Start With Your Financials
Most practice owners only start thinking about a sale when they’re ready to step back. But for buyers, the clock starts the second they open your financial statements.
That gap in perspective is where a lot of value gets lost.
Preparing your practice for sale isn’t a last-minute task; it requires years of careful runway. Whether your buyer is a dental or medical group, a private equity platform, or an associate taking over, they all ask the same basic question: What will this practice actually earn under new ownership, and can we count on that number?
Your finances tell that story. The good news is that most of what buyers look for can be polished and improved, provided you give yourself enough time.
What Buyers Look for in Your Financials
When buyers and appraisers evaluate your practice or dental practice valuation, they look for its normalized earnings. This represents what the business actually makes once owner-specific perks and personal expenses are set aside.
Your reported net income is merely the starting point. Buyers will go through it line by line. Buyers review your practice financials line by line. Any confusion or lack of clarity usually leads to a lower offer or a dragged-out deal. They generally zero in on five key areas.
1. Clean, consistent records.
Expect to hand over at least three years of financial statements and tax returns. Buyers look for consistent categories from year to year, fully reconciled bank accounts, and statements that line up neatly with your tax filings.
2. Collections over production.
Production is what you bill; practice collections are what actually hits the bank. Buyers care most about your collection rate (collections divided by net production) and will not pay for billed work that never converts into real cash.
3. Overhead that makes sense.
Buyers will measure your practice operating expenses as a percentage of collections against industry benchmarks for your speciality. Higher overhead isn’t an automatic dealbreaker, but you need to be able to explain the story behind the numbers.
4. Collectable receivables.
When balances sit unpaid past 90 days, it usually points to billing headaches. Buyers know that much of that money will likely never be collected.
5. Owner reliance.
If most of the practice’s production rests on your shoulders, buyers worry revenue will drop after you step away. Associate providers, clear operating processes, and a solid team make your practice much easier to transfer and significantly more valuable.
Add-Backs and Preparing Your Practice for Sale
It’s completely normal to run personal or owner-specific expenses through a practice. This includes things like a higher salary, a company car, family on the payroll, or one-off legal and equipment costs.
As long as you track them properly, you can add those back to adjust your financial statements and reflect your true earnings, directly boosting your practice’s overall value.
Good documentation makes all the difference here. An add-back backed up by records is an easy win for your valuation. An add-back you try to explain from memory becomes a debate, and the buyer usually comes out on top.
Start flagging these line items now, along with a quick note explaining why the next owner won’t need to carry them.
A Simple Timeline for Preparing Your Practice for Sale
2 to 3 years out:
- Separate expenses: Completely isolate personal expenses from business finances.
- Standardize accounts: Keep your chart of accounts consistent from year to year.
- Document add-backs: Track and log add-backs as they occur, keeping physical or digital receipts.
- Monitor core metrics: Keep an eye on five key numbers every month: total collections, collection rate, overhead percentage, receivables over 90 days, and new patient numbers.
12 to 18 months out:
- Resolve ageing AR: Clean up outstanding receivables and address any billing hiccups.
- Audit agreements: Review leases, contracts, and equipment loans that a buyer might take over.
- Structure the deal: Consult your CPA and attorney on deal structures, as asset and stock sales carry very different tax implications.
- Establish a baseline: Get a preliminary valuation done to anchor your expectations in real data.
6 months out:
- Compile diligence files: Gather all financial statements, tax returns, payroll records, contracts, and your add-back schedule into one organized binder or folder.
- Close books early: Ensure each month’s books are closed consistently and on time.
Why Monthly Financial Discipline Matters Most
Clean, timely monthly financial statements are the surest indicator of a healthy business. They give buyers confidence that your numbers are real and reliable.
They also ensure that when an offer lands on your table, you can respond in a couple of days instead of spending weeks scrambling for documents.
If selling is still years away, these same financial habits pay off right now. You’ll catch rising overhead or slipping collections early enough to make corrections before they hurt your bottom line.
Where to Start When Preparing Your Practice for Sale
You cannot undo three years of messy bookkeeping in the 90 days before signing a letter of intent. However, given two to three years, you can fix almost anything.
If selling a medical practice or selling a dental practice is on your horizon over the next five years, start getting your books in order today.
We’re always happy to chat through your options whenever you’re ready to plan your exit strategy.
Connect with us at info@brightbal.com or visit our website at brightbal.com/contact
