Getting Your House in Order: Pre-Transaction Planning to Maximize Practice Value
How Strategic Improvements 12-24 Months Before Sale Can Add Hundreds of Thousands to Your Practice Valuation
When most practice owners decide to sell, their first instinct is to call a broker and get the process started immediately. But the most sophisticated sellers know that the real work begins long before that first call—typically 12 to 24 months before initiating a formal sale process (Source: Florida Healthcare Law Firm).
Think of it this way: Would you list your home for sale without fresh paint, landscaping, and necessary repairs? The same principle applies to your practice, except the stakes are exponentially higher. With medical practice valuations typically ranging from 6x to 12x EBITDA, depending on specialty, even modest improvements to your practice's financial performance can translate into six-figure increases in your sale price.
Why Pre-Transaction Planning Matters Now More Than Ever
The healthcare M&A landscape in 2025 remains robust, with approximately 230 physician practice management (PPM) transactions completed in the first half of the year. However, buyers have become increasingly selective. With deal volume down 43% compared to May 2024, sophisticated acquirers are conducting more rigorous due diligence and walking away from practices with operational or financial red flags (Source: Bass Berry Sims).
California recently enacted AB 1415, requiring private equity healthcare buyout reviews, and SB 351, imposing corporate practice restrictions—signaling increased regulatory scrutiny that makes "clean" practices even more attractive to buyers. In this environment, practices that have proactively optimized their operations command premium valuations, while those with unresolved issues face discounted offers or failed transactions (Source: Holland & Knight).
Understanding What Buyers Actually Value: The EBITDA Imperative
Buyers don't just buy revenue—they buy profitability. The single most important metric in practice valuation is EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization), which represents your practice's true operating performance stripped of financial noise.
Here's how EBITDA drives your valuation: A practice generating $7.5 million in revenue with $2.5 million in earnings before physician compensation (EBPC) might see physician compensation reduced by 30% post-transaction—from $500,000 per physician to $350,000—creating $750,000 in EBITDA. Applying an 8x multiple (common for many specialties), this yields a $6 million valuation for 100% acquisition.
The critical insight: Increasing your EBITDA by just $100,000 can add $600,000 to $1.2 million to your purchase price, depending on your specialty's typical multiple. This is why pre-transaction optimization matters so profoundly.
Five High-Impact Areas to Optimize Before Going to Market
1. Clean Up Your Financials and Maximize EBITDA
Sophisticated buyers want to see 3+ years of historical financials using accrual-based accounting. Many smaller practices operate on cash-basis accounting, which obscures the true picture of financial health. Twelve months before sale, work with a healthcare CPA to (Source: Kaufman | Rossin CPA + Advisors):
Normalize your EBITDA calculation by adding back non-recurring expenses, owner perquisites (auto leases, retirement contributions), and any COVID-19-related payments or physician absences that won't continue post-transaction. Document everything meticulously—buyers will verify your adjustments.
Optimize your payroll ratio. Practice payroll (including physician compensation) should ideally account for 25-30% of collections in most specialties. If yours creeps above 30%, buyers will discount your valuation or require compensation restructuring, which will reduce your proceeds. Address this before listing.
Manage accounts receivable aggressively. Top-performing practices maintain Days in Accounts Receivable (A/R) under 35 days, while anything over 50 days signals poor revenue cycle management. Implement automated payment reminders (98% open rate via text), scrub claims for eligibility errors before submission, and ensure your percentage of receivables over 120 days stays below 10%.
Improve your net collection rate, which measures how much of your expected revenue you actually collect. Leading practices achieve 95%+ collection rates by addressing claim denials proactively and optimizing coding accuracy.
2. Diversify and Stabilize Revenue Streams
Buyer risk assessment focuses heavily on revenue stability and diversification. Red flags include:
Heavy reliance on single payers. If one insurance provider represents more than 30% of your revenue, renegotiate contracts or diversify your payer mix now. A balanced mix of government payers (Medicare/Medicaid) and commercial insurers reduces perceived risk.
Customer concentration risk. Ideally, no single referral source should account for more than 10-15% of total revenue. Document multiple stable referral relationships.
Recurring revenue opportunities. Consider adding higher-margin ancillary services (in-house labs, imaging, wellness programs) that create predictable revenue streams. Buyers pay premiums for practices with recurring, diversified income.
3. Strengthen Operational Infrastructure and Scalability
Buyers want practices that can operate efficiently without excessive owner involvement. Demonstrate this by:
Documenting standard operating procedures (SOPs) for all critical workflows—billing, scheduling, clinical protocols, and vendor relationships. The less tribal knowledge locked in your head, the more valuable your practice becomes.
Investing in modern technology. Outdated EHR systems, manual billing processes, or paper-based workflows signal higher integration costs for buyers. Upgrade your practice management systems, implement automated eligibility verification, and demonstrate you've invested in efficiency.
Building a strong management team. Practices with capable office managers, billing specialists, and clinical leaders who can operate independently fetch higher multiples. Document your organizational structure and cross-train key personnel.
Optimizing provider productivity. Track revenue per provider, patient volume per provider, and appointment efficiency. Buyers will analyze these metrics to assess whether your practice maximizes its capacity or leaves revenue on the table.
4. Address Legal, Compliance, and Documentation Issues
Due diligence failures kill deals. Proactively conduct your own "self due diligence" 12-18 months before sale:
Verify all licenses, credentials, and certifications are current for physicians and staff. Address any malpractice claims or investigations transparently.
Ensure payer contract assignability. Some payer agreements contain change-of-control provisions that could prevent transfer. Renegotiate problematic contracts well in advance.
Review HIPAA compliance, Stark Law, and Anti-Kickback compliance. Document your compliance programs, policies, and training. Buyers will scrutinize these areas heavily.
Organize facility and environmental documentation. Ensure leases are transferable, equipment is well maintained and documented, and any environmental issues (e.g., asbestos, lead paint) are disclosed and remediated.
Clean up legal loose ends: Outstanding litigation, unresolved vendor disputes, or employment issues must be resolved or disclosed. Hidden problems discovered during due diligence erode trust and tank valuations.
5. Build and Retain Your Team
Your staff represents a critical component of practice value. High employee turnover signals operational instability and can derail transactions. In the 12-24 months before sale:
Stabilize compensation and benefits to prevent key employee departures. Buyers often require staff retention as a condition of closing.
Cross-train personnel so that no single employee is indispensable. This reduces buyer concern about "key person risk".
Foster a positive culture. Practices with engaged, loyal teams transition more smoothly and retain more patients post-sale—directly protecting the value you've negotiated.
Consider retention bonuses for critical employees, payable upon successful transaction close. This aligns their incentives with your sales timeline.
The Timeline: When to Start and What to Prioritize
24 Months Before Sale: Engage a healthcare CPA to establish accrual-based accounting and begin tracking the metrics buyers care about (EBITDA, A/R days, collection rates, provider productivity).
18 Months Before Sale: Conduct self-due diligence to identify and remediate compliance, legal, or operational issues. Implement technology upgrades and document SOPs.
12 Months Before Sale: Focus on EBITDA maximization through expense reduction, revenue optimization, and A/R cleanup. Stabilize your team and address any staff retention risks.
6-9 Months Before Sale: Begin building your "data room" with organized financials, contracts, policies, and operational documentation. Engage legal counsel and transaction advisors to prepare for the formal process.
3-6 Months Before Sale: Finalize pro forma financial adjustments, prepare your pitch narrative highlighting growth opportunities, and begin formal buyer outreach (Source: Doctors Management Services).
The ROI of Pre-Transaction Planning
Consider this scenario: A three-physician primary care practice generating $3 million in annual revenue with $450,000 in EBITDA might initially be valued at approximately $2.7 million (using a 6x multiple common for primary care).
By investing 18 months in pre-transaction optimization—improving A/R from 60 days to 35 days, increasing net collection rates from 88% to 95%, reducing payroll from 35% to 28%, and adding ancillary services—that same practice could improve EBITDA to $650,000. At the same 6x multiple, the new valuation becomes $3.9 million—a $1.2 million increase from strategic preparation (Source: Eton Venture Services | Physician Side Gigs).
Even accounting for the cost of hiring a healthcare CPA, implementing new technology, and advisor fees, the return on investment for pre-transaction planning typically exceeds 10:1 for most practices.
Common Mistakes That Sabotage Valuations
Waiting until numbers decline to initiate a sale. Buyers heavily discount practices with downward revenue or profitability trends. Sell from strength, not desperation. (Source: Yes Him Consulting).
Setting unrealistic valuations without market data. Work with experienced advisors who understand current multiples for your specialty and geography.
Neglecting to document add-backs. If you can't prove that certain expenses are non-recurring or owner-specific, buyers won't credit them in EBITDA calculations.
Ignoring revenue cycle management. Practices losing 30% of income due to poor follow-up, coding errors, or claim denials leave massive value on the table (Source: BillFlash | American Medical Association).
Failing to create a compelling growth narrative. Buyers want to envision how they can grow your practice post-acquisition. Document expansion opportunities, underutilized capacity, and untapped markets.
Moving Forward: Your Action Plan
The practices that command premium valuations in today's market share one common characteristic: they treat the pre-transaction period as seriously as the transaction itself.
By investing 12-24 months in strategic optimization, you position yourself to:
Attract multiple qualified buyers competing for your practice
Negotiate from a position of strength with clean financials and operations
Maximize your EBITDA and valuation multiple
Reduce transaction risk through proactive due diligence
Ensure a smooth transition that protects your legacy and your team
The question isn't whether you can afford to invest time in pre-transaction planning—it's whether you can afford not to. With hundreds of thousands of dollars potentially at stake, getting your house in order before going to market may be the highest-ROI decision you make in your entire career.
Ready to Explore Your Options?
The healthcare landscape is evolving rapidly. The question isn't whether change is coming—it's whether you'll be prepared to thrive within it.
Contact our team to discuss how the right partnership could enhance your practice's patient care capabilities while securing your financial future.
Disclaimer: This newsletter is for informational purposes only and does not constitute legal, financial, or accounting advice. Consult with qualified professionals regarding your specific situation.
About Viper Partners
Viper Partners is America’s leading transition consultation firm, exclusively serving the medical industry. We specialize in guiding medical professionals—including dentists, plastic surgeons, dermatologists, med spa owners, cardiologists, and vascular surgeons—who are considering growing or transitioning their practices.
With an outstanding track record of success, our expertise extends beyond practice transitions to encompass the sale and acquisition of medical office buildings, ensuring every transaction is smooth, strategic, and value-driven.
Through our exclusive partnerships with private equity-funded Dental Support Organizations (DSOs) and Medical Support Organizations (MSOs), we deliver unmatched opportunities that help clients gain a competitive edge and maximize value in an evolving healthcare marketplace.
Guided by principles of integrity, efficiency, and speed, we provide tailored, strategic solutions at every stage—from meticulous planning to successful closing. Committed to empowering medical professionals, our mission is to help clients achieve their goals and secure lasting success.