is a strategic tool that will guide major business decisions impacting your financial future. That’s critical, since 2024 and beyond continue to bring more change to the veterinary industry.
Familiarize yourself with the major valuation methodologies, understand what drives value, and adequately prepare your practice in advance of the actual valuation. You can ensure that your practice is appraised correctly quite easily. With the knowledge of proven ways to increase the value of your practice and common mistakes to avoid, you will be very well-placed to achieve maximum return on your years of hard work and toil.
Clarity about the value of your practice, whether to sell or merge, or just to optimize the practice with a view toward growth someday, underpins everything you do going forward with confidence and purpose. Your practice is worth so much more than just a number. That number is symbolic of what you have built in it over time. Make sure that number is fair and reasonable; care should be taken in diligence and foresight in the process of valuation.
Next Steps
- Organize financial records: Round up all your profit and loss statements, tax returns, balance sheets, and cash flow reports. The only way to get an honest valuation is by cleaning these finances up. Plus, it’s a healthy sign to any potential buyer—keeping things shipshape.
- Consult with a Valuation Professional: At Transitions Elite we have one goal to help you find the true value of your practice. We will provide current market information and identify areas of increasing the value of the practice.
Just fill up the below valuation form and get started for free!
