Using the Algorithm.

The Benefits of using the algorithm

It allows a potential seller to obtain an indicative goodwill valuation range based on both the latest accounts and current years performance. When undertaking a valuation of a company's goodwill, it is unlikely that the previous full year's accounts will have just been completed. In most cases, the valuation may well occur up to nine months into the next financial year.

Using the last full year's accounts alone will be using historical information, resulting in the goodwill being potentially out of date. The VetBiz algorithm uses a projection of the last year for turnover to estimate the change in profitability for the current year allowing for a fixed % of certain costs, based upon the expected sales increase income.

The result will show the financial position of the practice projected to the year end, based upon the last full set of accounts.

A more accurate picture can be produced using the sales income to date in the current year. Say the current 6 months show an actual increase of 4% you can utilise this projecting the 6 month fee income to 12 months. The result will show the financial position of the practice projected to the year end, based upon the latest management accounts.

Methodology behind the algorithm

The alogorithm is used to calculate the maintainable profit of the current year, which is then modified by additional factors. It utilises the financials that remain fairly static from the last year combined with factors that are calculated to increase according to the expected increase in turnover.

The basis is to strip out cost factors that are specific to the present owners and add costs that will have to be taken on by the future owners, e.g.veterinary staff to replace a director leaving

The projected increase in profit is calculated using a factor acting on the projected turnover to calculate the current years projected profit and profitability.

The calculation of Final adjustable Maintainable profit utilises factors such as, turnover, practice sector, catchment area and equipment level and is combined with the projected profitability to produce a multiplier that is used to calculate a Goodwill range

Aberrant valuations with the algorithm

The algorithm depends upon the accuracy of the information put in. Inaccurate info will produce an increased or decreased value from the norm. Practices with abnormal and extreme costs and turnover can produce false high or low values. An accurate value for the practice depends on the practice having realistic costs in relation to fee income. An example would be a vet in a SA practice working 24/7, with a turnover of, say, £500,000 employing minimal staff, on minimal wages with Zero Hour contracts salaries. Total costs including staff of say £60,000 could result in a high maintainable profit. Any buyer would not be prepared to run the practice under those terms and would not pay the calculated value.

What to expect from the Algorithm

Producing a valuation on a veterinary practice is a very subjective subject. The major factors that a purchaser is interested in are

1. The practice sector. eg Small Animal, Mixed, Farm or Equine

2. The size of the practice represented by its turnover.

3. The location and catchment area of the practice.

4. The standard of the premises and its equipment.

5. The profitability of the practice and its potential.

We believe the most important factor is the turnover and profitability of the practice in determining its value. The algorithm concentrates on producing a valuation range based on these two factors.

Obviously you can have a practice with a very high turnover and low profitability which will show a very low value. Similarly you can find a practice with a high profitability and low turnover producing a rather aberrant vaaluation

The algorithm is reliant on the information input, and external factors about the practice can have an effect on the values which the algorithm has calculated. This must be allowed for by a potential owner/ purchaser in the valuation range produced.

Before using the algorithm we advise

1. Have a copy of your latest accounts.

2. Print out the question list and input the correct data.

3. Print out the sample valuation noting the information that you will need from your accounts.


5. Take your time to input the information correctly.

6. When you complete the last input field you can go back and check your information.

7. The algorithm can be purchased for single use or multiple use

8. Decide on which option you require before paying, Either a single valuation or the multiple valuation option.