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How is a veterinary practice actually valued?

A veterinary practice is valued on its adjusted earnings — EBITDA after legitimate add-backs and after recasting owner compensation to what it would cost to replace the owner's clinical production — multiplied by a market factor that depends primarily on doctor count and the type of buyer.

Most owners assume value tracks revenue. It tracks earnings, and specifically it tracks the earnings a buyer believes will still be there after you leave.

That is why the adjustment work matters more than the arithmetic, and why we do it before a buyer does.

We underwrite the practice before we take it to market, so when an offer comes in low we know precisely why it is low and can show the buyer their own numbers back. That is a different conversation from the one you have when the buyer is the only party in the room who has done the analysis.

The honest caveat: a valuation is a range until a buyer signs. What we produce is a defendable number — one we can support line by line to a private equity group's diligence team — not a promise of a sale price.

How the earnings figure is built

How adjusted earnings are built: reported earnings, plus legitimate add-backs, with owner compensation recast to replacement cost, producing a defendable EBITDA.
Reported earningsWhat the tax return shows
Add-backsPersonal expenses, one-time costs, family payroll, owner-only travel
Owner compensation recastReplaced with what it would cost to hire a doctor to produce what you produce
Defendable EBITDAThe number a buyer's diligence team can verify line by line

A multiple is then applied to that figure. What it is depends mostly on how many doctors produce the revenue — see the bands below.

What that figure gets multiplied by

Typical multiples of adjusted earnings, by doctor count: roughly six to nine times for a single-doctor practice, and nine to twelve times or more where two or more doctors produce the revenue. These are ranges we see in practice, not a quote — a two-doctor practice whose revenue depends on one producer has priced near eight times.
One doctor6–9×
A single producer
Two or more9–12×+
Revenue spread across doctors — the mark at 8× is a real two-doctor practice, priced below the band because one doctor produced most of the revenue.

These are the ranges we see, not a quote. Every deal is different — a practice where one doctor produces most of the revenue can price below its band, because the buyer has to plan for replacing that person.

Related

Veterinary Practice Brokerage →Quality of Earnings Review →Practice Optimization Before a Sale →Data Room Preparation →

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