As a vet practice owner, you need to be an expert at providing quality care for your clinic’s patients and successfully managing the business side of your practice.
Successful practices are often the target of acquisitions. Therefore, it’s essential to know how veterinary practice appraisal works and where you stand in the eyes of potential buyers.
How Do You Value a Veterinary Practice?
The main approaches for valuing a veterinary practice include:
Income Method
The income method focuses on the cash flow of a vet practice. How much money does the practice make per year?
Cash flow is also an important determinant of growth prospects and a practice’s risk level. Common risk assessments deployed with the income method are key person risk and geographic risk.
The key person risk assessment determines if the vet practice’s income relies on a single doctor, while geographic risk assessment measures the practice’s dependence on the local economy.
Asset Method
The focus of the asset method is on calculating the practice’s net asset value (NAV)—a measure of the total worth of the practice’s current tangible assets. The asset method also incorporates “Goodwill”—a metric that measures intangible assets such as the reputation of the practice, the value of the existing clientele, the expected value of future patronage, and more.
Market Method
This method measures vet practice value by assessing the value of similar practices in the area. However, this approach is rarely a standalone method of valuation. Securing accurate acquisition data from public companies is difficult.
The EBITDA Method
EBITDA is an acronym for earnings before interest, taxes, depreciation, and amortization. This widely accepted valuation method measures profitability and a practice’s ability to repay debt.
This highly-rated veterinary practice appraisal method shows earnings before financial and accounting deductions. The calculation, expressed as a percentage, excludes factors that don’t influence a practice’s profit margins, such as rent and owner benefits.
What Is a Good EBITDA for a Veterinary Practice?
A good EBITDA for a veterinary practice is around 13% to 16%. However, most small practices average 11% to 12%. Veterinary practice owners with EBITDA above 18% usually receive the highest buyout offers.
How Is EBITDA Calculated in Veterinary Practice?
You can calculate EBITDA for veterinary practice by looking at the income tax return or income statement. Add the net income to the following expenses:
- Interest
- Income tax expense
- Depreciation
- Amortization
Some profitability appraisers may subtract the estimated average spent each year for equipment.
What Is a Good Profit Margin for a Veterinary Practice?
What qualifies as a good profit margin for a veterinary practice is subjective because different vet practice owners have different goals. But how much do vet practices profit generally?
On average, small practices have a 10% to 15% profit margin, while emergency or specialist practices can achieve 15% to 25% profit margins. A higher profit margin increases the chances of receiving a high valuation from appraisers when it’s time to sell the practice.
Find Out What Your Vet Practice Is Worth
Are you considering selling your vet practice? Get a professional, confidential practice valuation from the qualified team of veterinary practice appraisal experts at Total Practice Solutions Group. Call 1-844-908-2967 today to get started.