The most critical aspect in determining the fair market value of the veterinary practice is choosing the appropriate valuation method for an appraisal. The following are the more popular appraisal methods used in valuating any small business.
- Capitalizing Excess Earnings Method: This tends to be the most commonly used method of valuating a veterinary practice.
- Discounted Economic Income Method: While the excess earnings method looks to the past for its value, the discounted income method looks to the future.
- Comparative Transaction Method: A value is established by relying on information gathered from similar transactions in the marketplace.
- Rules of Thumb Method: While not a formal “method” of valuating a veterinary practice, it was a very popular method used some forty years ago. There, a percentage of gross revenue was used and designed to represent good will of the practice.
All appraisals at TPSG are conducted in an environment of confidentiality.
TPSG, with few exceptions, uses the Capitalized Excess Earnings Method or Income Approach. This method is an excess earnings hybrid which capitalizes excess earnings, generated by an asset, based on a fair and reasonable return on a long term investment. Excess earnings can be defined by net profits which remain after the payment of reasonable salaries, including veterinary salaries, rent on the facility, drugs and supplies, other normal operating expenses, and after subtracting a reasonable return on the owner’s capital investment. This capitalization of excess earnings allows for a value of intangible assets or good will. With this method, tangible assets (equipment and inventory) are added to the intangible asset (good will) to arrive at an estimated market value or price at which a practice will be marketed.
Because the capitalization rate is at the discretion of the evaluator, the following factors are generally considered:
- Ability to effectively transfer good will to the buyer
- Practice stability (years in existence)
- Demand for the practice’s services (demographic competition)
- Quality of the staff
- Revenue growth (based on A.C.T. and new client average)
Marketing the Practice
Once an accurate value has been determined, the TPSG broker implements a marketing plan that has been specifically tailored to the veterinary practice. Always with an eye to confidentiality, we list the practice on our website which will instantly notify qualified buyers looking for a practice in a particular geographical area.
Local and national publications, targeted direct mail, and personal correspondence are just some of the various tools used by TPSG brokers to provide the personalized, value-centered attention sellers desire and deserve
Perhaps the most important value is the TPSG exclusive regional network team of qualified field representatives working with the TPSG broker. Members of the team promote and facilitate ongoing confidentiality and professional relationships with our buyers and sellers working through the TPSG broker. It is this personal touch that perhaps plays the largest role in the TPSG advantage when it comes to marketing a veterinary practice in the real practice world.
TPSG prepares a detailed marketing book that will answer 99.9% of all questions buyers and lenders will ask about the practice. More importantly, financial institutions will look favorably when the buyer comes armed with an accurate practice value backed by a thorough report of the practice that has been conducted by brokers and C.P.A.’s who are knowledgeable experts in the veterinary practice industry.
When showing buyers through the practice, it will be done at a confidential time dictated by the seller. Each buyer has previously examined not only the marketing book which contains practice value and financial statements that confirm the value, but demographics and a video of the physical plant (hospital virtual video). Thus, the uninformed proverbial “tire kicker” will not need to be entertained.
Lastly, we submit all offers to you for your consideration. It is important to look at all offers carefully. There is an old adage in sales that says, “The first offer is generally the best the seller will receive.” However, we will guide you so you can make an informed decision.
And finally, TPSG brokers will work at closing the sale as quickly as possible once an acceptable offer is accepted. Remember, as previously stated, we can identify with sellers because as previous practice owners, we have been in your chair at the closing table.