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Practice Valuation

Sean Coyle


There are a number of ways to value a veterinary practice. We utilize the cash flow method because an educated buyer shouldn't agree to pay a purchase price that can't be supported by the practice cash flow. In other words, buyers don't want to take a pay cut to buy a practice. Under this method the normalized earnings need to be enough to pay the debt service on a 10 year loan in the amount of the purchase price, on an after-tax basis. To determine normalized earnings we obtain three prior years' tax returns for the practice as well as production reports and identify expenses that a buyer may not incur (commonly referred to as add-backs) to arrive at normalized earnings. Fair compensation to the buyer must be deducted as part of the normalized earnings calculation. We have developed a proprietary tool to demonstrate that the purchase price will cash flow over ten years on an after-tax basis assuming that the practice achieves normalized earnings each year. 


Kevin Long, Esq

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