The no-lo practice: Avoiding a practice worth less (Sponsored by AVPMCA)
Jan 01, 2008
CUSTOM VETERINARY MEDIA
ANSWER THIS QUESTION:
Do you view practice ownership as job security or as an investment?
If you own or you plan to own a veterinary practice, you owe it to yourself to keep reading. The steps you take now can have a significant impact on your practice value and your ability to attract a qualified buyer. Even if your practice generates enough money to meet your personal and practice cash flow needs, would a potential buyer find that sufficient? Your needs are different from what a buyer may expect from your practice. After all, a buyer will be making payments on debt to acquire your practice and will expect the practice to generate those funds.
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 Valuation Issues Committee of the Association of Veterinary Practice Management Consultants & Advisors (AVPMCA) 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.