How familiar are you with how the value of your business is calculated? Most people when they look at their business, they will look at what it’s doing in revenue. And revenue is everything collected from services provided or let’s say knickknacks that are sold. It could be medications. It could be a combination of many different things, which there are values that are determined off of revenue.
However, when it comes to the value of a business, it’s oftentimes determined by the actual profits that are left over. So when you take all of the revenue that you’ve collected, minus out all the expenses, employees, cost of goods, whatever is left over for profits is typically what’s used as a multiple to determine the value of your business. So if you’re actually putting money back into your business to not increase the profits, it can actually hurt the value of the business. The more things that you write off in the business – that can also hurt the overall value of the business.
And when is the last time that you’ve actually taken a look at how your business fits into the overall financial success of your personal life when you do decide to transition out? Depending on the value of your business, you could be in a spot to where you sell your business, you’re gonna be good. Oftentimes, if you’re a smaller business, you might be very dependent on every little dollar that you can squeeze out of that. When you’re looking to be able to sell at some point in the future,
The good rule of thumb to follow is that an investing group, usually want to look at profit loss statements and tax returns for at least two years, upwards of three years. These, want to make them look spotless. You want to make sure you have no personal expenses that are mingled with your business. So then that way, when you go to negotiate, you can really be able to go in there and command the highest value possible compared to going in there with sloppy books and then trying to get a lot of money, but you can’t justify it.
And if you’re looking to sell to an employee or a group of employees, well, it’s a good rule of thumb to make sure that you get clean books, clean tax returns. So you know what you’re looking at to be able to then eventually sell the ownership.
And it’s a bad spot to be in of, how much is the business worth? And then when you start looking at the financials, you determine, well, it’s not worth a whole lot, or I have no idea. There’s not a lot of clarity around this. So it puts you as the owner and also the person who’s looking to buy in a very weird spot because it’s like, how much is this really worth?
So when you can really start dialing down into profits and understanding how do I keep juicing that up, so in a year that you’re trying to sell, last thing you want to do is try to get your profits as low as possible because usually what happens, profits up means more taxes. So a lot of times advice can be given out there to, well, I don’t want to pay a lot of taxes, so how do I have as many deductions as possible? And there are some deductions that are kind of considered phantom deductions like depreciation to where you could put that back in there because there’s really nothing saying it was an expense. It’s more of just used as a write-off against taxes.
But then there are things of if you started buying equipment and the equipment is not producing a return for you or you’re paying for certain services and it’s not really producing a return for you that actually can harm the overall long-term success and the valuation of the business. Right now is a good time for you to take a look at what you’re currently doing.
Find out what the value of your business is, how it’s planning to grow over time, and if you haven’t really considered this, well, this is a good time to really dive into that because it’ll help guide to what also your personal financial plan might require. So take a look. If you wanna reach out and we can help in any capacity, please reach out and we’re happy to talk and see what we can do for you.
Video Summary:
When it comes to selling your veterinary practice—or any business—profitability matters more than revenue. While high revenue may look impressive on paper, it’s your profit margins that truly determine what your business is worth to a buyer. One of the most common pitfalls owners make is commingling personal and business expenses or taking excessive write-offs. These habits may reduce tax liability in the short term, but they can also significantly lower your valuation.
To get top dollar for your business, it’s essential to keep clean financial records. This includes profit and loss statements and tax returns that clearly show strong, consistent profits over the past 2–3 years. Buyers want transparency and proof of earning potential—not just big numbers on the top line.
By understanding and intentionally improving profitability now, you’ll set the stage for a smoother transition, stronger sale, and a more secure personal financial future.
This material is intended for general public use. By providing this content, Park Avenue Securities LLC and your financial representative are not undertaking to provide investment advice or make a recommendation for a specific individual or situation, or to otherwise act in a fiduciary capacity. Guardian, its subsidiaries, agents, and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation. Tom is a Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS). Securities products and advisory services offered through PAS, member FINRA, SIPC. Financial Representative of The Guardian Life Insurance Company of America® (Guardian), New York, NY. PAS is a wholly owned subsidiary of Guardian. Florida Veterinary Advisors and The Next Step Planning Group are not an affiliate or subsidiary of PAS or Guardian. California Insurance License #0K80141. AR Insurance License #15823672. Florida Veterinary Advisors is not registered in any state or with the U.S. Securities and Exchange Commission as a Registered Investment Advisor. The individuals associated with Florida Veterinary Advisors do not maintain specialized licenses or qualifications for the financial services provided to veterinary professionals. 7989827.1 Exp 5/27