How Much is my Practice Worth?
I’m constantly surprised that many veterinarians think they cannot sell their practice, or that think a practice always sells for "one year's gross". Don't believe the gossip you hear on the golf course or at the local veterinary society meeting. Not every practice sells...but practices sell regularly, and many for a surprisingly good price.
Why do people buy practices?
- Scratch startups take more time, effort, and risk.
- It may be the only way to enter some markets.
- To earn above average salary.
- Often more profitable than a startup (even after purchase loan payment).
What do practices sell for?
There is no single magical formula to valuing any business, especially a veterinary practice. Though many people still want a rule-of-thumb; so here are a couple rules-of-thumb:
- Most practices will sell for between 1x to 4x annual net earnings.
- Most practices will sell for 60% to 80% of annual gross collections.
Why is the Price Range so Wide?
One factor is practice specialty type. Average practice price ratios and ranges differ for a small animal practice vs. a ER practice vs. a performance equine practice vs. a housecall practice, etc. Why the general differences? Certain types of practices tend to have more equipment, or higher veterinarian compensation expectations, or different profit centers with different profit margins, or are more dependent upon the veterinarian’s personal reputation, etc.
Within practice specialty type, there are a number of factors that determine whether your practice will sell for above or below the average. At veterinary practice Brokers we look at 41 different practice characteristics to help determine practice value. Sample factors include:
- Income history
- Transferability of goodwill
- Income centers (e.g., professional services, grooming, kennel/boarding, drug wholesaling, etc.)
- Provider hours worked & production
- Payer mix
Published data show that veterinary practices sell for an average of about 70% of annual collections. Practices will sell for ±2 std dev below or above the average sales price, with the majority selling for between 55%-85%. But some are selling for much less, and others as high as 100% of annual collections. As you can see, there is a very wide spread.
Can you sell your practice?
Chances are that, yes, you can sell your practice. Will your practice sell for 100% of one year's gross income? Probably not; unless your practice is in the top 5% of all practices nationwide. Most practices in or near major metropolitan areas will take 6 - 12 months to find a buyer. Practice located in rural areas or that are underperforming practice may take much longer to sell. Call today for a free telephone consultation at (719) 487-9973 or email firstname.lastname@example.org.