How to Value a Pet Resort: Step-by-Step Guide to Valuing a Pet Care Business Based on EBITDA

Valuing your pet care business using EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) is a common and reliable method. EBITDA focuses on the business core profitability and helps potential buyers assess its true financial performance. Here’s a step-by-step guide to calculating and applying an EBITDA-based valuation for your pet care business.

Step 1: Understand EBITDA

EBITDA represents the earnings of your business before deducting non-operational expenses like interest, taxes, depreciation, and amortization. It highlights the business’s operational profitability and cash flow potential, which are key indicators for buyers.

Step 2: Calculate Your EBITDA

1. Start with Net Income:
   Begin with your business net income, which is found on your income statement and tax return.
2. Add Back Interest:
   Add back any interest expenses. These are financing costs that aren’t directly tied to business operations.
3. Add Back Taxes :
   Add back any corporate or personal income taxes paid on behalf of the company.  Do not add back any payroll, sales or property taxes. Most pet care businesses will NOT have a tax add back.
4. Add Back Depreciation and Amortization:
   These are non-cash expenses that don’t affect the business’s cash flow.

Formula:

EBITDA = Net Income+Interest+Taxes+Depreciation+AmortizationEBITDA=Net Income+Interest+Taxes+Depreciation+Amortization

Step 3: Adjust for personal and discretionary expenses 

Identify and add back any discretionary expenses that a buyer wouldn’t necessarily incur. These adjustments are called positive add-backs and might include:

• Owner’s salary if you have a management team that can fully operate the business in your absence.
• Personal expenses run through the business (e.g., travel, car payments, health insurance, 401k contributions).
• One-time or extraordinary expenses (e.g., legal fees for a unique dispute).

This process results in Adjusted EBITDA, which is more reflective of the business’s true earning potential.  If you own the real estate, another normalizing adjustment needs to be made so the EBITDA reflects a fair market value of rent.

Step 4: Determine the Valuation Multiple

The valuation multiple is a number applied to your EBITDA to estimate your business market value. This multiplier varies based on several factors, including the amount of EBITDA and its margin to revenue, growth trend, strength of your management team, geographic location, market conditions, your business’ specific attributes and how many buyer companies would be interested in purchasing your business (competition drives up multiplier).

For pet care businesses, typical multiples range between 3x to 6x (and higher for extraordinary businesses) EBITDA, but this can vary based on:

• Amount of EBITDA: a buyer is buying cash flow (EBITDA). The more EBITDA, the higher the interest from several buyers, this competitive landscape increases the multiplier.  The margin of EBITDA is also important, most buyers are looking for the margin to be above 20% of total revenue. The stronger the margin, the better the business model.
• Management team:  Corporate buyers are looking for ‘turn-key’ businesses with a management team in place that can operate the business without the owner’s day-to-day oversight.
• Operational efficiency: Higher profitability and streamlined operations lead to higher multiples.  This is especially true is strong labor cost management systems are in place.
• Growth potential: Businesses with historically strong growth command higher multiples. 
• Revenue diversification: Offering multiple services (e.g., boarding, daycare, grooming and training) can increase value.
• Reputation and brand strength: A loyal customer base and strong market presence are attractive to buyers.
• Quality of facilities: The physical facilities have to be in good condition without deferred repair needs or code violations.  If the buyer deems that the facility has capital expenditure needs, they will reflect that in the multiplier.
• Zoning:  The business must in full compliance with all land use, zoning and special use permit requirements.  If a permit hinders growth (ie. has a cap on how many dogs are allowed), it will have a discounting effect on the multiplier.
• Extraordinary Businesses (Assets)  Businesses with multiple sites, over $1MM in EBITDA and other circumstances that would be considered ‘extraordinary assets’ will yield higher multipliers in a professionally conducted, structured auction due to the competitive nature of the process.

Step 5: Apply the Multiple

Multiply your Adjusted EBITDA by the chosen multiple to determine the estimated value of your pet care business.

Example Calculation:

• Net Income: $200,000
• Add Backs:
  • Interest: $10,000
  • Depreciation: $5,000
  • Business pays for seller’s health insurance:  $24,000
  • Business contributes to seller’s 401(k):  $10,000
  • Seller’s W-2 income: $120,000

Adjusted EBITDA:

$200,000 + $10,000 + $5,000 + $24,000 + $10,000 + $120,000 =$369,000.00 = EBITDA:  $369,000

**this is very simplified and does not consider owner owned real estate**

Valuation (using a 4x multiple):

$369,000 X 4 = $1,476,000

The estimated value of your pet care business is $1,500,000.

To learn what your business’ EBITDA is and what you could sell for with our propriety, results driven process, contact me directly at teija@petvetales.com. I represent seller only and your best interest is my only concern – it’s pretty simple :-).

Teija Heikkilä, Top Broker for the Pet Care Industry