How To Better Understand What Your Practice Is Really Worth

Being an entrepreneur demands that you ensure that your business flourishes in the long run. One salient area of concern is placing a dollar value on your practice and evaluating the business’s worth.

While performing a valuation of your business may be the least of your concerns as long as you continue to pay your bills and provide quality services to your clients and patients, it is nevertheless a crucial aspect of selling it if the opportunity arises.

If you have stumbled upon this blog as a veterinary practice owner, you likely want to have a good understanding of how to value your business. This article will go through a set of valuation techniques to help you evaluate your venture and derive the best possible value for it.

Importance of Valuing Your Veterinary Practice

Understanding the true worth of your veterinary practice can help you master your business in its respective market. The most prevalent reason you need to do this is to calculate the profit your business can potentially make should you decide to sell it. Knowing the cost of your services, along with an estimated selling price, is integral in understanding the business valuation process.

That not only accounts for your business’ value but also relieves each partner’s share, so in case you wish to continue your veterinary practice in a partnership, you know exactly how much each partner’s share is worth. If you think these are all the benefits of valuing veterinary practices, you are wrong. If you ever wish to take out a capital loan on behalf of your business but are too afraid to risk a trip to the bank for the loan itself, a viable valuation will help you here too.

If you are unsure whether you can properly evaluate your business, it is best to reach out to veterinary practice valuation professionals. They can help determine your practice’s minimum value and provide corporate buyers active in the market with an accurate and comprehensive business valuation report.

What Determines the Value of Your Practice?

Various essential drivers influence the value of your veterinary practice. These include:

  • Location: Practices located in urban areas are an attractive option for investors and command higher valuations because they witness high amounts of foot traffic compared to practices in rural centers where the clientele may not be as consistent or reliable.
  • Assets: Practices with state-of-the-art equipment and up-to-date amenities ensure that the new business would not have to replace the assets anytime soon, thus are valued higher.
  • Practice Size: A veterinary clinic with multiple doctors will be worth much more than one with a solo practitioner. That is because if one member of the practice decides to quit, the practice would continue as there would be other professionals to do the job.
  • Specialization: Small animal veterinary practices are generally more valuable than large ones as most people keep small animals as pets. Accordingly, they are more likely to have a strong client base.
  • Reputation: A well-established business with a positive reputation will secure a higher valuation than its competitors.

Primary Ways of Valuing Your Practice 

When determining the value of your veterinary practice, you need to account for the standard value, as it influences the process itself. Always opt for using a fair market value as the standard of value to avoid confusion and misrepresentation.

Next, dive into the three basic valuation techniques to help you discern your practice’s worth and get the best deal for it.

Income Approach 

Through this approach, the veterinary practice business owner needs to dive deep into the cash flow of their business and measure the predicted cash flows, including past earnings and projected revenue. That is rather integral as the value of the business largely depends on the business’s ability to generate cash flow. Cash flow also helps predict the growth of the veterinary practice and its risk levels.

Market Approach

When estimating the worth of your business, you need to keep an eye out for all the other practitioners in the particular geographical location. After all, competition, even in practice, can make or break your business. This notion is called the market approach, where you analyze the value by comparing the value of similar practice sales in the area.

However, as most acquisitions are private, it can be challenging to obtain reliable data from public companies and evaluate the practice accurately.

Asset Approach 

The asset approach circles around predicting the value of the veterinary practice’s total asset value, including measuring the tangible asset worth, including machinery, property, and inventory. This approach also factors in intangible assets like goodwill. That comprises the reputation of your practice, its customer base, and the value of future patronage. 

Now that you are well-versed with the importance of valuing your business as well as three highly advisable ways to do so, are you ready to reach out to a sound professional that can help you get things in order? About time you collaborate with a team of valuation experts to arrive at a fair and accurate value of your veterinary practice.