Maximizing Your Veterinary Practice’s Value: A Strategic Guide for Canadian Owners 

As the owner of a growing veterinary practice, you’re juggling patient care with the demands of daily operations. However, the landscape of veterinary medicine in Canada is changing. With corporate entities now owning over 20% of Canadian veterinary hospitals, understanding your practice’s value and planning for a future sale has never been more important. By following a strategic 5-year plan, you can turn your hard work into a successful sale. 

Years 1-2: Building Your Strategic Foundation

The first two years of your 5-year plan should be dedicated to understanding exactly what drives your practice’s value. A professional valuation is not just a number. It’s your roadmap for the years ahead.

While the report will focus on financial statements, a deeper analysis with a trusted advisor, like your accountant, allows you to connect those numbers to the factors that truly drive value:

• Financial Performance: Consistent profitability and healthy cash flow are foundational.
• Client Base: A stable and active client list is a major asset.
• Tangible and Intangible Assets: This includes your equipment, technology, location, and the goodwill you have built in your community.
• Operational Efficiency: Streamlined processes and a strong team contribute significantly to your bottom line.

By working with an advisor to identify areas of opportunity, you can use the insights from your valuation to increase revenue and reduce overhead. This allows you to make smart investments that boost your practice’s worth long before you decide to sell.

Years 3-4: Optimizing for Growth and Attractiveness

With your valuation roadmap in hand, years three and four are about execution. This is the time to focus on growth and begin understanding the buyer landscape, particularly the rise of corporate interest in the veterinary industry.

Research published in The Canadian Veterinary Journal shows that corporate consolidators are paying valuation multiples as high as 20 times EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization), a substantial increase from the traditional 5 times multiple seen in private sales.

While the high multiples offered by corporate groups are attractive, it is important to consider all your exit options. Other common paths include selling to an associate veterinarian (an internal sale), a new graduate, or another independent practice owner. These alternatives can offer non-financial benefits, such as a smoother transition for your team and a greater likelihood of preserving the practice’s culture and legacy.

Corporate groups typically target larger practices, often those with revenues of $1.5 million or more and multiple veterinarians on staff. For practice owners, a corporate deal can mean a higher selling price, but it is important to understand the terms. Many involve joint ventures, where you sell a majority stake (over 51%) but retain some ownership, keeping you invested in the practice’s continued success.

Year 5: Preparing for a Successful Exit

A successful and profitable sale requires careful planning. In the final year of your plan, it’s time to prepare for the transaction. Start by assembling an experienced advisory team, including a lawyer, a banker, and an accountant (if you don’t have one already) who are all familiar with the veterinary industry.

Prepare at least two years of accountant-prepared cash flow statements, as this is a standard requirement for bank financing.

When it comes time to sell, the structure of the deal is a critical factor. In Canada, sales are typically structured as either an asset sale or a share sale, and each has different implications for the seller and buyer.

As a seller, a share sale is often preferable. This structure allows you to potentially use the Lifetime Capital Gains Exemption (LCGE). Doing so can exempt a significant portion of your capital gains from tax. To qualify, your practice must meet specific criteria, including having over 90% of its assets used in active business at the time of sale.

Buyers, on the other hand, usually favour asset sales. This approach allows them to acquire specific assets without taking on the seller’s corporate history or potential hidden liabilities. It also provides them with a “step-up” in the tax basis of the assets, leading to greater tax deductions in the future.

Understanding Your Sale Options

Successfully managing this process requires a clear understanding of your practice’s financial health and future potential. To create a clear strategic roadmap from your financial data, our team at Envision Accounting offers a comprehensive Financial Assessment.

Frequently Asked Questions

• How often should I get my practice valued?
  The ideal frequency depends on your timeline. If you plan to sell within the next 10 years, a professional valuation every 2 to 3 years is recommended. If your exit is further out, less frequent formal valuations or even informal check-ins on your practice’s value may be sufficient.

• I’m a few years from selling. Is it too early to start planning?
  Not at all. Experts recommend a planning horizon of at least 2 years. Starting early allows you to methodically enhance your practice’s value and ensure a smooth transition.

• What is the biggest difference between a private sale and a corporate one?
  Corporate buyers often offer significantly higher valuation multiples, sometimes up to 20 times EBITDA, compared to the traditional 5 times multiple common in private sales.

• Do I have to sell my entire practice to a corporation?
  Not necessarily. Many corporate buyers now offer joint venture options. This allows you to sell a majority stake while retaining some ownership and involvement in the practice.