Vet Practice Sales: Paying for Potential

When selling any business, a seller will try to describe the business not just as it is, but also as it could be. Being able to show untapped potential and unexplored opportunities can mean a significant premium paid above and beyond what the financials of your veterinary practice would suggest.

What opportunities might buyers be willing to pay a premium for?

Excess Capacity

The term “excess capacity” describes a situation in which actual production is less than what is achievable for a business.

Ways of showing excess capacity in a veterinary practice could include:

1.    A room in the premises that could one day be converted into another exam room, which would allow the practice’s production to grow beyond its current limitations, without having to move.  

2.    A council permit allowing more practitioners to work in the premises than there currently are, or for the practice to be open more hours than it currently is.

3.    Having low fees when benchmarked against other practices in the area.

4.    An appointment book that is full, far into the future.

5.    Hours currently not worked by the practice or any vet in the area (for example, evenings or weekends).

Unrealised Opportunities

1.    Having achieved current practice figures with little or no advertising.

2.    Opportunities for prominent signage that have not been utilised.

3.    Recent investment that the practice has undertaken that is not yet reflected in the practice production, but is likely to in the near future (a new X-ray, new signage, rebranding, etc).

4.    Demographics in the area that have not been catered to by the practice thus far (for example, approval for new residential developments) that could be incorporated into the practice for future growth.

Under-Servicing

Any potential underservicing by the practice that can be rectified by a future owner should be made explicit.

Examples of this could include:

1.    Significant amounts of lucrative treatment being referred out, which could be kept in-house if the buyer has certain clinical skills (for example, orthopaedic surgery, cardiology, ophthalmology).

2.    Poor participation in continuing care/regular check-ups.

3.    If the practice operates reduced hours (for example, the practice is not open on Wednesdays or only open half-days on Fridays).

4.    Any historical closures of the practice that will not need to be repeated by a buyer. For example, if the practice was closed for three months last financial year, for long holidays, renovations, flood, etc.

Changes in the Market Place

1.    Any impediments to the business that have been or are about to be removed. For example, road closures in the area that are being opened, or renovations to the practice’s façade, which are nearly finished.

2.    Any developments in the area that might impact positively on the patient-base (for example, a new large medical facility, residential development, train station, industry moving to the area).

The above items are a few of the many ways that might show potential future growth to a buyer, in order to maximise the asking price of a veterinary practice.

Being able to identify and highlight this hidden wealth in a practice is not something that could be done by an accountant alone, or a generic business valuer. It takes a trained eye, with extensive experience in the industry and many transactions under their belt.