Today’s Veterinary Business provides information and resources designed to help veterinarians and office management improve the financial performance of their practices, allowing them to increase the level of patient care and client service.
Issue link: https://todaysveterinarybusiness.epubxp.com/i/856474
12 Today's Veterinary Business Business EBITDA is frequently used to gauge a business' profitability as well as its ability to repay debt. Some veterinary practice buyers, particularly national or regional consolidators, use a multiple of EBITDA as a method to calculate the price they are willing to pay for a veterinary hospital. Why EBITDA? EBITDA is a useful tool when applied to publicly traded companies, largely because such companies have fi- nancial statements that are regularly audited and are prepared using rig- orous standardized methods (GAAP Using EBITDA can be tricky The popular financial metric is not the most accurate method for calculating profitability or a veterinary hospital's value. Business MONEY MATTERS accounting). This allows potential investors to compare business to business and industry to industry. GAAP (generally accepted ac- counting principles) is a complex, standardized method of recording a business's income and expenses. GAAP allows potential investors to compare investment opportuni- ties on an "apples to apples" basis. There is no legal requirement for a business to utilize GAAP, and most small businesses do not use GAAP because the complexity creates additional accounting expense and does not contribute to higher practice value. Therefore, EBITDA is harder to apply to veterinary practices be- cause there is no standard financial system or practice management software, and setup varies from one hospital to the next. Of even greater impact is this: Veterinary hospital owners and managers generally make decisions designed to en- hance patient care, client service or staff morale, not to increase profit. By the Numbers EBITDA is easy to calculate using an income statement or an in- come tax return. It involves simply adding together net income and four expenses: interest, income tax expense, depreciation and amortization. In the veterinary profession, more attention is paid to true profitability than EBITDA, You may hear about veterinary practice sales where the purchase price was some multiple of EBITDA. EBITDA (pronounced: ee' bit dah) is an acronym for earnings before interest, taxes, depreciation and amortization. In other words, EBITDA represents net income with certain accounting expenses, namely depreciation and amortization, income taxes and interest expense, added back in. By Leslie A. Mamalis, MBA, MSIT, CVA EBITDA is harder to apply to veterinary practices because there is no standard financial system or practice management software.