Selling a veterinary practice is complicated. From evaluating the pros and cons of selling, to identifying potential buyers, when it comes to selling a practice, every step is important. However, of all these steps, valuation may be the most important. If you price your practice too low, you miss out on significant financial compensation. And if you price it too high, you limit the pool of potential buyers. In other words, arriving at an accurate value of your practice can make or break your transaction. In this article, we examine valuation methods for veterinary practices.
EBITDA
A common valuation method for veterinary practices is known as EBITDA, which stands for the following:
- Earnings before interest
- Taxes
- Depreciation
- Amortization
Typically, appraisers apply the EBITDA after making adjustments to a veterinary practice’s income statement. This ensures that the value arrived at is a meaningful and accurate figure. Specifically, this method indicates a practice’s operating profit and financial soundness. And the higher the profit, the higher the sale price of the practice will be. In addition, by including amortization and depreciation as well as debt payment costs and taxes, the EBITDA method attempts to represent the cash profit that is generated by the organization’s operations.
Appraisal
Next, a party who is appraising a veterinary practice examines two other key areas. The first of these is the owner’s SDE, which stands for seller’s discretionary earnings. This is calculated by combining the EBITDA with the practice owner’s benefits and income. And the second of these is the practice owner’s net income, which defines the practice’s earnings after all the practice’s expenses have been deducted.
Additional Valuation Factors
In addition to those issues discussed above, there are a variety of other factors to consider when valuing a veterinary practice, many of which can have legal implications. As opposed to valuation methods like EBITDA, several of the other valuation factors are somewhat subjective, making it difficult—if not impossible—to value your practice without the assistance of one or more qualified professionals. Ultimately, arriving at an accurate value of your practice will determine the success of the transaction. Therefore, if you are considering selling your practice, you should contact an experienced veterinary attorney for assistance.
Contact Our Experienced Veterinary Attorneys
If you are a veterinary practice owner and considering selling your practice, you need an experienced veterinary lawyer on your side. At Mahan Law, we will use our significant legal knowledge and vast network of co-counsel attorneys to help facilitate the sale of your veterinary practice. Whether you need help identifying potential buyers, valuing your practice, or taking any of the other key steps required to sell your practice, our lawyers will strive to ensure that your transaction is a success. Please contact us today to arrange a consultation with one of our talented veterinary professionals.