Before You Buy: How to Evaluate a Kennel’s Financial Health
When buying a kennel business, the property’s curb appeal, facility layout, and location matter — but the financial health of the business is just as important. A beautiful kennel that isn’t making money, or one with messy financial records, can quickly turn into a risky investment.
Understanding the financials helps you determine whether the asking price is fair, whether the business is sustainable, and how it might perform under your ownership. Here’s how to read and interpret the numbers like a pro.
1. Start with the Big Picture
Before diving into details, understand what’s included in the sale:
• Business only – You’re buying the operations, goodwill, and assets, but not the real estate.
• Real estate + business – You’re purchasing both the physical property and the business operations.
• Assets included – Equipment, fixtures, inventory, and client lists.
Knowing what’s being sold helps put the numbers in context.
2. Review the Key Financial Documents
Ask the seller for at least three years of financial records. The main ones to review are:
• Profit and Loss Statements (P&L) – Shows revenue, expenses, and net profit over a set period.
• Balance Sheets – Lists assets (what the business owns) and liabilities (what it owes).
• Tax Returns – Confirm reported income matches what’s in the P&L.
• Year-to-Date (YTD) Statements – Shows the most recent performance since the last fiscal year ended.
Tip: Inconsistencies between these documents are a red flag and should be clarified.
3. Understand Revenue Streams
Look at where the income is coming from — and how diversified it is.
• Boarding – Overnight stays; often the core revenue stream.
• Daycare – Daytime care that can provide steady weekday income.
• Grooming – High-margin service, but can be labor-intensive.
• Training – Group or private lessons, board-and-train programs.
• Retail – Sales of pet products or add-on services.
Why it matters: Multiple revenue streams make the business more resilient. If one service slows down, others can keep income steady.
4. Assess Profitability
The P&L will show net profit (revenue minus expenses), but also look at:
• Gross Margin – Revenue minus the cost of goods/services sold. Higher margins are better.
• Operating Expenses – Payroll, utilities, insurance, supplies, and maintenance.
• Owner’s Salary and Perks – Many small business owners pay themselves and run certain expenses through the business. These may be add-backs that increase the true profitability.
5. Identify Add-Backs and Adjusted Earnings
Seller’s Discretionary Earnings (SDE) is often used in valuing small businesses. It’s the net profit plus the owner’s salary, personal expenses, and one-time costs that wouldn’t carry over to a new owner.
• Examples of add-backs:
• Owner’s personal vehicle expenses
• One-time renovation costs
• Family members on payroll who won’t remain after the sale
Why it matters: SDE reflects what the business can realistically provide in income to a new owner.
6. Look for Trends
Three years of financials should tell a story.
• Upward trend – Revenue and profit are growing year-over-year.
• Flat trend – Stable, but may need changes to grow.
• Downward trend – Could be seasonal, market-related, or a sign of deeper issues.
Tip: If numbers dropped, ask why. A temporary dip (like from renovations or staffing changes) is very different from long-term decline.
7. Understand Seasonality
Many kennels have busy and slow seasons.
• Boarding-heavy kennels may peak during holidays and summer vacations.
• Training businesses might see spikes in winter or after adoption seasons.
• Grooming may have steady demand year-round.
Knowing seasonality helps you plan cash flow and staffing.
8. Compare Against Asking Price
A common benchmark for kennel business value is a multiple of SDE (often 2–4x, depending on size, stability, and location) plus the value of real estate and assets.
• If the asking price is far above market value based on earnings, you’ll need to negotiate or justify the gap.
• If it’s lower, find out why — it could be an opportunity or a sign of risk.
9. Watch for Red Flags
• Unexplained inconsistencies between tax returns and P&L
• Heavy reliance on one service or one client
• Declining customer base without a clear reason
• Excessive owner involvement with no management in place
• Outdated or incomplete financial records
The Bottom Line
Interpreting kennel financials isn’t just about reading numbers — it’s about understanding the story they tell. A profitable, well-documented, and diversified business is more valuable and less risky to buy. A messy, “owner-dependent” operation with unclear records may require a lower price, more due diligence, or a plan for restructuring.
At Kennel Connect, we help buyers make sense of financials before they commit — so you can invest in a kennel with confidence and clear expectations.
