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Buying A Veterinary Practice

An In-Depth Look at the Forces Driving Low-Profit Practices

Sep 12, 2017 9:54:30 AM

shutterstock_453461743.jpgWhat is it that makes some veterinary practices sail ahead at full speed while others languish at a barely profitable pace? It's difficult to say that there's a single reason for this phenomenon, but there are some common problems that practice owners are faced with. Here are some of the biggest reasons that practices fail to make big profits today.

Failure to Understand Valuations

The first problem that we often see is a failure of owners to understand what makes their practice profitable. Even though a practice may earn the owner a good living, their paperwork may not reflect this profit. This often leads to scenarios where practice owners assume their practices are profitable while failing to see the bigger picture.

Not only are appraisal practices unpredictable and difficult to understand, there is also plenty to be said about how profits look at tax time. Since our current tax code incentivizes write offs and deductions, even a profitable practice can appear barely above water when it comes time to file. Since no owner wants to take a beating on their taxes, they tend to focus more on finding ways to reduce tax liability than to actually boost visible profits.

Lack of Desire

Another common issue we find is that practices are being run at no or low profit to enhance a higher quality of life for the veterinary practice owner. Some practice owners value the freedom of Setting their own schedule and working the hours that suit their lifestyle more than they value huge profits. Often times breaking even is sufficient to give them the lifestyle they wish to lead with little regard for how their practice will look in the future if they ever decide to sell. Sometimes the owner of the practice works less while the practice depends heavily on paying other veterinarians to run the day-to-day operations. This can lead to a ballooning of labor costs for practices and less take-home income for the veterinary practice owner.

Both of these scenarios have contributed to an atmosphere of low-profit practices. For the most part, practice owners can operate their practices at no or low profits for an extended period of time with few repercussions. However, when the time comes to sell, the practice valuation could be significantly damaged by years of showing low profitability. This usually comes as a shock to the seller since they've been living comfortably all along.

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