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Having your practice appraised is a wise business decision, even if you’re not looking to sell. A thorough appraisal will give you insight into the strengths and weaknesses of your practice and provide the data you need to plan and manage your business strategically.
And if you are in the market to sell, an appraisal will give you a healthy sense of your practice’s worth and what you might stand to gain from a sale. As a new owner or lead veterinarian, the information provided by a valuation will provide key information to navigate practice transitions.
If the process feels intimidating, never fear. Here at AmeriVet, we’ve done it hundreds of times before, and we know how to make it as smooth as possible.
What is a veterinary practice appraisal?
A veterinary practice appraisal is a detailed assessment of a clinic’s value at a particular time. Let’s look at each component of the definition more closely.
Detailed assessment: An appraisal considers all sides of your business. And we mean all sides—from finances to profitability, geographic location to the state of your equipment, the skill level of your staff to the demographics and size of your client base. No stone will be left unturned, no corner unexamined, and no file unopened throughout the process of getting your veterinary practice appraised.
Of a clinic’s value: Each and every veterinary clinic is unique, with its own strengths and weaknesses. The appraiser needs to understand the nuances of each practice, the level of care provided, and the inherent worth of both. An appraiser must have a keen understanding of a business’s finances in general and be well-versed in the veterinary industry.
At a particular time: The market will change, profitability will change, and clientele will change. An appraisal provides insight into how the practice is doing right then and there. For that reason, lenders typically honor appraisals conducted within the past 90 days.
An appraisal costs anywhere between $5,000 and $20,000, depending on the size and complexity of your clinic. It is important then to think through when you will have your company appraised–it’s no small investment.
Why would you need to complete a veterinary practice appraisal?
There are several reasons why practice owners decide to have their clinic or hospital appraised.
- To bolster strategic management planning: An appraisal gives a clear sense of how your business is doing, providing excellent insight as you make management decisions and plans. Let’s say you’ve implemented a long-term plan to improve gross revenue. An appraisal will help measure the efficacy of such a plan. It also gives you a sense of how much growth your practice has experienced and how it will likely continue to grow.
- During changes in practice management: Knowing the value of the practice provides valuable insight amid vulnerable transition periods. It gives you critical information as you navigate practice sales, mergers, and changes in leadership.
- To assess a practice’s value before selling: This is one of the most common reasons to have your practice appraised. It is recommended that veterinary practice owners complete an appraisal three to five years before they plan to sell. This will give you time to make adjustments to boost your practice’s value and profitability, making it even more marketable when it comes time to sell.
- Other situations: It can also be essential to conduct an appraisal when facing tax court or other legal disputes, such as the dissolution of a marriage or partnership.
No matter the reason for getting your practice appraised, doing a thorough and detailed job is critical. Make sure to find an appraiser you trust and who has a deep understanding of the veterinary industry.
What is the difference between an appraisal and a valuation?
It is not uncommon for people to use the terms “appraisal” and “valuation” interchangeably. But there is a crucial difference between the two. The easiest way to understand the difference is that an appraisal assesses a veterinary practice’s tangible assets, such as real estate and equipment. A valuation looks at both its tangible and intangible assets to determine its fair market value.
An appraisal is conducted by a professional appraiser and can be used to set a sale price. But it does not have legal standing. The valuation process is more holistic and assesses each part of your animal practice in light of its risks and liabilities.
In other words, an appraisal is one piece of a valuation.
Veterinary practice appraisal FAQs
What is the average number of days a veterinary practice takes to sell?
It typically takes six to eight months to sell a practice. This includes the initial three to four months when you get to know a buyer and ensure it’s the right fit.
If you decide to move forward with a buyer, the process from Letter of Intent to closing of the deal is, on average, three to four months.
You can learn about the process of selling a veterinary practice here.
Which factors are considered when appraising a veterinary practice?
Investing the time and energy—and using true industry experts—is necessary to gain an accurate picture of the value of your practice. AmeriVet works with industry experts to conduct income-based appraisals to determine value by capitalizing earnings. This is an incredibly precise method. We assess the following areas to determine worth:
- The profitability of the practice
- Tax returns & financial statements
- Net cash flow
- Where the practice is located
- The state of the facility and equipment, including the physical building, furniture, equipment, and technology
- The practice’s reputation in the community
- The quality of employees
- How loyal the client base is
- The existing owner’s transition timeline
- Quantity and quality of competitors
- The state of the economy and veterinary industry
As you can see, assessing a practice’s value is no simple matter. It is a complex puzzle that takes hard data, like financial statements, places it in the context of intangible assets, like reputation and quality of employees, and calculates an accurate appraisal of your practice. Why leave this up to novices? Contact AmeriVet today to see how we can work together to conduct a veterinary practice valuation.