Reference Guide
Plain-language definitions for every term you'll encounter when selling your practice. No jargon. No complexity for the sake of it. Just clarity.
Showing all 31 terms
Money your practice owes to suppliers, vendors, and service providers. During a sale, outstanding AP is typically settled or adjusted in the working capital calculation. If the buyer assumes your payables, that amount reduces the cash you receive at closing.
Money owed to your practice by clients who haven't paid yet. In most veterinary transactions, AR is retained by the seller (you collect what's owed to you) or purchased by the buyer at a discount. The treatment of AR directly affects your closing check.
Two fundamentally different ways to structure the purchase. In an asset sale, the buyer purchases specific assets (equipment, client records, goodwill) rather than your legal entity. In a stock sale, the buyer purchases your ownership interest in the business entity itself. Each has dramatically different tax consequences. Asset sales are more common and generally favor the buyer. Stock sales can save sellers significant tax dollars but expose buyers to historical liabilities.
Specific requirements that must be met before the sale can be finalized. Common conditions include landlord consent for lease assignment, lender payoff documentation, staff retention through closing, and clean results from due diligence. If conditions aren't met, either party may have the right to walk away or renegotiate.
A separate contract in which you agree to provide advisory services to the buyer after the sale. Consulting agreements are common in veterinary transitions because your operational knowledge has real value to the new owner. Payments under a consulting agreement are typically taxed as ordinary income (not capital gains), so the allocation between purchase price and consulting fees matters.
The buyer's investigation period where they verify everything you've represented about your practice. They review financials, tax returns, contracts, employee files, equipment condition, lease terms, malpractice history, client data, and operational systems. Due diligence typically takes 30-90 days and is the period where deals most commonly fall apart or get renegotiated.
A portion of the purchase price that is contingent on the practice hitting specific performance targets after the sale. Earnouts bridge valuation gaps: when the buyer and seller disagree on what the practice is worth, an earnout lets the seller prove it with results. Common metrics include revenue, EBITDA, client retention, or doctor retention over 12-36 months.
The most common profitability measure buyers use to value veterinary practices. EBITDA strips out financing decisions, tax strategies, and non-cash expenses to show the core earning power of the business. In veterinary M&A, buyers typically pay a multiple of adjusted EBITDA (8-13x depending on size and quality) to arrive at the purchase price.
The number multiplied by EBITDA to calculate enterprise value. Current veterinary practice multiples range from 8-13x for most practices, with larger, multi-doctor practices commanding higher multiples. The SVP/MVP merger recently closed at 17-18x EBITDA across 700+ hospitals, indicating the upper end of the market.
A contract that governs your role if you continue working at the practice after the sale. It defines compensation, schedule, responsibilities, benefits, termination provisions, and non-compete terms. For practice owners staying on, this agreement is separate from (but related to) the purchase agreement.
A professional assessment of the fair market value of your practice's tangible assets: X-ray equipment, dental units, surgical instruments, lab equipment, computers, and furniture. Equipment value is one component of the overall purchase price allocation, affecting both tax treatment and insurance requirements.
A portion of the purchase price held by a neutral third party (usually an escrow agent or attorney) for a specified period after closing. The escrow protects the buyer against undisclosed liabilities, breaches of representations, or working capital shortfalls. Typical escrow amounts range from 5-15% of the purchase price, held for 12-18 months.
The intangible value of your practice above the value of its physical assets. Goodwill represents your reputation, client relationships, trained staff, location advantage, and brand recognition. In veterinary transactions, goodwill typically accounts for 60-80% of the total purchase price. For tax purposes, goodwill allocated to you is taxed at the favorable long-term capital gains rate (20%).
Money withheld from the purchase price at closing, typically released after certain conditions are met. Unlike escrow (held by a third party), a holdback is retained by the buyer. Holdbacks are commonly tied to working capital adjustments, client retention, or staff retention over a specified period. They give the buyer security and give you an incentive to support a smooth transition.
Your obligation to compensate the buyer if they suffer losses due to inaccuracies in your representations, undisclosed liabilities, or breaches of the purchase agreement. Indemnification provisions define the scope, limits, and duration of your financial exposure after closing. Negotiating caps, baskets (minimum thresholds), and time limits on indemnification is critical.
The transfer of your commercial lease to the buyer so they can continue operating in your current location. Most leases require landlord consent for assignment. If the landlord refuses or demands unfavorable new terms, it can delay or kill a deal. Savvy sellers address lease assignment early in the process, before the LOI is signed.
A non-binding document that outlines the key terms of a proposed deal before either party commits to the full legal process. The LOI covers purchase price, deal structure (asset vs. stock), transition period, non-compete terms, and due diligence timeline. While typically non-binding on business terms, the exclusivity and confidentiality provisions are usually binding.
A contract in which the buyer provides management services (HR, accounting, marketing, purchasing, IT) to the practice entity. In states where non-veterinarians cannot own practices, corporate buyers use management agreements to control operations while a licensed veterinarian holds nominal ownership. The management company typically receives 15-25% of revenue as its fee.
A covenant that restricts you from practicing veterinary medicine or opening a competing practice within a defined geographic area and time period after the sale. Non-competes protect the buyer's investment in goodwill. Typical veterinary non-competes cover a 10-25 mile radius for 3-5 years. Payments allocated to non-compete agreements are taxed as ordinary income (up to 37%), not capital gains.
The process of transferring medical records and client information from your ownership to the buyer's. State veterinary practice acts govern record ownership and transfer requirements. In most states, records belong to the practice (not the individual veterinarian), but clients have the right to request copies. Clean data transfer is critical and often involves migrating between PIMS systems.
The software system that manages your patient records, scheduling, billing, inventory, and client communications. Common veterinary PIMS include Cornerstone, AVImark, eVetPractice, and Shepherd. During a sale, PIMS compatibility and data migration are significant operational considerations. Buyers evaluate your PIMS as part of due diligence.
The definitive, legally binding contract that governs the sale. It includes every detail: purchase price, payment structure, representations and warranties, indemnification, closing conditions, and transition terms. The purchase agreement typically runs 40-80 pages and is the document that actually transfers ownership. Everything before it (LOI, negotiations) leads to this.
The process of dividing the total purchase price among different asset categories: tangible assets (equipment, inventory), goodwill, non-compete agreements, consulting agreements, and other intangibles. Each category is taxed at a different rate. This allocation is one of the most consequential tax decisions in the entire transaction. Buyer and seller interests are directly opposed: buyers want to allocate more to depreciable assets, sellers want more allocated to goodwill.
A detailed financial analysis performed by the buyer's accounting team to verify that your reported earnings are real, recurring, and sustainable. A QoE report goes deeper than standard financial statements, examining revenue quality, expense normalization, one-time items, related-party transactions, and owner-specific adjustments. The results often lead to purchase price adjustments.
Formal statements of fact that you make about your practice in the purchase agreement. You represent that the financial statements are accurate, that there are no undisclosed lawsuits, that all employees are properly classified, that equipment is in working condition, and dozens of other statements. If any representation turns out to be false, the buyer can seek indemnification.
An alternative valuation method where the purchase price is expressed as a multiple of annual revenue rather than EBITDA. Revenue multiples are simpler but less precise because they don't account for profitability. Typical veterinary revenue multiples range from 0.8x to 1.5x. EBITDA multiples are preferred by sophisticated buyers because they reflect actual earning power.
A profitability measure used primarily for smaller, owner-operated practices. SDE equals EBITDA plus the owner's total compensation (salary, benefits, personal expenses run through the business). SDE represents the total financial benefit available to a single owner-operator. It's most commonly used when valuing practices with one veterinarian-owner.
An extended reporting period endorsement on your professional liability (malpractice) insurance that covers claims made after your policy ends for incidents that occurred while you were insured. If you carry claims-made malpractice insurance (as opposed to occurrence-based), you need tail coverage to protect yourself from claims filed after the sale for treatment you provided before the sale.
The defined period after closing during which you remain involved with the practice to ensure a smooth handover. Transition periods typically range from 30 days to 24 months and may involve clinical work, staff introductions, client relationship transitions, vendor introductions, and operational knowledge transfer. Your role, schedule, and compensation during the transition are defined in the employment or consulting agreement.
The difference between your practice's current assets (cash, receivables, inventory, prepaid expenses) and current liabilities (payables, accrued expenses, short-term debt). Buyers require a minimum level of working capital to be left in the business at closing so they can operate from day one without injecting additional cash. The "working capital target" is negotiated as part of the deal, and deviations at closing result in dollar-for-dollar purchase price adjustments.
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