If you are a veterinary practice owner, you have likely heard about the strong valuations in today’s market. Corporate interest has grown significantly, creating a major opportunity for owners looking to sell or partner. The demand from private equity and large consolidators means that practice values have more than doubled in recent years.
Getting a proper valuation, however, is more than a simple formula. It’s about understanding the complete story your financials tell to sophisticated buyers. This guide will walk you through the modern process, showing you how your practice is truly assessed and what you can do to prepare for a successful outcome.
Section 1: The Starting Point: Calculating Your Adjusted EBITDA
The foundation of any modern practice valuation is a metric called Adjusted EBITDA. This stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. Buyers use this number because it gives them the clearest picture of your practice’s operational cash flow and profitability, independent of financing decisions or accounting methods.
The key word here is “Adjusted.” Your standard profit and loss statement doesn’t show a buyer what they want to see. We need to “normalize” the earnings by adding back expenses that are specific to your ownership and would not continue after a sale.
Common adjustments for a veterinary practice include:
* Owner’s Salary: Adjusting your compensation to a fair market rate for a DVM in your position.
* Discretionary Spending: Personal auto leases, family members on payroll who are not active in the business, or above-market continuing education trips.
* One-Time Expenses: A significant equipment repair or a one-off legal fee that won’t recur.
Here is a simple example. Your practice shows $400,000 in net income. You pay yourself $300,000, but the market rate for a lead veterinarian is $150,000. You also run a $15,000 auto lease through the business.
- Reported Net Income = $400,000
- Add back excess salary = $150,000
- Add back auto lease = $15,000
- Your Adjusted EBITDA = $565,000
Getting this number right is the most important step in the entire process. To understand this metric fully, you can read our guides on EBITDA Explained for Physicians and our detailed EBITDA Normalization Guide.
Section 2: Determining Your Multiple: What Are Buyers Paying?
Once you have your Adjusted EBITDA, the next step is to apply a valuation multiple. The market for veterinary practices is very active, and multiples have risen sharply. Today, practices often sell for 8 to 13 times Adjusted EBITDA, a substantial increase from the 5x to 6x multiples seen just a few years ago.
This multiple is not a single number; it’s a range. Where your practice falls in that range depends on factors that reduce a buyer’s perceived risk and signal future growth.
| EBITDA Size | Typical Multiple Range |
|---|---|
| <$1M | 8.0x – 9.5x |
| $1M – $3M | 9.5x – 11.5x |
| $3M+ | 11.0x – 13.0x+ |
Factors that push your multiple toward the higher end of the range include:
- Provider Reliance: A practice with multiple associate DVMs is less dependent on the owner and therefore more valuable than a solo practice.
- Service Mix: Offering specialty, emergency, or ancillary services like grooming and boarding diversifies revenue streams.
- Location and Facility: A modern, well-equipped facility in an area with strong population growth commands a premium.
- Financial Stability: A history of consistent, growing revenue and healthy profit margins gives buyers confidence.
While these multiples are specific to veterinary medicine, you can see how they compare by looking at our overview of valuation multiples by medical specialty.
Section 3: From Gross Value to Net Proceeds: What Do You Keep?
The “Enterprise Value” (EBITDA x Multiple) is the headline number, but it’s not what you deposit in the bank. To figure out your net proceeds, you have to make a few final calculations.
The basic formula is Enterprise Value minus Debt, plus or minus Working Capital, minus Transaction Fees.
- Debt: This includes any outstanding equipment loans, lines of credit, or other business loans that must be paid off at closing.
- Working Capital: This adjustment ensures the business has enough cash on hand to operate smoothly for the new owner. It is typically a small adjustment in veterinary practices.
- Transaction Fees: These are the costs for your M&A advisor and legal counsel.
In many modern deals with private equity, you may also see other components like Equity Rollover, where you retain a percentage of ownership in the new, larger company. This gives you a chance for a “second bite at the apple” when that larger company is sold again. An Earnout is another common term, where a portion of your proceeds is paid out over time if the practice hits certain performance targets.
The specifics of these terms are often outlined in different private equity deal structures, and understanding the impact of M&A advisor fee structures on your net proceeds is a key part of planning.
Section 4: Common Missteps in Valuing a Veterinary Practice
Many practice owners leave money on the table because of simple, avoidable mistakes. Preparing in advance helps you avoid these pitfalls.
- Relying on old rules of thumb. Valuing a practice as a percentage of revenue is an outdated method that fails to capture the true profitability that buyers care about today.
- Not normalizing EBITDA correctly. This is the most common error. As an expert at the Ackerman Group noted, “Many practice owners tend to underestimate their actual EBITDA because their accountants are focused on reducing profits to pay less tax. When you are looking to sell, you want to show the maximum profits.”
- Ignoring the value of a competitive process. Accepting the first offer you receive is rarely the best way to get the highest price and best terms. A structured process creates competition among buyers.
- Having messy financial records. Buyers and their advisors will conduct deep financial due diligence. Unorganized books create delays and can kill a deal.
A Final Thought on Your Practice’s Value
Determining your practice’s worth is both a science and an art. It requires accurate math, a deep understanding of current market conditions, and a compelling story that highlights your practice’s future potential.
The highest valuations are not found by accident. They are achieved by owners who prepare their practice well in advance and run a structured, competitive sale process with an expert advisor who has been there before.
Curious about what your practice might be worth in today’s market? Request a Complimentary Value Estimate →
Frequently Asked Questions
What is the foundational metric used to value a veterinary practice?
The foundational metric used to value a veterinary practice is Adjusted EBITDA, which stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It reflects the practice’s operational cash flow and profitability, adjusted to normalize earnings by adding back ownership-specific expenses.
How do you calculate Adjusted EBITDA for a veterinary practice?
To calculate Adjusted EBITDA, start with the practice’s net income, then adjust by adding back owner’s salary to a fair market rate, discretionary spending such as personal expenses run through the business, and one-time expenses that won’t recur. For example, if net income is $400,000, owner’s salary adjustment is $150,000, and auto lease $15,000, the Adjusted EBITDA would be $565,000.
What valuation multiples do veterinary practices typically sell for in today’s market?
Veterinary practices typically sell for multiples ranging from 8 to 13 times Adjusted EBITDA today, up from 5x to 6x a few years ago. The multiple depends on EBITDA size: less than $1M earns 8.0x – 9.5x, $1M-$3M earns 9.5x – 11.5x, and over $3M earns 11.0x – 13.0x or more.
What factors influence where a veterinary practice’s valuation multiple falls within the typical range?
Factors that push the valuation multiple higher include having multiple associate DVMs (reducing owner reliance), offering diverse services like specialties or emergency care, a modern and well-located facility in a growth area, and a history of consistent revenue growth and strong profit margins.
What are common mistakes to avoid when valuing a veterinary practice?
Common mistakes include relying on outdated valuation methods like a percentage of revenue, not properly normalizing EBITDA which can understate profit, ignoring the benefits of a competitive buyer process, and having unorganized financial records that can delay or jeopardize a sale.