Before you buy a practice, make sure the numbers you're paying for are real. Ask for the books, compare them to bank statements and membership reports, and have your CPA and attorney review the deal before you sign anything.
What to ask the seller for
- Monthly P&Ls for the last two to three years, and the year so far.
- Balance Sheets for the same dates.
- Bank and card statements for the same period.
- Tax returns for the last two to three years.
- Membership reports by month: active members, new members, cancellations and price.
- A list of every lease, loan, contract and recurring bill.
- Payroll reports, if there's staff.
If the seller won't share bank statements, treat that as a warning.
Check that revenue is real
Revenue on the P&L should match deposits on the bank statements and the membership reports, after platform fees and refunds. Then compare the tax returns to the P&Ls. If the returns show much less income than the books, ask why before you go further.
In a made-up example, the P&L shows $420,000 in revenue last year, but bank deposits from the membership platform total $371,000. That's a $49,000 gap. Maybe some revenue came by check, or maybe owner contributions were booked as income. Either answer changes what the practice is worth.
Check the members
Members are what you're buying. Look at the trend: are cancellations rising, is growth flat, are a large share of members on an employer contract that could end? A panel tied closely to the selling doctor may not stay when that doctor leaves. Revenue per member and employer contracts are worth looking at closely.
Check the costs
- Is the owner's own pay in the expenses? If not, profit looks higher than you'll see once you pay yourself.
- Are there personal expenses run through the practice? Those can make profit look lower.
- Will rent, software or staff pay change after the sale?
What's on the Balance Sheet
Look for prepaid annual memberships. That's service you'd owe members after you buy, with cash the seller already collected. Also check loans, unpaid bills and equipment. This post explains how to read it.
Who does what
A bookkeeper can compare the books to the bank and membership records. Your CPA should review the tax side of the deal, including how the price is split. Your attorney handles the purchase agreement, liabilities and licensing. Bring all three in before you sign a letter of intent if you can.
What I'd do this week
- Send the seller the document list above.
- Line up a CPA and an attorney who've worked on practice sales.
- Write down the panel size and revenue the price is based on, so you can check both.
Common questions
How is a practice price usually set?
Often as a multiple of profit or revenue, adjusted for risk. Your CPA or a business valuation professional can tell you whether a price fits the numbers.
Should I buy the company or only its assets?
That's a legal and tax decision with real consequences. Ask your attorney and CPA before you agree to either.
Do I need clean books before I close?
You need trustworthy numbers to price the deal. If the seller's books are a mess, ask for a review or adjust the price for the risk.
Want a second look at a practice's numbers?
Once the practice is yours, we reconcile every account every month and send your P&L and Balance Sheet by the 15th. If that's what you need, apply to work with us.