Selling a practice takes more preparation than most owners expect. The good news is that most of what buyers evaluate is already within your control. Here’s what to focus on – and what to leave alone.
Keep your cards close to your chest
Keep the circle of people who know you are considering selling very small – preferably only people you have a professional non-disclosure relationship with, like your attorney, a practice broker, and possibly your CPA.
There are many important details of a staff and patient transition that need to be worked out before telling either group of your plans, and you won’t have that information until you are under contract with a buyer. Staff or patients finding out early will leave them with many unanswered questions and uncertainty about their future. They will understandably look for that certainty elsewhere.
Keep patient flow steady or growing
The beating heart of the value of your practice is its ability to attract and retain patients. Steady or growing patient numbers will do more than almost anything to put buyers at ease that the practice is fundamentally healthy.
Check in on your profit and loss statement
Your profit and loss statement will be one of the most important financial reports buyers use to evaluate your practice. You may want to enlist your accountant for an hour or two to understand how your expenses compare to industry standards for practices of your type. It will be money well spent.
Each practice type has its own common ranges for expense categories. Typical categories include:
- Staff (wages, benefits)
- Doctor pay
- Facility (rent, utilities, janitorial, repairs)
- Clinical supplies
- Lab expenses
- Misc overhead and general administrative expenses
You’ll want to check that you can map your expense accounts to these categories and that each, expressed as a percentage of revenue, is close to industry averages. If any category is high by over 2-3%, explore what’s driving it. You may find unused services, opportunities to renegotiate contracts, discretionary expenses overstating the category, or overstaffing.
Accounts receivable cleanup
Try breaking this into a three-part plan:
- Understand the situation – generate an AR report showing balances by age and amount due.
- Address the smallest and largest amounts first. Send new invoices to everyone on your AR list, write off small balances that are years old, and tackle larger balances directly.
- Integrate cleanup into your staff’s ongoing tasks over several weeks to work through all overdue accounts.
Patient credits cleanup
Run a patient credit report to see the total credit balance you’re carrying – that amount, if significant, will be deducted from the sale price of your practice. Don’t erase valid patient credits, but check for process errors, which are more common than you might expect.
Unscheduled treatment and treatment plan cleanup
If your practice involves setting treatment plans or taking pre-payments, make sure you have clear records – electronic or physical – of those plans and prepayments.
Real estate
If you own your real estate, get value and rental comps from a commercial real estate broker. If you’re leasing, review your lease to understand what it says about assignment in the case of a sale. Your transitions broker can help you assess your options.
Equipment
Discard any broken equipment, but don’t upgrade anything major unless you plan to continue practicing for several years or it’s critical to operations. Buyers will have their own preferences on equipment and typically heavily discount the value of equipment they didn’t select.
Cosmetic items
A thorough cleaning is almost always a good idea. Things like painting, replacing furniture, and repairing broken cabinets make the practice easier to sell – especially to individual buyers – but don’t count on a dollar-for-dollar return. Weigh these decisions with your broker to see if the time, effort, and cost will pay off in your market.
Talk to PTG about where to focus your preparation.
Frequently asked questions
How far in advance should I start preparing my practice for sale?
At least one to two years if possible. Financial records, patient flow, and operational cleanup take time to show up meaningfully in the numbers buyers evaluate. Starting early gives you options.
Should I tell my staff I’m planning to sell?
Not until you’re under contract with a buyer. You won’t have answers to the questions they’ll ask – about their jobs, pay, and future – until the deal is further along. Early disclosure typically creates anxiety and attrition without any benefit.
Do I need to upgrade my equipment before selling?
Generally, no. Buyers discount equipment they didn’t choose, and major upgrades rarely recoup their cost at closing. Focus on discarding anything broken or non-functional rather than investing in new gear.
What financial records do buyers look at during due diligence?
Typically three to five years of profit and loss statements, tax returns, accounts receivable aging reports, and production reports. Clean, well-organized financials that support a clear picture of adjusted EBITDA make due diligence faster and build buyer confidence.
