The no-lo practice: Avoiding a practice worth less
Apr 01, 2009
CUSTOM VETERINARY MEDIA
ANSWER THIS QUESTION: Do you view practice ownership as job security or as an investment?
Just as you recommend regular exams for your clients' animals, you need to conduct a self-exam on your practice's health. In particular, you need to examine your true profit, which is an important component of practice value. Unfortunately, that hasn't been easy to do. The accounting principles that drive the reports you see are largely tax-driven (i.e., your financial statements are designed to minimize your profits to reduce your income taxes, not to give you a snapshot view of your practice's financial health).
In the absence of a reliable method for knowing if your practice is financially healthy and thus building value, you may own a practice that has little or no value. In the last few years, the number of practices with no value or low value has increased— to the point where the VetPartners coined the term No-Lo Practice to describe these businesses.
This insidious disease is particularly dangerous because owners are often caught totally unaware until they try to sell the practice and a qualified practice appraiser gives them the bad news. That's much too late—by then the practice may be too infected and too diseased for short-term treatments to cure the illness quickly. As valuators, we don't like giving owners bad news, so we want to help you self-diagnose if you have a problem and show you how to fix it before it's time to sell.