Why revenue is not the number that matters
When you are trying to figure out what your veterinary practice is worth there is one number that matters more than anything else EBITDA.
A lot of owners focus on revenue because it feels like the obvious benchmark. It is the big number on top of your finances and it is easy to track month to month. But revenue only tells part of the story. It shows how much money is coming into your practice but not how much of it you actually get to keep. That is where EBITDA comes in.
EBITDA reflects your true profitability. It tells you what your practice is earning after normalizing for interest, taxes, depreciation and amortization. In other words it strips away accounting noise and shows the clean profit your business is generating from operations. This is what matters to buyers.
When someone is looking to acquire your practice they are not buying your revenue. They are buying your earnings. They want to know how much they will actually make once they take over and remove you from the picture. EBITDA gives them that number. It shows them exactly what they are getting, not just how busy your clinic is but how efficiently it turns that volume into real profit.
Here’s a detailed guide on veterinary practice valuation
What EBITDA actually tells you
EBITDA stands for earnings before interest taxes depreciation and amortization. It sounds technical but it is really just a clean way to show your core profitability.
It tells buyers how much money your clinic is generating from operations before you factor in things like taxes, loans or equipment wear and tear. It strips away accounting adjustments and gives a true read on how well your business runs.
This matters because different practices have different financing structures and tax setups. One practice may have a huge loan payment from a recent renovation another may own their building outright. Without normalizing for that you cannot compare practices side by side. EBITDA lets buyers look at your earnings on neutral ground.
If your EBITDA is strong, buyers see a well-run operation. If it is weak they start calculating how much work and risk it will take to fix it.
Why buyers care more about EBITDA than top-line revenue
Revenue shows how much money is flowing into your business but it does not tell the full story. It does not account for what it costs to keep the lights on run your team or deliver services.
Two practices can make the same amount of revenue and have wildly different profits. That is why buyers ignore the top line and look closely at EBITDA.
If your practice makes two million in revenue but you are only keeping one hundred thousand in EBITDA that tells buyers there is a margin problem. You are working hard but not keeping much of what you earn.
EBITDA gives buyers a realistic preview of what they can expect to earn once they own the practice. That is what determines whether they are willing to pay more or hesitate and offer less.
How to calculate EBITDA for your practice
To calculate EBITDA you start with your net income then add back interest taxes depreciation and amortization. These are expenses that may not directly reflect the true profitability of your practice’s operations.
By adding them back you get a clearer picture of how much money your practice is really generating day to day. It is a way to isolate the earnings from core business activities without the noise of financing decisions or tax structures.
If your financials are clean EBITDA gives a strong signal to buyers about how your practice performs without you needing to explain every line item in your books.
Why a clean EBITDA builds buyer confidence
When a buyer sees strong consistent EBITDA it tells them the business is well managed. It means the operations are stable and the profit is not dependent on a lucky year or a one-off event.
It also means they do not have to come in and fix systems or figure out where money is being lost. A clean EBITDA means less risk. And less risk means a higher offer.
On the flip side if your EBITDA is low or inconsistent buyers will assume there is work to do. They may still be interested but they will use that weakness to negotiate the price down. They will argue that they will have to spend more time or money turning things around.
How EBITDA affects your valuation
When it comes to selling your practice buyers do not guess what it is worth. They use a simple formula. They take your EBITDA and apply a multiple to it based on the risk and potential they see in your business. That multiple usually falls somewhere between three and seven depending on factors like location size revenue consistency and how dependent the practice is on you as the owner.
If your EBITDA is three hundred thousand and the market is applying a five times multiple that puts your practice at a value of one point five million. But if you grow your EBITDA to four hundred thousand that same multiple bumps your value to two million. That is a five hundred thousand dollar difference from improving one number. You did not double your clients or hire ten more staff. You just made your business more profitable.
Small improvements in EBITDA often lead to major increases in valuation. That is why experienced buyers do not even look at revenue unless they see a solid EBITDA behind it.
How to improve EBITDA before selling
The good news is you do not need to overhaul your entire business to increase EBITDA. Most of the time you can make small changes that quietly improve your bottom line over time. The goal is to either cut waste or earn more profit from the same workflow.
Here are a few areas to focus on if you want to increase your EBITDA
- reduce non-essential expenses without cutting corners on care
- renegotiate vendor contracts and service fees
- streamline operations to reduce time waste and overhead
- adjust pricing where appropriate especially if your fees have not been updated in years
- add services that improve client value without increasing your workload
- tighten up scheduling and improve staff productivity without burnout
Each one of these may sound small on its own but together they can shift your EBITDA in a meaningful way. If you focus on operational efficiency and strategic pricing your profitability will grow even if your revenue stays the same.
How owner dependency affects EBITDA and valuation
One of the things that quietly lowers your practice value is owner dependency. If buyers think the practice only runs smoothly because of you they will see more risk. And more risk means a lower multiple and lower valuation.
This shows up in your EBITDA because a buyer knows they may need to spend time or money replacing your expertise after you leave. If your clients rely on you personally or your team depends on you for every decision that weakens your position.
If you want to protect your EBITDA and increase valuation, start building independence. Train your team. Delegate more. Bring in an associate or manager who can step up. Let your clients build relationships with others on your staff. When your practice can run without you your EBITDA becomes more valuable because it feels sustainable.
Final thoughts
If you want to sell your practice in the next few years the number you should focus on is not revenue. It is EBITDA. This is what buyers use to measure the health of your business and the return they can expect once you step away.
Improving your EBITDA does not require a massive change in your operations. It just requires a strategic look at where you can increase margin and reduce dependency. Even small shifts can lead to large gains in valuation.
If you want to dive deeper into how practice valuation really works and what else impacts your price check out our full guide on how veterinary practices are valued. It breaks down every factor buyers look at and how to make your practice more attractive even before you plan to sell.
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