Practice Valuation Quest

RMA, Inc. Practice Valuation Report Information Questionnaire —

Practice Valuation Questionnaire

— CONFIDENTIAL —

______, 2009

Dr. ______

PRACTICE NAME

Dear Dr. ______:

I am providing you with the following appraisal questionnaire to prepare a Valuation Report of your practice. This communication includes guidelines to assist you in providing me with the information needed to conduct a thorough financial evaluation of the practice that you want appraised. There may be some areas that are not appropriate for your situation, but please complete as many as you can.

It is my understanding the practice is being appraised/valued for the purpose of determining a Fair Market Value as part of a feasibility study on the possible acquisition of this practice:

“The price at which the Practice would change hands between a willing Buyer and a willing Seller, neither being under compulsion to buy or sell and both having reasonable knowledge of the relevant facts.”

RMA, Inc. is not a real estate appraiser and will not make any Appraisal of the real estate. All valuations assume that the practice will remain in its present location and that it will continue to operate in substantially the same manner as of as of the date of valuation. RMA, Inc. will not be conducting any demographic studies or location suitability analysis. Additionally, RMA, Inc. is not rendering an opinion as to the likelihood of the practice continuing to generate the level of income utilized in the valuation or the quality of the clientele or expenses incurred at any future date. The valuation to be prepared by RMA, Inc. is merely an opinion as to the Fair Market Value of the practice at a particular point in time – without any opinions or predictions as to the future performance of the practice.

Please complete this entire questionnaire and submit all of the appropriate and requested information as soon as you possible can, along with the deposit that is specified in the latter pages of this engagement letter.

RMA, Inc. will rely solely on information provided to us by you. We will not verify any of the information, data, financial statements, inventory reports, asset lists, accounts receivable reports, etc., that are provided to use for the purpose of preparing this valuation report. As such, the Valuation report that will be prepared should not be a substitute of a potential buyer to conduct a reasonable and thorough “Buyer’s Due Diligence” prior to offering to purchase the practice.

Your responsibility is to use every reasonable effort to keep RMA, Inc. informed as to all pertinent developments and all of the facts surrounding the practice and the preparation of this report. In this regard, client acknowledges that RMA, Inc. is relying on information provided by you, and for this reason it is incumbent upon you to use every best effort to keep our office informed of any and all facts and information that have a bearing on the preparation of an accurate Valuation Report.

1)Please explain the purpose for which you are requesting this valuation.

2)An estimate of the fair market value of the following assets as of the most current month end. Please provide this date below:

______, 200__

$Value

Drug & Professional Supply Inventory *______

Professional & Office Equipment**______

Furniture & Fixtures______

Leasehold Improvements:______

Date(s) improvements made: ______

Estimated life expectancy of improvements: ______

Practice Vehicles______

Accounts Receivable______Approx. __% collectable

Cash In Savings & Checking Accounts______

Other Operating Assets______

*Depending on the purpose of this valuation I will need either an estimate of the value of the historical or original cost of all drugs, medications (less obsolete and out-of-date items), supplies, laboratory supplies, surgical materials, kennel supplies and food, and over the counter sale items (sprays, powders, collars, shampoos, etc.), or an itemized inventory. Please separate the totals into medical and office supplies.

**At current fair market value. In other words if you needed to replace all of the equipment at the practice with similar equipment (same age, model, condition, use, etc.), what would it cost to do so. These assets will represent part of the tangible assets of the practice. Therefore, it is critical that the list be specific, detailed and accurate. Do not use "book value" (as reported on your Balance Sheet) or new equipment replacement cost. (Please see attached illustration)

3)An estimate of the fair market value of Practice real estate: (both land and buildings, separate and distinct from other ventures, buildings, or residences in proximity with the practice.)

Veterinary Practice Real Estate$Value

Land______

Building______

• When was the last appraisal on the property prepared? ______

• Who was the appraisal prepared by? ______
  
• If you own the property is it held personally, by a partnership or corporation? ______
  
• Are the property taxes included as an expense on the income statement, are they included in the rent, or do you pay them personally? ______

• If you lease the property please provide a copy of the lease agreement and any amendments that apply.
  
• What are the current and future lease terms and monthly lease payments? ______
  
• How is the lease rate determined: ______
• Status of facility:_____ Lease_____ Own personally or in partnership
• When constructed:______Last remodeled
  
• Is any part of the practice sub-leased (groomer, pet store, etc.)? ______

(Please provide details and copy of any sub-lease)

______

• What type of structure is the facility, i.e. freestanding, shopping center, etc.? ______
  
• If you are not currently paying a fair market rent for the property where the practice is housed and had to lease a similar facility in your immediate geographic area, what do you think the monthly lease rate costs (excluding triple net costs) would be? Another way of posing this question would – If you sold the practice today and then had to lease back the facility to the new owner, what would the monthly lease rate cost be to the new tenant? $______
  
• How many square feet is the hospital? ______
  

• How do you handle covering emergency calls?

_____ Take own calls _____ Refer to emergency clinic _____ Other

Please provide details ______

______

• Are there any special zoning restrictions or building codes on the property? ______
  

What type of maintenance and repairs do you feel are needed on the building at this time?______

Other Real Estate proximate to the Veterinary Practice Real Estate (e.g. residential rental property next to practice real estate). Please describe below and indicate fair market value.

$Value

Land______

Building______

Please provide us with the prior three years' tax returns & income statements (corporate, proprietorship, or partnership, whichever is applicable). Tax returns are acceptable alternatives if income statements are not available. If revenue is not broken out by category (i.e. professional services, vaccinations, radiology, etc., please provide a break out of revenue into at least the following categories: medical services, diets, retail, boarding, grooming, other ancillary services, discounts and refunds). If you have a monthly breakdown of gross income by month, for the past 60 months, we would also appreciate that analysis.

In an effort to report a realistic financial view of the hospital’s performance, please provide a list of any personal or non-business expenses that have been included on the above income statements. Provide a brief explanation of each expense and to what income statement category it was charged.

Also please list any unusual or one-time expenses that are included on these statements, along with a brief explanation of such expenditures.

Is the practice a corporation ?______C-Corp, S-Corp, LLC ______

If a corporation, are shareholders selling stock or assets of the corporation?______

Sole Proprietorship? ______Partnership? ______

Accounting method: ___ Cash or ___ Accrual basisFiscal year end? ______

Names of owners and percentage of ownership interest?

______%

______%

______%

______%

In addition, please respond to these questions to be considered in valuation of your veterinary practice. PLEASE ANSWER EACH QUESTION IN DETAIL ON A SEPARATE SHEET FOR REFERENCED RESPONSES.

1)Were any gratuitous services provided by any person to the practice? (e.g. wife, children, parents, friends, etc. providing managerial, accounting, legal, construction, janitorial, lab or other services) If so, please state the estimated dollar value for these services for each of the four base years.

2)Adjustments to Income Statements. In order for RMA, Inc. to perform an accurate appraisal, we need to adjust the accountant’s or internally prepared profit and loss statements, from a “Tax oriented” to an “Economic” format, to reflect the true income generation of the practice. We will review the expenses to isolate any owner discretionary or non-operational (perks)(e.g. vacations, appliances for personal use, materials for construction of the doctor's residential property, and other personal expenses, etc.) Please list any specific financial benefits that the practice owner(s) receives in the following areas:

Automobiles (purchase/lease, insurance, R & M, etc., Insurance (all forms), Retirement funds, Legal or accounting fees, Significant bartering, Free veterinary care of a substantial nature, etc.

3)Were any practice expenses paid individually on behalf of the practice but never deducted on annual federal income tax returns? If so, please itemize for each of the four base years.

4)Were any individuals paid in excess of their true economic value contribution to the practice? (e.g. wife or friend being compensated $500 per month for spending one hour each month reviewing the periodic practice results of operations for each of the four base years). If so, please state in detail their contribution to the practice, salary paid, fringe benefits received, etc.

5)What type of legal fees were deducted from practice gross income on the federal income tax returns? Please specify the nature and amount. Also, were any other professional fees deducted from practice gross income, which might be attributed to the doctor personally? (e.g. estate planning, personal financial planning, divorce, investment counsel, etc.)

6)What hours is the hospital open? ______

7)Please detail separately, by doctor, the total production and compensation summary of each doctor who presently is an owner, partner, or staff doctor by each of the last four years. This schedule should conform to the last four years' tax return expenses claimed. USE THE WORKSHEET WE HAVE PROVIDED AS A GUIDELINE. If more than one DVM is involved, please use a separate worksheet for each DVM.

8)Do the principals engage in any activity not mentioned that may affect the economic realty of practice operations? If so, please explain fully.

9)Please include a SHORT history of the practice and the principals involved. Submit any information which you feel may be of use to use in completing this valuation. (year started and by whom, recent sale, merger, service format, number of veterinarians, etc.)

Please indicate the type of practice that you conduct, giving percentages of each (if appropriate), such as, Small animal exclusive, small animal predominant, feline, avian, exotic, specialty, emergency/critical care, etc.) Please detail the answer to this question here, indicating percentages (as appropriate): ______

______

10)Has there been any material change in the practice in the last five years which may affect the delivery of goodwill? (e.g. major building projects in the area, significant decline in the number of transactions, material decline in the practice neighborhood, entry of specialists in the practice, increase in the number of employee veterinarians in the practice, establishment of satellite facilities of the practice, commencement of emergency clinic operations in the area, etc.)

11)Is the practice in compliance with all Federal, State and Local OSHA standards?

12)Please provide a list of all employees of the practice that details date of hire, current compensation rate, fringe benefits provided, etc.

13)If available, please detail for each base year the number of transactions per year, the dollars per transaction, the number of veterinarians in the practice for each base year, your estimate or actual count of the practice's patient records, the average hours per week that the doctors work, and the number of full and part-time support staff by year.

BASE YEARS

2009200820072006

# Transactions/Year______

# New Client Visits/Yr.______

Avg. Transaction Fee______

Number of DVM’s______

#Active Client Records______

#Active Patient Records______

Hours/Week DVM’s Work ______

How many full-time

Equivalent DVM’s were

needed to cover practice

during base years?______

Support Staff #:

Full Time______

Part Time______

Worker’s Compensation Rate for Current Year:______

REVENUE SUMMARY BY MONTH:

TRANSACTIONS SUMMARY BY MONTH:

NEW CLIENTS SUMMARY BY MONTH:

14)What type of promotional and/or marketing activities does the hospital engage in? Please provide copies of your brochure, newsletters and any other such practice promotion materials. ______

15)How many other practices (similar to the one being appraised) are located within a 3, 5 and 10-mile radius of your hospital (excluding your own)?

3-mile distance: ______

5-mile distance: ______(including those in 3-mile distance response)

10-mile distance: ______(including those in the 3 and 5 mile distance answers)

50-mile distance: ______(answer for specialty practices only)

16)Please provide us with a listing of all practice liabilities — which should include the purpose of the note, the remaining balance, the monthly payment and the interest rate(s).

17)Area map marked with location of the practice. Highlight other practices in the immediate proximity to your practice (3 to 5 miles in urban; 5 to 10 in more suburban or rural areas). Have any new practices been established within your immediate practice area in the past 2-3 years? If so, please provide details?______

18)Photographs, VCR tape or DVD of the practice facility and surrounding area. This should include all rooms and storage areas, equipment, front, sides and rear of facility, outside sign, kennel areas — and any other specific information about the commercial, service or trade area.

19)Yellow Page Advertising. Please send copies of your ad, as well as the ads for your immediate colleagues (neighboring practices).

20)Does anyone have an option to purchase any part of this practice? ______

21)Are there any environmental issues surrounding your practice? ______

22)Are you, the hospital or any employee or other related party involved in any lawsuit that effects the practice? ______

23)Are there any current or past employee claims against the practice pending? ______

24)Contact Information. Please provide the following methods of reaching you at and away from the practice:

Home: (___) ______Practice: (___) ______

E-mail: ______FAX: (___) ______

Inside line: (___) ______Mobile or Pager: ______

Website Address: ______

25)As of what date would you like the practice to be appraised? ______

26)Has this practice ever been appraised before? ______

By who and when? ______

27)Name of practice’s attorney: ______

Address: ______

Telephone & Fax Numbers: ______

e-Mail: ______

28)Name of practice’s accountant: ______

Address: ______

Telephone & Fax Numbers: ______

e-Mail: ______

After we have received responses to these questions, we will contact you if further information is needed. Our hourly fee for appraisal services rendered is billed at $225, plus any associated travel and/or out of pocket expenses — such as phone message units, fax transmissions, copies of appraisal report, etc.

Our base fee range for a complete practice appraisal on a single practice runs between $4,000 to $6,500. A few appraisal reports, because of their complexity, contentiousness, lack of agreement on the use of certain asset items, etc., can exceed the $6,500 estimate. This type of valuation report is appropriate for practices that are being sold completely, partial associate sale, partnership dissolution, divorce, etc.

Should you desire a more “scaled down” – valuation estimate report, to be used for purposes not requiring the specificity, detail and full-on accuracy of a thorough practice valuation, you might want to consider having an appraisal estimate report completed. This cost structure usually runs in the $2,000 to $3,500 range – about half of a full-scale report. The basic hourly rate for completing either appraisal approach is $225.00 per hour – as of May 1, 2009.

Please include a retainer deposit for 50% of the mid point in either of the above options ($2,000 for the estimate report and $3,500 for the full valuation report) with your materials. The remaining amount is due upon completion of the appraisal.

Special Note for Potential Buyers of a Veterinary Practice:If this valuation is for the purpose of evaluating the suitability of purchasing a veterinary practice then a scaled down version of a complete appraisal report would occur. This service is charged at the hourly rate of $195, and the client should expect that such an analysis will take between 6-15 hours to complete. This would result in a projected cost range of between $1,500 to $3,000, to take the potential buyer up to the point of deciding whether to make an offer to purchase the practice, and at what level. The range of time associated with this type of project is primarily predicated on the quantity, completeness, timeliness, accuracy, cooperation of the seller, and usability of the information that is requested by the appraiser.