If you are considering buying or selling a veterinary practice, it’s important that you become familiar with the terminology. One term that you will run across during the veterinary practice sales process is “goodwill value.” As we explain below, goodwill value must be assessed in every veterinary practice transaction in order to reach an accurate overall assessment of the practice’s value.
Types of Assets
In order to understand goodwill value, it’s important that you first understand the difference between tangible and intangible assets. A tangible asset is an asset that you can physically touch, such as a piece of office equipment. An intangible asset is a non-physical asset that adds value to your veterinary practice. Intangible assets don’t necessarily have dollar values associated with them. Goodwill value is a type of intangible asset.
Defining Goodwill Value
Goodwill value is composed of certain intangible characteristics of your practice and your adjusted earnings. Components of goodwill value include:
- The value of a brand’s name and reputation: If a veterinary practice has a great reputation in its community, this can increase goodwill value.
- The value of a veterinary practice’s location: This doesn’t refer to the actual building itself. Rather, it addresses the environment in which the veterinary practice is located.
- The value of the veterinary practice’s client list: If a veterinary practice has many long-term clients, this can also increase the goodwill value of the practice.
The Importance of Goodwill Value
Goodwill value assesses the likelihood that a veterinary practice’s current clients will continue to use the business’s services at approximately the same rate after the sale of the practice. In addition, goodwill value considers whether the location of a veterinary practice practice will continue to be viable or if changing neighborhood conditions could affect the practice. Overall, goodwill value provides prospective buyers with a more complete picture of a veterinary practice’s overall value. Goodwill value is simply a professional assessment of a veterinary practice’s future based on its intangibles.
The Bottom Line
Whether you’re considering buying or selling a veterinary practice, you need to understand how goodwill value is determined and how it can affect the overall value of a practice. Goodwill value is extremely useful for prospective purchasers by giving them a realistic look at the true value of a veterinary practice’s intangible assets.
Contact Our Experienced Veterinary Attorneys
Buying and selling a veterinary practice can be complicated. Therefore, if you’re considering selling or buying a veterinary practice, you need to have an experienced legal team in your corner. At Mahan Law, we know what it takes to successfully buy or sell a veterinary practice. When you come to us for assistance, our experienced veterinary attorneys will work diligently to ensure that your veterinary practice transaction is a rewarding experience. Please contact us as soon as possible to schedule an initial consultation.