Vet Practice Evaluation: Key Factors to Consider

The “What it’s worth” question is a heavy one that every veterinarian ready to sell their practice must face. Are you confident about the answer?  

It can be difficult to come to a well-defined answer. You’ve poured years of blood, sweat, and tears into growing your practice, and that certainly accounts for a lot, but how much money would a buyer be willing to pay for it?  

Biases can lead practice owners to over or underestimate the true value of their practice. This is largely due to subjective biases as well as not factoring in all elements, like your people, revenue, growth trajectory, stability, and the unique story behind your practice.

In this blog post, we’ll break down exactly what a vet practice evaluation is, why it matters, and what factors play the biggest role in determining your practice’s value.

What is a Vet Practice Evaluation?  

A veterinary practice evaluation can be compared to a full-body checkup, except the patient is your business. It is a professional assessment that goes far beyond simply adding up numbers on spreadsheets that include obvious things like assets (equipment, real estate). It evaluates metrics such as financial performance, growth potential, operational stability, and market appeal, making it much more complex and in-depth.  

Think of it from the buyer’s perspective. They understand they’re paying for the machines and furniture at the clinic, but they’re also buying a living business. A buyer would want to know things beyond the obvious.  

• Is revenue growing or flatlining?  
• Is the team stable, or will they walk out the door the moment ownership changes?  
• Can the business run without its owner?  

Even if you’re not ready to sell just yet, an evaluation tells you where you stand and helps you find areas of improvement, which, once addressed, will fetch you a better valuation the next time around.

Why Practice Valuation Isn’t Just About the Numbers

Before learning how to sell a veterinary practice, most owners assume that valuation is pure math. Multiply your EBITDA (earnings before interest, taxes, depreciation, and amortization) by a certain multiple, and voilà, there is the golden number.

Alas, that would make things so much easier. That is only part of the picture. Buyers look at your business beyond the immediate numbers. They look for things that inspire confidence within them. They ask:

• Is there a strong second-in-command, or does everything fall apart if you take a vacation?
• What is the culture like?
• How diversified is production? A single doctor generating 80% of revenue indicates the business is dependent upon one individual.

This is primarily the reason why, often, two practices with similar or near-identical revenue can sell for widely different amounts. As stated above, numbers and financials alone are not everything. When a buyer acquires a business, they take into consideration risks, how independently the business can run, what the average revenue is, how the growth trajectory looks, whether it is sustainable, and so on.

How Much Is Your Vet Practice Worth?

So, what is the magic number? Well, to determine that, we have to look at many factors. For example, as a ballpark figure, most veterinary practices sell for 4x–7x EBITDA (earnings before interest, taxes, depreciation, and amortization). That number is not exact, but it gives you a general idea. The bigger, more efficient, and well-staffed a practice is, the higher the premium it can fetch.

For example, a solo practice producing $1.2 million may only be valued at a modest multiple because the buyer sees risk if that vet steps away. Whereas a three-doctor practice with stable staff, $3 million-plus revenue, and strong profit margins is a hot commodity.

It is also worth noting that location matters quite a bit. Practices in affluent areas with higher pet ownership rates tend to sell for a much higher price than those in rural areas with lower pet ownership rates.

Remember, objectively, your practice is worth whatever a buyer is willing to pay. The more attractive your story, the higher the number.

The Core Valuation Methods Explained

Now, let’s talk about ways in which a practice is actually valued. While there are several, three methods are predominantly used for this procedure.

1. Income Approach (EBITDA multiples)

This is the most common method used to evaluate the value of a practice in today’s market. It focuses on the earnings and potential of a business rather than merely its physical assets, which in simple terms means that it looks at how much profit the practice generates and uses that as the basis for its value.

Buyers start with the practice’s adjusted profit, also known as EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization). This number helps them figure out how much money the practice really makes once one-time expenses or unusual costs are taken out of the equation. Once they have the EBITDA, they apply a multiple, which is a number that reflects the practice’s growth potential, stability, risk factors, and market trends.

Using this approach, buyers can estimate how much return they might get from owning the practice, making it the most trusted method in the market today.

2. Market Approach (Comparables)

The market approach is more comparative in nature because it looks at what similar practices are selling for or were recently sold for, similar to how real estate agents do.

The advantage of this method is that it:

• Focuses on the local market
  
• Compares your practice to other practices of similar size, services, and client bases
  
• Provides a realistic picture of what buyers are actually willing to pay for a practice
  
• Helps buyers and sellers understand where a practice fits in the current market
  

This approach is particularly useful when the market is active, as it reflects actual recent transactions rather than theoretical calculations.

3. Asset Approach (Net Asset Value)

The asset approach focuses on the value of physical assets, like real estate, equipment, stock in the inventory, etc. It does not take into consideration factors like profitability or market trends. It solely focuses on the assets.

This approach generally yields lower valuations and is often used for practices that are struggling or in distress, where buyers are primarily interested in the value of tangible assets rather than the ongoing business.

Putting It All Together

While most buyers rely heavily on the income approach, it’s smart for owners to consider all three methods. Each provides a different perspective:

• The income approach shows value based on earnings and growth potential
  
• The market approach reflects what similar practices are selling for
  
• The asset approach highlights the worth of physical items that the practice owns

Looking at all three side by side gives a complete picture of a practice’s true value and makes the owner feel much more confident when negotiations are taking place. Furthermore, it allows buyers to see the value of a practice from various perspectives.

Key Drivers That Influence Your Practice’s Value

Before selling your practice, it is worth educating yourself about the factors that influence the final price you’d get. Certain factors carry more weight than others, and some you might expect to matter. After all, evaluations are not just about numbers. Here are the biggest drivers that influence a practice’s value:

• Profitability and Growth Trends: A practice that is consistently growing in revenue and profit is far more appealing to a buyer than one that is stagnant, even if the stagnant practice generates more revenue at the time of comparison. An upward trend signals growth and untapped potential, which can yield higher returns in the future. Your growth trajectory does not need to be exceptional to fetch a higher price, as modest but consistent growth is also a positive sign.
  
• Doctor and Staff Stability: A practice that is heavily dependent upon a single doctor or the owner is considered risky. What if that doctor decides to step down? That could mean losing your most high-producing employee. Buyers prefer a team with stable, experienced doctors and staff who can continue operations even if key individuals leave.
  
• Client Base: Similar to any business, a large, loyal client base is a major positive indicator because it suggests predictable income. Practices with strong relationships, repeat visits, and minimal client churn are seen as low-risk investments by buyers.
  
• Operational Efficiency: Again, similar to other businesses, the more efficiently your practice operates, the more attractive it becomes to buyers. They know they will not be investing in a clinic that cannot run efficiently and consistently. Investing in a chaotic practice would require additional resources to fix its inefficiency, which lowers its value.
  
• Recruitment and Retention: The ability to attract and retain skilled associates is a critical driver of valuation, especially considering there is a shortage of trained professionals in veterinary medicine. Practices with a reputation for being a great place to work are easier to staff, which is a major advantage in many areas.
  
• Location and Demographics: Geography matters. A practice located in an affluent area with high pet ownership will naturally command a higher valuation compared to one in a remote area with fewer clients.
  
• Reputation and Branding: Beyond tangible metrics, a practice’s reputation and culture matter a lot. What people think about it, what employees think about it, the practice’s involvement within the community, and its branding all have a significant impact.

Looking at these drivers collectively helps owners understand what really influences value and identify areas for improvement before selling. If you’re planning to improve your valuation, strengthen any or all of these areas.

How to Prepare for a Practice Valuation

It is best to start preparing for your practice’s valuation at least a year in advance, as it gives you time to clean things up. It is simple, really.

If you plan on selling your car, you don’t just list it online. You clean the interior and exterior, remove the dents, and make sure everything works. The very same philosophy applies to your practice. In order to be valuation-ready, you should:

1. Clean Up Your Financials

Buyers want to see the real picture of your practice’s earnings, and messy books are far from confidence-inducing. Make sure profit and loss statements are accurate and easy to understand, and that personal expenses and one-time purchases are separated clearly.

2. Document Your Processes

It is recommended to take the time to write everything down, from scheduling appointments to billing, inventory management, and patient care. Buyers want to know the practice can continue running smoothly without you being there all the time.

3. Stabilize Your Team

If you are about to lose your only associate, that can hurt your valuation. Staff retention matters because buyers always look for a stable team. Having to restaff after purchasing a practice is an inconvenience. A stable team shows buyers the practice can operate reliably after the transition.

4. Take Care of the Facility and Equipment

Outdated equipment or a tired-looking office can lower appeal. Fix what is broken, replace worn-out items, and make the office feel clean and professional. A well-maintained practice sends the right signal to buyers.

5. Build Recurring Revenue

If you don’t already have them, consider wellness plans, preventive care packages, or subscription options. Regular, predictable income makes your practice more attractive because it reduces risk for the buyer.

Growth Moves to Boost Valuation Before Selling

If you have plans of selling your practice, it is best to start preparing 2-5 years in advance. Why? Because that duration of time can seriously boost your multiple. How? By using the following proven strategies:

• Hire Another DVM: Adding doctors is one of the fastest ways to multiply value. Going from a single-doctor to a two-doctor practice can significantly increase your sale price.
• Increase Revenue Per Patient: Focus on preventive care, dentistry, diagnostics, and other value-added services. These not only improve patient health but also increase your practice’s income.
• Cut Waste: Every business has areas that consume more resources than the benefits they provide. Take a look at your inventory, contracts with vendors, outdated or underperforming machines, and improve your margins. This demonstrates to buyers that your practice is well-run and profitable.
• Build Leadership Bench Strength: No practice can run without strong leadership. If leadership tasks depend solely on the owner, that is a red flag. Having a strong team beyond the owner that can manage themselves reassures buyers. This way, they know the business will not crumble the second the owner steps away. A strong practice manager and associate vets reassure buyers that the practice can operate independently.
• Digital Marketing and Reputation Management: A strong online presence matters more than ever. People are online, so you need to be where they are. Having positive reviews, an active community, high levels of engagement, and overall effective digital marketing brings in more clients and increases the chances of recurring revenue. Buyers see a practice with a good reputation and consistent client flow as a safer, higher-value investment.

Want Expert Help? Work With Trusted Advisors

Handling the process of practice sales all by yourself can be extremely overwhelming and often results in leaving a lot of money on the table. Many vets who try to sell solo either undersell their practice or scare off buyers.

Transitions Elite was founded to solve problems like that. We saw a gap between the sophistication of buyers and what many practice owners understood during a sale, so we decided to bridge that gap. The goal is to make sure practice owners get their money’s worth for their years of hard work.

With the assistance of the team at Transitions Elite, you can expect:

• Real-world advice on how to improve your valuation
• Positioning your practice to attract multiple qualified buyers, creating a bidding environment that drives up the final price
• Negotiating not just for top dollar but also for favorable terms, because legacy matters just as much. The transition is designed to protect your staff, culture, and legacy.

We’ve helped numerous practice owners fetch deals that worked in their favour, in terms of monetary gains and terms and conditions. Our results are clear to see. We can do the same for you. Get a free evaluation of your practice today.

Closing Thoughts

Your veterinary practice is your legacy, your life’s work, and your family’s financial future. Selling it is one of the biggest decisions you will make as a practice owner. You need a proper valuation for clarity, because such big decisions should never be made without it.

A valuation shows you what your practice is worth today, what factors are holding it back, and what moves can dramatically increase value before you sell. So whether you are two years or ten years away from selling, start now. Clean up your financials, strengthen your team, and put the right growth strategies in place.

And when you are ready to take the next step, don’t go it alone. Partner with trusted experts who know the market inside out and can help you get the best value for your practice.

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