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Don't Wait to Improve Your Practice Value

By: Gavin Shea

If you are planning to sell your veterinary practice in the foreseeable future, consider getting a realistic idea of its current value while you still have time to make an impact. Improving your practice value not weeks or months, but years before you are ready to sell may help you increase profitability now and command an attractive price when it's time to transition to a new owner.

How practice value is determined

The value of your practice is based on its true profitability as determined by a professional appraiser. Profitability is defined as the financial return for owning and operating the business, and encompasses the revenues remaining after:

  • Paying all the customary operating expenses of the practice (including salaries),
  • Paying a fair market rent (even if you own the real estate), and
  • Fairly compensating yourself as a practicing veterinarian.

Practice value also encompasses the real and intangible properties that make a veterinary hospital an attractive investment for potential buyers, such as exceptional management practices and a proven track record of generous, stable net profits. Highly valued practices are typically:

  • Well equipped with current technology that is in good repair;
  • Physically attractive with a staff that delivers outstanding customer service;
  • Multi-doctor practices offering a full range of veterinary services, from boarding and grooming to laser surgery and advanced medical care.

Veterinary hospitals that are not managed with this level of staff efficiency and technological advancement may not expect to achieve the highest valuation when it comes time to sell the business. In a worst case scenario, practices that have failed to create an environment that is appealing to potential buyers may find they are not only unable to command an attractive price - they may have to settle for less than expected and may have to wait a bit longer

5 ways to build practice value

The good news is that any veterinary practice can be improved with proper planning to help build both real and perceived value. The secret is to start with clean financial reports, and then work step-by-step to enhance your facility and services. Here are five steps that can help you build practice value:

  1. Track your income and expenses by profit center, making sure to remove items that are not true operational expenses.
  2. Keep your facility and equipment in good repair.
  3. Offer the best quality services and medicine.
  4. Implement internal systems to effectively remind clients of needed services, and capture charges.
  5. Invest in the education of your staff - they have the largest impact on what your clients experience at your hospital.

When to perform a practice valuation

Practice owners may wait until they are ready to sell their practice to perform a practice valuation. But a valuation by a professional business appraiser who specializes in veterinary hospitals can also be a powerful practice management tool, even if you're not planning to sell in the short-term. The valuation analysis can diagnose the financial health of your practice, giving you an understanding of what improvements your practice may need now in order to position your business for increased profitability and maximize your return at the time of sale.

Consider making those necessary changes to improve practice value at least three to five years in advance of a sale. Research veterinary practice upgrade and expansion financing to help you build a practice that will be sought after by potential buyers. The investment in your practice can pay for itself when it comes time to transition to a new owner.

About the Author

Gavin Shea is the National Director, Healthcare for Wells Fargo Practice Finance. With more than 17 years of banking experience with an emphasis in practice lending, he leads sales and marketing strategy development and implementation throughout the national footprint. His industry background offers practitioners a unique perspective as they approach some of the most important decisions in their professional lives. With more than 30 years of practice lending experience, Wells Fargo Practice Finance specializes in helping healthcare professionals acquire, start and expand their practices with various financing options and a signature Practice Success Program. Contact: gavin.m.shea@wellsfargo.com or 844-626-4317

View all articles by Gavin Shea

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All financing is subject to credit approval.

All financing is subject to credit approval.

All financing is subject to credit approval.

All financing is subject to credit approval.

All financing is subject to credit approval.

All financing is subject to credit approval.

All financing is subject to credit approval.

All financing is subject to credit approval.

All financing is subject to credit approval.

All financing is subject to credit approval.

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