Most practice owners have a number in their head. It usually came from a conversation at a study club, a postcard from a broker, or what a classmate got for a practice two states away four years ago.
That number is doing a lot of work. It is holding up the retirement plan, the timeline, the decision about whether to buy the building. And it is almost never right.
I am not saying your practice is worth less than you think. Sometimes it is worth more. The problem is that you do not know, and the number you are using was not built for the job you are asking it to do.
What a buyer is actually buying
A buyer is not buying your collections. They are buying the earnings that are left after someone runs the place, and that number takes work to find.
Start with your profit and loss and adjust it back toward reality. Your compensation comes out and gets replaced with what it would cost to hire someone to do your clinical work. The car, the travel, the family member on payroll, the continuing education trip that was mostly a vacation, all of that gets sorted into real business expense or owner benefit. If you own the building and pay yourself above or below market rent, that gets corrected to market.
What is left is the number a buyer works from. For a lot of practices it looks nothing like what the tax return shows, because the tax return was built to minimize taxable income and a valuation is built to show earning power. Those two goals pull in opposite directions, which is why the owner who has been most aggressive on the tax side often has the most cleanup to do before a sale.
There are two buyers and they do not pay the same
One buyer is another practitioner. They are buying a place to work and a patient base, and they are limited by what a lender will let them borrow against their own income. That caps the price.
The other buyer is a group or consolidator. They are buying cash flow, and they are usually buying it with the expectation that you stay for a few years. They can pay more, but the structure is different. A meaningful share of the money arrives later, tied to performance, rollover equity, or your continued production. The headline number and the money that actually reaches your account can be two very different figures.
Owners get into trouble when they compare a practitioner offer against a group offer as if they were the same thing. They are not. One is a price. The other is a price plus a job plus a bet.
Founder dependency is the single biggest drag
If most of the production comes from you, if the patients ask for you by name, and if the referral relationships live in your phone, a buyer is not purchasing a business. They are purchasing a job that comes with the risk that the person who made it work is leaving.
That shows up in the price every time. Sometimes as a lower multiple. More often as structure, where a larger share of the money moves into an earnout that only pays if production holds after you walk out.
The fix is slow, which is exactly why this matters years ahead of time. Adding an associate, moving hygiene and routine production away from your chair, building a front office that runs without you deciding everything, documenting how the place actually operates. None of that happens in the six months before a sale. All of it changes the number.
Revenue concentration is the one owners miss
Concentration is the same problem in a different outfit. If one insurance plan drives half your collections, if one employer or one referring physician sends most of your new patients, if one corporate contract carries the schedule, the buyer is pricing the risk that the thing disappears the year after closing.
You can be highly profitable and still take a discount for this. Profitability tells the buyer what the practice earns. Concentration tells them how likely it is to keep earning it.
Why five years out is the right time to look
Everything that raises the number takes years. Reducing your own chair time, adding a provider, cleaning up the books, negotiating the lease before it becomes a problem, replacing equipment on a schedule instead of in a panic. Start that work when you are ready to sell and you have already given away most of the upside.
The other reason is your plan. The value of the practice is often the largest single number on a practice owner's balance sheet, and the entire retirement projection leans on it. If that number is wrong by thirty percent, the plan is wrong by more. Finding that out at 62 is a problem with very few good solutions. Finding it out at 52 is just a to-do list.
Sometimes the answer runs the other way. I have had owners discover the practice is worth more than they assumed, or that they had saved enough outside the practice that the sale price barely moves the outcome. That is worth knowing too. It changes how hard you push and how much risk you need to take in the years you have left.
The number matters even if you never sell
You may plan to work until you cannot. The value still matters. It sets the buy-sell price if you have a partner, and it determines whether the insurance funding that agreement is anywhere close to adequate. It is the number your spouse is left with if you die or become disabled tomorrow. It affects what a lender will do for you and what your estate looks like.
An outdated buy-sell with a value from 2016 in it is one of the more common problems I run into, and it is usually sitting in a drawer nobody has opened since the day it was signed.
Where to start
You do not need a formal valuation to begin. Start by getting your books into shape so the earnings are visible, write down the adjustments an outside buyer would make, and be honest about how much of the production would leave with you. That exercise alone tells most owners more than they expected, and it tells you whether a real valuation is worth paying for yet.
Then run the number through your personal plan and see what it actually supports. That is the part that matters.
If you have never put a real number on your practice, or the one you are carrying around came from a conversation years ago, that is worth an hour. Let's talk.
Disclosures
This material is educational and general in nature and is not a business valuation, an appraisal, or an opinion of value for any specific practice. Practice values vary widely by specialty, geography, buyer type, and deal structure. Nothing here is tax or legal advice. Any sale, transition, or buy-sell decision should be made with your attorney, your tax professional, and a qualified valuation professional.