Preparing a Medical or Dental Practice for a Someday Sale

Advice for Medical and Dental Professionals and Their Advisors

This article walks readers through what really matters long before these professionals think about listing their practice for sale. Understanding the “why” behind each step, not just the “what”, is crucial. As one reads through, keep in mind that the information is generalized, not specific to a specific specialty area. It is strongly suggested the dental and medical professionals consult with a trusted professional(s) to provide the smoothest path toward the transition or retirement phase.

*Preface: Recently, I have had two medical/dental practice valuation referrals, and two physician-clients ask me for a simple write-up on ways in which they can properly prepare for a sale. I have checklists, a 15-page questionnaire, etc., but I wanted to create something more conversational. Below is the result of this series of happenings/thoughts. To us, professional valuation experts, the guidance might seem perhaps trite, overly obvious, but I do not believe it is based upon many years of conversations with my medical and dental clients (and potential buyers thereof). As always, I welcome feedback and peer-to-peer conversations on ways to convey this topic in a non-technical, simple manner that is heard and heeded. I look forward to any/all feedback!

Most physicians and dentists do not wake up thinking about EBITDA, ratios, or exit multiples. These professionals think about their patients, past outcomes, scheduling headaches, and the never‑ending compliance grind. Yet at some point—maybe five to 15 years from the present—they will consider the option of selling their practice. And when that day comes, the value a buyer is willing to pay will not be based on how hard the physician or dentist worked or how loyal your patients are. It will be based on how clearly the practice’s story is documented in numbers, systems, and repeatable processes.

This article walks readers through what really matters long before these professionals think about listing their practice for sale. Understanding the “why” behind each step, not just the “what”, is crucial. As one reads through, keep in mind that the information below is generalized, not specific to a specific specialty area. For example, in a dermatology practice, payroll (as a percentage of billings) is often higher than the general range noted herein. It is strongly suggested the dental and medical professionals consult with a trusted professional(s) to provide the smoothest path toward the transition or retirement phase (more on this specific topic below).

1. Why Medical and Dental Professionals Should Start Preparing Earlier Than They Think

Let’s start with something owners rarely hear: the earlier you prepare, the more options you will have. Preparing for a someday sale is not about selling, it is about being ready to sell.

When You Begin Planning Three to Five Years Ahead:

• You have time to strengthen financial reporting.
• You can correct weak trends.
• Your practice becomes less dependent on you.
• You have breathing room to clean up payroll, normalize compensation, and reduce personal or discretionary expenses.
• Your key price indicators (KPIs) start to show consistent performance; something buyers love.

If time is short and they only have 18–24 months, that is okay too. These professionals can still correct many issues. The key is to know what to focus on first: financials, revenue cycle, overhead structure, and key financial ratios.

2. What Ratio Analysis Really Means (and Why Buyers Care)

Ratio analysis might seem intimidating to them, but at its core it’s simply a way of turning data into insight. They can think of it as akin to reading a lab report—each value tells the reader something specific, but the real understanding comes from seeing how those values relate to each other.

Buyers look at ratios for the same reason clinicians look at vital signs: they are objective, comparable, and revealing.

Core Ratios Every Practice Should Track:

Current Ratio = Current Assets ÷ Current Liabilities 

Shows how comfortably the practice covers short-term obligations. Common buyer benchmark >1.5×.

Debt-to-Equity Ratio = Total Debt ÷ Owner Equity 

Indicates your financial risk profile. Lower leverage = lower buyer risk.

Accounts Receivable Days = (A/R ÷ Net Collections) × 365 

A healthy range is 35–45 days.

Operating Margin = Operating Income ÷ Revenue 

Strong practices often show 15–25%.

EBITDA Margin = EBITDA ÷ Revenue 

A critical valuation metric: 10–20% is healthy.

Financial ratios do not lie (most the time). They reveal whether the practice is stable, profitable, efficient, and predictable; four words buyers love to see.

3. KPIs: The Story Behind the Numbers

If ratios are the vital signs of your practice, KPIs are the day-to-day behaviors that influence them. KPIs help you understand how your team performs, how your patients experience your practice, and how your financial engine behaves from visit to visit.

Revenue Cycle KPIs:

• Net collection rate (>95%)
• Denial rate
• A/R > 90 days
• Attrition rate

Clinical KPIs:

• Production per provider per hour
• New patient volume
• Treatment acceptance rate
• Average reimbursement per visit

Staffing KPIs:

• Payroll % of revenue (22–30%)
• Turnover rate
• Overtime patterns

Patient Experience KPIs:

• Patient retention
• Online reviews
• Referral patterns

When KPIs improve, ratios improve. When ratios improve, valuation improves.

4. Why Systems Matter More Than Owners Realize

A buyer is not purchasing the medical or dental professional’s personality or even reputation; they are purchasing a business. And a business must run on systems.

Financial Systems:

• Accrual-basis accounting
• Monthly financial closes
• Clean P&Ls, balance sheets, and cash flows
• Clear expense categorization

Revenue Cycle Systems:

• Charge capture
• Claims submission workflow
• Denial management
• Written patient financial policy

Inventory Tracking System:

• Annual or semiannual counts
• Expiration tracking
• SKU-level detail
• Periodic automatic replenishment (PAR) levels
• Cost-of-goods accuracy

Operational Systems:

• Job descriptions
• SOPs
• HIPAA/OSHA/CLIA logs
• Scheduling workflows
• Phone scripts

Systems equal consistency. Consistency equals transferability. Transferability equals higher valuation.

5. Understanding Fair Market Value vs. “Seller’s Number”

Most owners have a number in mind. Buyers have fair market value (FMV). FMV is based on:

• Cash flow
• Risk
• Growth potential
• Competition
• Provider dependency
• Payer mix

Common Reasons for a Value Gap:

• Too many discretionary expenses
• Excessive/inadequate owner compensation
• A/R problems
• Lack of documentation
• One provider producing >80% of revenue (often the individual selling the practice)

Fixing these early gets you much closer to the number they want.

6. Your Core Advisory Team

Medical or dental professionals understand that one wouldn’t expect a patient to diagnose him or herself. Likewise, one shouldn’t diagnose oneself when preparing for a sale.

The Advisor Team Should Include:

• Healthcare CPA
• Valuation analyst (CVA)
• Healthcare attorney
• Banking partner

Team Members to Consider:

• Revenue cycle consultant
• Practice management consultant
• Credentialing specialist

The team will help identify red flags and fix issues long before a buyer sees them.

7. What Lenders Look At

Most individual buyers need financing. That means lenders play a pivotal role in the transaction.

Lenders Look For:

• DSCR[1] > 1.25×
• Clean A/R
• Stable EBITDA
• Favorable lease terms
• Low concentration risk

A lender-friendly practice sells faster; and often for more.

8. An Annual “Value Health Check”

Review Annually:

• Ratios
• KPIs
• Provider productivity
• Compliance logs
• Overhead trends
• Payer mix
• Benchmarks

Professionals should think of it as preventive maintenance for a future sale.

9. The Someday Sale Checklist

Financial:

☐ Accrual financials 

☐ Monthly closes 

☐ Benchmarking 

☐ Normalized compensation 

Operational:

☐ KPIs 

☐ SOPs[2] 

☐ Job descriptions 

☐ Reduced dependency 

Strategic:

☐ Annual valuation 

☐ Advisory team in place

☐ Payer mix review 

☐ Margin plan/financial goals 

Culture (of the Practice):

☐ Leadership structure 

☐ Documentation habit/discipline/expectation 

☐ Reduced bottlenecks 

10. Final Thoughts

A high-value practice is not just one with strong revenue, it is one that functions like a business, not just a personality. With clean books, reliable systems, strong KPIs, and objective ratios, one’s clinical excellence becomes transferable, sellable, and valuable.

Preparing early is not about selling, it is about being ready when the right opportunity comes.

[1] “Debt service coverage ratio”: banks utilize this metric when determining the ability to lend as it provides the financial health of the individual with respect to cash flow versus debt and their ability to meet debt obligations with a residual cushion for the unexpected.

[2] “Standard operating procedures”: detailed, written instructions that detail how tasks, processes, and responsibilities should be carried out in a consistent, repeatable, and compliant way.

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Trisch Garthoeffner, ABV, CVA, MAFF, EA, MAcc, has 20+ years of experience in providing business valuation, financial forensic, and merger and acquisition consulting services. In 2020, she was elected to the NACVA Standards Board; in 2021, voted vice-chair; in 2022, voted chair; and is a current Executive Advisory Board advisor for the NACVA Standards Board. She is a past Florida state chapter president for NACVA, a current member of the NACVA exam task force, a board member and quarterly author for the QuickRead valuation periodical, a past treasurer of the Florida Academy of Collaborative Professionals, and a past vice-president of the Southwest Florida Chapter of Collaborative Professionals and current member. In 2024, Ms. Garthoeffner was nominated as a member of Business Valuation Resources (BVR) Leadership Council. On March 06, 2025, she will be in Washington DC with other NACVA representatives[1] to testify regarding NACVA’s collective input regarding the Treasury Department’s proposed rule – Regulations Governing Practice Before the Internal Revenue Service. In her spare time, she enjoys spending time with her daughter, exercising, antiquing, and fostering animals.

Ms. Garthoeffner can be contacted at (239) 919-3092 or by e-mail to trisch@anchorbvfs.com.

[1] T.J. Liles-Tims and Dalton Hopper.