A Practice Sale Where the Multiple Assumed Too Much

The situation

Rosa and Elena had known each other professionally for close to fifteen years before Elena became the buyer of Rosa's Kingston veterinary practice. They had trained around the same time, referred cases to each other over the years, and Elena had spoken openly for a long while about wanting to own a practice of her own rather than continue as an associate elsewhere. When Rosa decided the time had come to sell, after building the practice from a small solo operation into a multi-veterinarian clinic with a loyal client base, Elena was the natural buyer both of them had quietly assumed it would be.

The relationship made the early conversations comfortable in a way a sale to a stranger rarely is. Rosa trusted Elena to run the practice well and keep the staff she had spent years training. Elena trusted Rosa's numbers, largely because she trusted Rosa. Both incorporated professionals, they approached the sale expecting a straightforward transaction between two people who already knew and respected each other's work, with the price the main open question rather than the structure of the deal itself. Elena, who had spent several years working alongside an optometrist in a shared clinic space and had seen professional practices change hands before, assumed a veterinary sale would follow a similarly familiar pattern.

To set that price, both sides leaned on a common industry shorthand: veterinary practices in the region were said to sell for a multiple of annual revenue, a rule of thumb that circulated informally among practice owners and the accountants and brokers who worked with them. Applying that multiple to Rosa's most recent revenue figures produced a price in the low millions, comfortably within what both of them had expected going in, and reflecting the practice's established client base and multiple veterinarian staff.

Neither Rosa nor Elena had personally built that multiple from Rosa's actual normalized earnings, the adjusted profit figure that accounts for owner compensation, one-time expenses and other items that a rule-of-thumb revenue multiple does not capture. The number had simply been passed along as the going rate, confirmed casually by people on both sides who had heard the same figure used in other regional practice sales, and neither Rosa nor Elena thought to test it against Rosa's own books before a price was effectively agreed between them. It felt, to both of them, like a formality rather than a step worth slowing the sale down for, especially given how much they already trusted each other after so many years working in the same community.

The gap nobody had noticed

The problem surfaced only once Elena's own financing process required a formal review of the practice's earnings, something the informal rule-of-thumb price had never actually been checked against. That review depended on a set of normalized financial statements that Rosa's practice had never prepared in-house. Instead, the adjustments needed to turn Rosa's raw accounting numbers into a defensible normalized earnings figure had, for years, been handled by Dragan, an outside bookkeeper Rosa used on a contract basis, someone neither Rosa nor Elena had any ongoing relationship with beyond periodic invoicing.

Dragan, working independently and not employed by either party, held the working files and historical adjustment methodology that explained how Rosa's reported numbers had been built up over the years, including add-backs for above-market owner compensation, one-time equipment purchases, and a handful of unusual expense years. Without those working files, nobody could confidently reconstruct what Rosa's true normalized earnings actually were, and the revenue multiple both sides had relied on turned out to assume a profit margin considerably higher than what the practice, once properly normalized, actually supported.

Getting access to Dragan's records took longer than anyone expected. Dragan was slow to respond, cited a heavy workload with other clients, and at one point suggested a fee for pulling together several years of working papers that neither Rosa nor Elena had budgeted for. The document that the entire sale price ultimately turned on sat outside the control of both parties to the transaction, in the hands of someone with no particular urgency to prioritize their deal. Neither Rosa's practice nor Elena's proposed purchase had any formal agreement with Dragan requiring timely cooperation, since nobody had anticipated needing one before the sale made his records suddenly central to the whole transaction.

Once the records finally came through, the numbers told a less favourable story than the rule-of-thumb price had assumed. Certain owner-compensation add-backs Rosa had been applying informally for years were larger than a normalized-earnings review would typically support, and a run of unusually strong revenue years had inflated the base the multiple had been applied to. The practice was still a solid, profitable business. It was simply worth meaningfully less than the price both Rosa and Elena had shaken hands on, and by the time that became clear, Elena's financing was already conditional on a number the practice could not fully justify. That put Elena in the uncomfortable position of having told her own lender a figure that her lender's own underwriting process was now quietly contradicting, which threatened to unravel financing that had otherwise been on track.

What we did

1. Requested the underlying working papers directly from Dragan as soon as the discrepancy surfaced, rather than relying on secondhand summaries, since the actual adjustment methodology needed to be reviewed line by line to understand which add-backs were defensible and which were not, and since neither Rosa nor Elena had ever actually seen the detailed calculations behind the figures they had both been relying on.
2. Retained an independent valuation review of Rosa's normalized earnings once the working papers were available, giving both Rosa and Elena a defensible, third-party figure to negotiate around instead of continuing to argue from a rule-of-thumb number neither side could fully support, which took the disagreement out of the realm of hurt feelings and back into something both could evaluate on the same terms.
3. Separated the defensible add-backs from the questionable ones, distinguishing between adjustments that any reasonable buyer would accept, such as one-time equipment purchases, and those that were harder to justify, such as several years of above-market owner compensation that had inflated the earnings base the original multiple relied on, giving both sides a shared list of what could reasonably stay and what had to go.
4. Reopened price discussions between Rosa and Elena directly, framing the conversation around the newly defensible earnings figure rather than either party's original expectations, which kept the negotiation grounded in numbers both could verify rather than in disappointment over a price that no longer held. Anchoring the conversation to the review, rather than to what either of them had first hoped for, kept the friendship out of the line of fire.
5. Negotiated a revised purchase price that reflected the normalized earnings review, coming in meaningfully below the original rule-of-thumb figure but still within a range that recognized the practice's genuine value and Elena's continued willingness to buy. The new figure was not a discount either side extracted from the other; it was the number the underlying records actually supported once tested properly.
6. Built a holdback into the purchase structure tied to the practice's actual performance over the following year, giving Elena some protection if the normalized figures still proved optimistic once she was operating the practice herself, while giving Rosa a path to the full negotiated price if performance held, which addressed both women's residual uncertainty about whether the new, lower figure was itself entirely reliable.
7. Documented the valuation methodology in the purchase agreement itself, so that both parties, and Elena's lender, had a clear written record of how the final price had been calculated, reducing the chance of a similar dispute arising later if the practice was ever reviewed again. A price with no paper trail behind it is a price either side can second-guess the moment the relationship gets strained.
8. Advised Rosa on preparing future financial records differently, recommending that any incorporated professional planning a future sale keep normalized earnings documentation current on an ongoing basis rather than reconstructing it only once a buyer's financing requires it. A number that has never actually been tested is not really a valuation; it is an assumption waiting for someone to eventually check it.

The outcome

The sale closed roughly four months after the original handshake price, at a figure meaningfully below what Rosa had first expected but still comfortably within the multi-million-dollar range appropriate to a practice of its size and client base. The gap between the two numbers reflected a real overstatement in the original rule-of-thumb price, not a discount Rosa gave away out of goodwill, and both sides ultimately treated it as a correction rather than a concession one had extracted from the other.

Rosa accepted the reduced price rather than contest the valuation review further, in part because continuing to dispute the normalized earnings figure risked delaying the sale for months longer while her own retirement plans waited, and in part because the review itself, once she saw the underlying numbers, was difficult to argue with. She told us afterward that the experience changed how she thought about the bookkeeping she had treated as a background task for years rather than a document she might one day need to defend, and that she now keeps her own normalized figures current every year rather than waiting for a sale to force the question.

Elena closed on a practice she was confident she had paid a fair price for, with a holdback structure that gave her some protection against the same overstatement risk resurfacing once she was running the numbers herself. She also came away with a clearer sense of the questions she would ask earlier if she ever bought another practice, rather than assuming a familiar rule of thumb could stand in for a proper review.

The friendship between Rosa and Elena survived the renegotiation, though both later said the months spent working through the valuation gap had been considerably more stressful than either had expected a sale between two people who trusted each other to be. Neither blamed the other directly for the gap once its source became clear, since both had relied on the same secondhand number in good faith, but both agreed the trust between them was not, on its own, a substitute for verifying the underlying figures.

What you can learn from this