As a practice buyer: Would you rather be right or rich?

Most business purchasers will rely on a valuation to tell them the ballpark of what things should sell for. For some vets, whose cognitive strengths and training up until that point have been scientific in nature, the desire to adhere to guidelines like a formula can be greater and more inflexible than for others.

Many a time I have come across a vet that has been looking for the right practice to buy for quite some time, only to turn down an opportunity that was otherwise perfect for them because their appraisal formula told them it was overpriced (sometimes by as little as ten or twenty thousand dollars).

These buyers are not uninformed. They argue their position, armed with spreadsheets and formulas, correspondence from reputable accountants and real estate agents, to justify their position. All of this research may be 100% accurate and valid, but it just plain misses the point. 

1. You should absolutely use a valuation to inform your decision making, but it isn’t meant to be rigidly held on to without some flexibility and ability to compromise. 

Lately, every city and town of Australia has had stories of real estate selling for record prices at auctions, way above the reserve. If you went to one of these real estate auctions and told everyone to stop bidding because the price had gone above the reputable valuation that you had done, you would be laughed out of the room.

Simply put, a vet practice that is sold on the open market with competitive tension doesn’t strictly adhere to a valuation or formula. Something will sell for what the market will bear. 

1. If you are relying solely on a valuation to give you a price, how do they:
2. Factor in the opportunity cost and frustration involved in inaction for you? How much is it currently costing you, not being able to set your own fees, and have clinical independence? How much is it costing you in lifestyle, not being able to set your own hours and decide when you can take holidays?
3. Know how often or rare it is for a practice that is right for you comes on the market? It could be another year or two till another opportunity like this comes up.
4. Value the opportunities of a vet practice purchase, like poor competitors, low fees, underservicing or poor availability?
5. Factor in the supply and demand that exists for practices like this, one at the time? 

Surely each of these could deserve some price consideration that cannot be accurately factored into the appraisal?

 Conclusion

There are two points that I am trying to make with this article:

1. You may be 100% correct in your research and appraisal. You may be able to sleep happy, knowing that you didn’t pay $20k more than your research and advice dictated. However, your reward for sticking to your guns could be staying in your underappreciated job, watching as the (more flexible) buyer of your perfect practice takes it from strength to strength and becomes wealthy in the meantime.

Sometimes, in business negotiation and acquisition, you need to choose to be either right or rich. You can win the battle by adhering to your formula and not being flexible on price and terms, only to lose the war in overall wealth creation. 

1. There is no valuation that can factor in the strengths of your preferences and your opportunity costs of inaction. Valuations are valuable to inform your decision making but at the end of the day, the question isn’t “what the opportunity is worth according to this formula, the real question is:

What is the opportunity worth to you?