Reader feedback: The nuances of veterinary practice valuation
A response from one reader regarding a previous article on how to calculate your practice's value.
In her recent article, “What is your veterinary clinic worth?” (March 2021) Karen Felsted, DVM, MS, CPA, CVPM, CVA, makes the following statement: “As the saying goes, your veterinary practice is worth what someone is willing to pay for it. However, if you’re trying to do some financial planning, that saying isn’t a very helpful or specific answer. Fortunately, better information exists.” While the article is helpful, it fails to elaborate on how the sale process can influence sale valuation. I think failing to do this does a disservice to veterinarians.
Most practice owners don’t get their practices valued regularly. For many, the price and time commitment is too high even if regular valuation could be a useful tool for business planning. Practice owners commonly get a valuation to “test” an offer to buy their practice. Depending on what the valuation shows, the veterinarian might accept the offer or ask for more money. The problem is that this is not the right process in which to sell a practice because there is no price discovery. The valuation one gets from Felsted and others, including VetValue (the company I founded), is just 1 data point, 1 opinion. Each potential buyer will value a practice differently, and a third party has no way of knowing where that valuation will land. Using an appraiser to decide whether to accept an offer in a sale process without price discovery almost always results in the veterinarian selling their practice for way less than it is worth. I see this happen every day.
I think all doctors would benefit from articles like this if they were more explicit about the appraisal result’s value as a predictor for what can be achieved by a committed seller using the correct process to sell their practice. Maybe a disclaimer: “Do not use an appraisal, or valuation, in lieu of running the correct sale process to sell your practice. If you want a valuation to prepare for a practice sale, please consult an expert.”
The primary focus of my article was the importance of profitability in driving practice value; the sale process Mr Taylor mentions was outside the scope of my article. Having said that, this certainly brings up a couple of important points worth considering:
- Mr Taylor’s comments apply primarily to those who are interested in selling to a corporate group because there is a great deal of competition for those practices and multiple potential buyers. This isn’t true of most noncorporate sales; the concept of “price discovery” doesn’t exist in the same way because there are usually significantly fewer buyers for a particular practice.
- The concept of obtaining multiple offers isn’t a new one; all the consultants I know who work with practices selling to corporate do this.
- Getting multiple offers may not be as common among those sellers who handle the process themselves but should certainly be considered.