DermatologistsSet objectives before inviting interest
Write down the outcome the owners are trying to achieve. One owner may value cash at close and a defined departure date; another may want to retain a minority interest and remain involved in management. Partners may disagree about whether to sell all locations together, whether an associate should participate, or how much transition work each will accept. Surface those points before buyer discussions. Record minimum liquidity needs, desired post-close duties, acceptable geographic scope, timing constraints and any non-negotiable staff or provider priorities.
Distinguish goals from assumptions. "We need $4 million after tax" is a goal that requires an adviser to model taxes, debt repayment, escrow, fees and working capital. "The buyer will keep every employee" is an assumption that must be tested against the buyer's operating model and definitive documents. Create a decision log with the question, options, owner, evidence required and date for a decision. This prevents a preliminary expression of interest from quietly becoming the practice's default plan.
Establish a credible financial baseline
Build a monthly history, ideally with a consistent chart of accounts and clear period definitions. Reconcile income statements to the general ledger and bank activity. Explain material differences between cash collections, charges, contractual adjustments and reported revenue. For a practice with separate locations, show both consolidated totals and location-level results. A buyer will ask whether reported growth reflects more capacity, a change in payer mix, a provider joining, a rate change, or the timing of collections. The owner should be able to answer from records, not memory.
Prepare an adjustment schedule for owner compensation, one-time expenses and related-party charges. Each adjustment needs a source document, a plain explanation and a view on whether the cost would recur under a new owner. If the owner receives $420,000 in wages but performs services that would require $300,000 of replacement compensation, the $120,000 difference is not automatically transferable profit. The replacement role, hours, duties and local market evidence matter. Likewise, an unusual legal bill may be a candidate adjustment only when the invoice and circumstances support that conclusion. Avoid grouping ordinary recruiting, maintenance or technology costs into a vague "nonrecurring" category.
An illustrative example: a practice reports $1.8 million in operating income. Its draft adjustment list adds $90,000 for an owner vehicle, $75,000 for a renovation, and $140,000 for owner compensation. The renovation invoice supports a one-time project, while the vehicle includes mixed business and personal use that needs accounting review. The compensation adjustment must account for the owner's management and production duties. The presentation should show the reported figure, each supported adjustment, the evidence and an alternative case that excludes disputed items. This is more useful than a single adjusted number with no bridge.
Explain provider and service economics
Map each provider's start date, clinical work category at a business level, collections, compensation, schedule capacity and contractual status. Avoid patient-level information in a general transaction summary. Explain whether collections follow a particular provider, location or service line, and whether the practice has sufficient administrative coverage when a provider is away. A buyer may look at concentration: if one physician accounts for a large share of production or referrals, describe the operating plan and the contractual facts that support continuity.
For each location, identify usable rooms, staffed sessions, lease term, occupancy cost, shared expenses and any planned capital work. A location that looks profitable before central billing and management allocations may have less contribution after those costs. Show the allocation method and test whether the conclusion changes if central costs are assigned by revenue, provider time or another defensible driver. Include equipment ownership, service contracts and replacement needs. Dermatology equipment may have specific maintenance commitments and software arrangements; check training commitments too that do not appear in a simple rent schedule.
Separate service mix from provider mix. A shift in procedure, pathology, medical dermatology or cosmetic revenue can change staffing requirements and cash timing. Use totals appropriate for business analysis and have counsel and privacy advisers determine what data can enter a diligence room. Do not claim that one service is more valuable merely because its gross charge is higher. Explain the costs and capacity required to produce the revenue.
Review contracts, entities and obligations
Prepare an entity chart showing ownership, tax classification, assets, contracts and the function of each entity. Identify which entity employs staff, bills for services, holds equipment, leases space or provides administrative support. Confirm that names and ownership percentages agree across governing documents, tax filings and lender records. Ask counsel to review professional entity restrictions, management services arrangements, change-of-control language and the proposed transaction perimeter.
Inventory provider agreements, employment arrangements, payer contracts, leases, equipment loans, vendor agreements, software terms and referral or marketing contracts. For each, note renewal dates, notice windows, assignment rights, consent requirements and termination charges. A lease with two years remaining and no extension option creates a different location plan from one with a long renewal right. Do not assume a buyer can simply inherit every agreement. Ask the relevant adviser to identify which consents are needed and who owns each request.
Also assemble debt, tax, litigation, audit, refund, leave, benefits and insurance information. A pending payer audit or an unresolved landlord allowance should be described factually, with dates and documents. A clean list of known obligations is better than a categorical claim that there are no issues. Track estimated exposure separately from amounts that are booked or formally asserted, and let accounting and legal advisers determine appropriate treatment.
Build a controlled information package
Start with an index and a named person responsible for each category. Typical categories include financial statements, tax records, payroll summaries, provider rosters, contracts, leases, equipment, insurance, policies, systems, and location information. Use consistent periods and file names. Label drafts as drafts and retain a source reference for every schedule. Reconcile the package to the financial baseline before it is shared.
Access should be limited to people with a defined role. Use confidentiality agreements, secure storage, access logs and a process for removing access when discussions stop. Do not place patient records into a general data room as a shortcut. Have qualified privacy and transaction counsel define the permitted diligence method and any de-identification or controlled review requirements. Staff should not be asked to send sensitive information through personal email or unapproved file-sharing tools.
A buyer question log is a practical control. Record the exact question, the person drafting the response, the source reviewed, the reviewer and the date released. If an answer is uncertain, say what remains to be checked and set a date for an update. Do not let multiple employees give inconsistent answers through separate channels. Owners should appoint one transaction lead who coordinates factual responses while subject experts verify their sections.
Choose advisers and create a process
The adviser team may include a transaction adviser, healthcare attorney, tax adviser, accountant or quality-of-earnings provider, valuation professional, insurance adviser and privacy specialist. Define scope, fee basis, conflicts, team members and expected deliverables in writing. Ask each adviser how they will handle a practice with multiple entities and locations, along with provider relationships. Confirm who is responsible for buyer outreach, negotiation, financial analysis and document review; titles alone do not define the work.
An adviser's compensation can affect incentives. Understand any success fee, minimum fee, expense reimbursement or exclusivity term. Ask how the adviser would handle an offer that is attractive financially but difficult to execute. Check references with owners whose practices have a comparable scale or structure. No adviser can guarantee a sale, a specific valuation or a buyer's financing. The owner remains responsible for decisions and should not sign an engagement letter without understanding how termination and tail provisions work.
Set a process calendar that leaves room for normal business duties. Define when buyer materials are released, how management meetings are scheduled and who may attend. Maintain a weekly internal review of open requests, operational issues and deadlines. Limit unnecessary disruption to staff and provider schedules. Confidentiality cannot be guaranteed once a transaction is underway, so advisers should help determine the appropriate point and method for informing people who need to know.
Compare offers beyond headline price
A headline enterprise value is not the same as owner proceeds. Build a bridge from enterprise value through debt, cash, working capital, transaction expenses and escrow, then taxes and any rollover or contingent amount. Confirm the working-capital definition, target, measurement date and dispute process. Understand whether cash is included or excluded and how debt-like items are defined. A difference in definitions can materially change what reaches owners even when the headline price is unchanged.
Illustrative example: Buyer A offers $12 million of enterprise value, with $1.5 million of debt-like items, $600,000 of estimated fees and a $500,000 escrow. Buyer B offers $11.5 million, assumes a particular equipment loan, and has a smaller escrow but proposes a $1 million earnout. These figures cannot be ranked from the headline alone. The owners need the funds-flow schedule and tax analysis, along with probability and conditions for contingent payments, and a review of the assumed liability. The example is illustrative and does not imply typical market terms.
Compare execution risk and personal obligations too. Review exclusivity, financing conditions, diligence rights, termination rights, indemnity caps, survival periods, employment terms, restrictive covenants and transition expectations. Ask what happens if a key provider declines a new agreement or a landlord withholds consent. A higher offer with broad unilateral closing conditions may be less certain than a lower proposal with a clearer path. Keep a side-by-side matrix that marks unknown terms instead of treating them as settled.
Protect operations through closing
A sale process can consume management attention. Assign an internal lead and backup for payroll, billing oversight, vendor approvals and location issues. Maintain the same financial reporting definitions during diligence. Monitor staff vacancies, provider schedules and major equipment commitments. If an operating change is needed, record why it was made and inform advisers so it is not misread as a transaction-driven adjustment.
Before signing a letter of intent, identify provisions intended to bind the parties and have counsel review their scope. After signing, manage the exclusivity period as a project with owners and dates. The final agreement should match the negotiated economics, including funds flow, working capital, indemnification, escrow, employment documents and transition services. Keep a closing checklist covering consents, payoff letters, entity approvals, insurance, licenses as applicable to the transaction, and transfer of business records under approved procedures.
Employee and provider communication should be coordinated with counsel and leadership. Prepare accurate messages for different audiences, a schedule for who hears what and a contact for questions. Avoid promises about compensation, roles or benefits unless the buyer has committed to them in writing. After closing, document handoffs, outstanding requests and the end date for each seller obligation. Owners should retain copies of final agreements and a calendar for escrow, earnout or indemnity deadlines.
Make the decision on net outcome and fit
At the end of the process, compare the signed terms with the goals established at the beginning. Model net proceeds with advisers and show sensitivity to uncertain items. Identify what is cash, what is delayed, what is exposed to setoff and what is dependent on future performance. Evaluate the owner's role, provider arrangements, location plans and staff implications alongside the financial calculation. A decision memo should summarize alternatives, assumptions, unresolved risks and reasons for the selected path.
Owners should make space for independent review before signing definitive documents. Transaction momentum can make unresolved questions feel routine. Ask counsel to identify clauses that create obligations after close and ask tax advisers to confirm that the contemplated steps match the intended tax result. Educational information cannot substitute for advice on a specific transaction. Questions or corrections may be sent to Richard@DoctorsInvestorClub.com.
Questions about your own practice? Contact Richard@DoctorsInvestorClub.com.
