For years, veterinary practice owners assumed that when they wanted to sell their practices, buyers would be available to
purchase them at a good price. Sure, a few practices had problems—they couldn't find buyers, or at least buyers who'd pay
what owners thought the practice was worth. But these practices were easy to identify. They were smaller, with older facilities
and outdated equipment, and they pulled in relatively little revenue. Fortunately, there weren't many of these troubled hospitals
Dr. Karen E. Felsted, CPA, MS, CVPM
Today things have changed. In the past few years, the number of practices with little or no value has been increasing. The
valuation committee of the Association of Veterinary Practice Management Consultants and Advisors (AVPMCA), of which I'm a
member, has even coined a term to describe these practices: "No-Lo Practice," short for no-value/low-value.
More and more practice owners are surprised when they receive no-value or low-value appraisals. Some of these practices are
similar to the historically low-valued hospital: They tend to be small, mismanaged, and unable to keep up with client demand
for better service, high-level medicine, and an attractive facility.
Other practices, however, surprise even the experts. On the surface they look great. They're in beautiful facilities with
talented doctors and large support staffs, and they're providing good care with all the latest equipment. They offer comparatively
high compensation and employee benefits, and in the owners' eyes, cash flow is strong.
The bottom line
So what's gone wrong? Why are these practices not worth what you'd think?
Peeking into profitability
Profitability is the top factor in determining a practice's value. Whether a hospital is housed in a gleaming 20,000-square-foot
facility or a falling-down shack, if it's not profitable, it has little value beyond the tangible assets.
Because of this, profitability is one of the most important aspects of managing and, eventually, appraising a hospital. But
it's not an easy number to determine. Standard financial or management reports don't show it—not taxable income from a tax
return, not net income from a profit-and-loss statement. That doesn't mean those reports have been improperly prepared; it
simply means they weren't designed to determine profitability. Most practice owners and managers aren't used to figuring out
their own profitability. So, often, the first time they come face to face with the true value of their practice is when their
appraiser talks to them about it.
The irony is that the arithmetic isn't hard: To find out a practice's profitability, you simply subtract the operating expenses
from the operating revenue. The challenge is digging out some numbers you're probably not used to looking at in determining
true operating revenue and expenses.
Operating revenue and expenses include items seen in day-to-day operations, such as fees for services and drugs and the cost
of medical supplies. These items are listed at fair market value. For ease of comparison with other practices, profitability
is stated as a percentage (the profit margin) and is calculated by dividing operating profits by gross revenue.