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One of the most common questions that we get from people when they hear what we do is: “What’s the formula that people use to work out the price of practices nowadays?”
Sometimes, they follow up with a half-remembered formula that someone once told them, like:
The implication behind the question is that people like me have a secret handshake mathematical equation that someone can give you that will be accurate when applied to any vet practice in any circumstance across Australia.
As much as I wish this were true, a simple one-size-fits-all formula like this doesn’t exist. It never did. And when you think about the number of variables involved, it’s easy to see why.
No one would believe that there was a simple formula to work out the price of every car on the road. Everyone seems to understand that there are too many variables (age, quality, brand, size, km driven, condition) for this to be the case and that some cars have value simply due to scarcity, perceived value and supply and demand.
If I told you that someone had a simple formula to work out the price of all real estate across Australia, you would know innately that I must be lying. The value would vary depending on how urban or remote the location is, how recent the build is, the quality of the building, the number of bedrooms and parking spaces, how desirable the location is, proximity to beaches, views, access to public transport, etc.
You would also probably realise that, on top of this, external market forces like interest rates can impact buyers’ behaviour and price fluctuations over time.
Valuations of vet practices have even more variables than cars or real estate.
No simple formula can be robust enough to be accurate regardless of:
To be accurate, a valuer needs a deep understanding of the veterinary industry, backed by enough operational data to know where expenses, profit and key performance indicators sit against industry benchmarks.
They also need access to comprehensive, accurate market transaction data to understand supply and demand and what buyers are paying for different types and sizes of veterinary practices across Australia.
Valuing a veterinary practice involves far more than applying a simple formula. The practice itself matters, but so do the industry, the market and what buyers are willing to pay at that particular point in time.
Formulas can provide a useful starting point, but they can’t account for all of these variables. An accurate valuation requires veterinary industry knowledge, reliable operational and transaction data, and an understanding of the market in which that particular practice will be bought and sold.
Simon Palmer is the Founder and Managing Director of Practice Sale Search, Australia’s leading vet practice brokerage. With more than 20 years’ experience in practice sales, Simon has extensive knowledge of and insight into the vet industry. He is a licensed business broker and real estate agent. His company, Practice Sale Search, sells over 100 dental and vet practices every year. Simon is a regular contributor to major Australasian vet publications, and presents seminars on Exit Planning which are essential for any veterinarian thinking of selling their practice with the next 5 years.
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