Posted Oct. 1, 2014
The veterinary financial advisers who spoke with JAVMA said nothing can torpedo a sale like an improperly valued practice.
Dr. Karen E. Felsted, former CEO of the National Commission on Veterinary Economic Issues, said oftentimes, owners are unhappily surprised at the value of their practice. She attributes that partially to owners not understanding what drives the value of the business and to the fact that it’s harder to be financially successful than it used to be.
“I think the common wisdom used to be ‘Hold onto your practice as long as you could,’” Dr. Felsted said. “But I think now, some vets are asking questions and considering if it is better to sell now because you can’t assume you’ll get more if you wait. For a practice that is profitable and well-managed and in an area that has growth, then maybe the common wisdom is right. But if you have a stagnant practice, the area is changing, and the owner doesn’t want to make the necessary changes to make it profitable, then you can’t assume the practice will get better as time goes on.”
David McCormick, practice management consultant for Simmons, says two to three years before owners are ready to exit, they need to have their practice valued by an appraiser. That can help them with financial planning, estate planning, and insurance. In addition, McCormick says, “If the value is not what it could be, if profits are low when valued, for management and planning purposes you can get feedback on what to fix. Most owners have an idea of what their practice is worth, but it bears no relation to what it’s really worth, and until they look, they don’t know.”
McCormick continued, “The problem folks run into is they find someone who wants to own their practice, so they value it and (its value is only) 30 percent of revenue, and the owner says ‘I can’t sell on this.’ That’s a great answer, and so they fix it. A year later, the practice is worth 60 or 70 percent of revenue. The problem is they lost their buyer.”
McCormick recommends having a practice valued every three to four years just to see how financially healthy it is. And, that way, the owner can approach his or her exit with full knowledge of the relevant facts, he said.