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The Peak Approach: Taking the Next Step

October 2024 | admin
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A Doctor of Veterinary Medicine can take multiple career paths, all of which will likely fulfill their passion for taking care of animals. These paths may include specialization, relief work, working as an Associate, etc. However, the path toward ownership is ultimately worth consideration as well.

Becoming a business owner is not only a significant personal commitment but a financial commitment. As a veterinarian, your expertise is in animal care and medicine. Therefore, committing to an extensive loan to purchase the assets of a veterinary clinic may seem daunting. This post will hopefully make some common terms, concepts, and situations feel more familiar when becoming a practice owner.

What is an EBITDA analysis?

EBITDA stands for earnings before interest, taxes, depreciation, and amortization. It is a modified form of net income used to identify the true cash flow of a business. It aims to determine whether the business’s cash flow is sufficient to fully repay the loan you took out upon purchasing the practice. For example, depreciation and amortization decrease net income by gradually writing off the initial cost of an asset, but no cash ever leaves the business. Since that cash becomes available for other uses, such as repaying your business loan, depreciation and amortization expenses get added back in an EBITDA analysis. Other adjustments include:

  • Non-recurring expenses.
  • Discretionary items (such as charitable contributions).
  • Interest and taxes.

The effects of interest and taxes are included in a separate section of the buyer’s analysis since your tax planning and loan interest can look very different from the seller’s. Meanwhile, dozens of other variables can affect a practice’s valuation for better or worse. Location, number of doctors, and post-employment agreements are among the variables that stand out as having the ability to alter your purchase price drastically.

How do I obtain financing, and what terms should I expect?

Your potential lender will analyze the practice to be acquired and will have document requirements similar to those needed during the EBITDA analysis (multi-year financial statements, employee census, business tax returns, etc.). This analysis will ultimately help determine how much the bank is willing to loan and under what conditions. While financing terms are lender-specific, most banks will not lend beyond 1x gross revenue without additional stipulations.

Can you connect me with an attorney?

We can connect you with an attorney who specializes in veterinarian transactions. They can assist with negotiations, drafting a letter of intent, drafting post-employment agreements if applicable, and ultimately finalizing the asset purchase agreement.

If you have questions or an opportunity that you would like to discuss, please reach out to any of our team members. Emails can be found under the “Our Team” page.

Written by Alec Brunelle

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