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Buying A Veterinary Practice

The Risks of Owner Overvaluation

Jul 24, 2017 12:18:58 PM

shutterstock_72431620.jpgValuing your practice can be a very difficult task. After all, it is reducing a lifetime's worth of work and dedication to a simple price tag. Oftentimes owners assign more value to their practice than it may actually be worth due to emotional connections to the practice itself. There are a number of risks associated with overvaluation that you should be aware of.

Ostracizing Buyers

The first problem with overvaluing a practice is that it may put you well beyond the market for your area, eliminating would-be buyers right from the get go. A savvy buyer is going to take into consideration the entire market, and if your business comes in significantly higher than average, they probably won't even bother looking at you, or they'll assume that you're not serious about selling. Nothing will be more frustrating than having your practice for sale for a prolonged period of time with no interest.

Losing the Sale

There's also the potential that somebody will come along and gets really excited about having such a valuable practice as yours. You may go under contract and begin all of the steps to make the deal happen, only for them to discover during their due diligence period that your business is significantly overvalued based on actual revenue numbers. Now you're faced with renegotiating the deal or losing the sale altogether. If you lose the sale, you've now lost weeks or months of planning and preparation for a deal that no longer exists.

Losing the Practice Reputation

One element of the business that is most often overlooked is the practice's goodwill value. If you are the practice owner and you've built a personal relationship with many of your clients over the years, it can be hard to separate your from the practice itself. The reputation of the practice in this case may be based on the reputation of the owner veterinarian. Unless you stay with the practice as an associate for a long period time, the value associated with your patient relationships may be lost as soon to depart. In this case, the practice will be worth less than it would be with a long smooth transition period that would insure your current patients remain with the practice.

While some people believe that overvaluation gives them room to negotiate a buyer down to a fair price, the reality is that the fair price will usually make itself known along the way. Starting too high just means that you'll have fewer buyers interested in talking to you in the first place, and could put you in a tough position if an appraisal comes back low.

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