Preparing to sell an OB-GYN practice

Selling an OB-GYN practice is a business, ownership, and career transition that rewards preparation before a buyer reviews the books. Owners who agree on goals, understand what is being sold, and can support their earnings story have more control over timing and terms. This guide sets out a process for organizing a sale, managing diligence, comparing offers, and protecting continuity.

Decide what a successful transaction means

Before approaching buyers, ask each owner to write down the outcomes that matter most: liquidity, reduced administrative work, protection for employees, a transition path for associates, continued autonomy, or a leadership role after closing. Then rank those priorities together. They may conflict. A buyer offering a higher headline value may expect a longer employment commitment, substantial rollover investment, or centralized operating control. Another may offer less but allow a cleaner exit. A written ranking helps owners compare actual trade-offs when negotiations become fast and personal.

Confirm who has authority to approve a transaction. Review shareholder, operating, partnership, and buy-sell agreements, along with amendments and side letters. Record voting thresholds, consent rights, transfer restrictions, rights of first refusal, and notice requirements. If a partner has a purchase option or departure provision, determine how a sale interacts with it. Resolve known disagreements early, including how owners will respond to an offer below their preferred value. A process can stall if an owner with an approval right first learns of it after a letter of intent is signed.

Define the transaction perimeter in a simple entity and asset map. Include professional entities, management services organizations, real estate companies, equipment, ancillary businesses, and separate coverage or management arrangements. For each, note its legal owner, debt, contracts, and intended treatment. Decide whether a building will be sold, retained and leased back, or excluded. List personal guarantees, liens, and obligations that may need payoff or release. Healthcare transaction counsel should assess the proposed structure against applicable state ownership rules and identify which assets and agreements can legally move.

Keep the sale decision distinct from the future work decision. A physician may sell an ownership interest while also negotiating an employment agreement, leadership duties, or a transition period. Those documents need separate review because the purchase price does not settle schedule, compensation, termination rights, restrictive covenants, or responsibility for administrative work. Owners should identify their own acceptable terms before buyer discussions so that a favorable sale price does not obscure a poor personal fit.

Prepare the earnings story

A buyer will test whether the practice's reported earnings reflect repeatable performance. Assemble monthly profit and loss statements for several periods and reconcile them to the general ledger, tax returns, and bank activity. Note changes in accounting methods, billing systems, revenue timing, or expense coding. Where records permit, show revenue and margin by site and service line, with a consistent definition for each. Explain material shifts, such as a physician departure, a new location, or a change in coverage arrangements, using operational evidence rather than broad assurances.

Prepare a physician compensation schedule that separates clinical work, administrative duties, benefits, call compensation, and distributions. Buyers will ask what it costs to replace owner labor that continues after closing. An owner draw is not automatically an expense add-back, and an owner's salary is not automatically unnecessary. Build a role-by-role account of who performs scheduling oversight, recruiting, financial review, payer relations, or management. Estimate replacement expense for work that continues and identify tasks that can end or be absorbed without added cost.

Create a normalization bridge from reported EBITDA to a supportable adjusted figure. Each line should show the ledger account, period, amount, explanation, supporting document, and proposed treatment. Keep uncertain or contested items on a separate list. One-time expenses require evidence that they were unusual and will not recur; personal or owner-related expenses require proof of what the practice would spend under a buyer. Avoid double-counting an item across several categories. A short, conservative bridge with invoices and payroll backup is more persuasive than a large unsupported claim.

Illustrative worked example: A practice reports $2,000,000 of EBITDA and proposes $240,000 of owner-related add-backs. Supporting records show that $100,000 relates to a one-time recruiting project and other documented non-recurring costs. The buyer accepts that amount but estimates that replacing the owner's ongoing management work will cost $80,000 more than the current arrangement. The illustrative adjusted EBITDA is therefore $2,020,000: $2,000,000 plus $100,000, less $80,000. The $140,000 balance of claimed add-backs is not accepted. The figures are illustrative; actual treatment depends on the records, transaction structure, and buyer's analysis.

Common mistakes include treating distributions as operating costs, claiming a full owner salary while ignoring replacement labor, and presenting estimates as if they were booked results. Another frequent error is mixing cash collections with accrual revenue without explaining the conversion. Have the accountant define each metric and tie it to source records. If a buyer challenges an adjustment, respond with the evidence and calculation rather than repeatedly changing the explanation.

Explain operations and continuity

Prepare an operating map that shows provider schedules and clinical FTE, locations, call allocation, hospital access, referral relationships, payer participation, credentialing status, leases, key systems, and staff responsibilities. A buyer is evaluating whether the organization can continue to function after ownership changes. Identify processes or relationships held mainly by one founder, then document who can take them over. Cross-training a practice administrator or associate before a sale can reduce perceived dependence on a single owner.

For an OB-GYN group, explain how office operations connect with deliveries, procedures, hospital coverage, and any ancillary services. Describe how call is assigned, how backup works, how leave is covered, and what the group does when a clinician reduces hours or departs. Show capacity and coverage arrangements at a business-process level. Diligence materials should not casually expose identifiable patient information. Counsel and the practice's privacy lead should determine what information may be shared, with whom, and through which protected process.

Build a contract inventory with the contracting entity, counterparty, term, renewal and notice dates, assignment language, consent requirement, and an internal contact. Include payer agreements, hospital or facility arrangements, leases, equipment financing, billing services, software, employment and independent contractor agreements, and management contracts. Flag any agreement that could terminate, reprice, or require consent after a change of control. Credentialing and enrollment status should be tracked for every clinician and relevant entity; a signed purchase agreement does not guarantee that approvals will arrive on the buyer's preferred timetable.

Connect the contract inventory to a continuity plan. For each dependency, record the owner, next step, and lead time: who seeks landlord consent, coordinates payer notices, maintains system access, and handles provider enrollment. Do not assume a buyer can substitute its own contract or process on closing day. Early consent discussions under an agreed confidentiality protocol can reveal timing problems while the parties can still plan around them.

Select an appropriate process and advisers

A sale can proceed through a targeted discussion with one likely buyer or a broader competitive process. A wider process may create comparison and negotiating tension, but it demands more management time and increases the number of people who receive sensitive information. A narrow process may be quieter, yet owners may have less evidence that terms are competitive. The choice depends on confidentiality needs, readiness, likely buyer universe, and the owners' ability to handle questions while running the practice.

Interview any investment banker or transaction adviser about the actual work they will perform. Ask how they identify potential buyers, check conflicts, verify financial capacity, manage outreach, and present the earnings bridge. Request the engagement fee formula, tail period, termination rights, expense reimbursement, and definition of a successful transaction. If compensation depends on closing value, understand how that incentive affects advice about rollover or contingent consideration. The adviser should describe how it will protect confidential information and who will be permitted to contact the owners.

Retain healthcare transaction counsel early enough to review the proposed structure and term sheet, not just definitive agreements. Tax advisers should model asset and equity alternatives, rollover treatment, state tax exposure, and the timing of cash receipts. An accountant can prepare quality-of-earnings work, reconcile schedules, and organize financial diligence. Agree in writing on scope, deliverables, fees, and conflicts. The seller's adviser works for the seller under the engagement terms; a buyer's counsel, lender, or accountant does not serve as a neutral adviser to the practice.

Set a decision process among owners. Choose who answers routine questions, who approves disclosures, and how quickly offers circulate for review. Require agreed internal review before anyone accepts exclusivity or signs a term sheet. A clear approval path reduces contradictory commitments and gives advisers time to analyze legal, tax, employment, and operating consequences together.

Compare the full economics

Ask each bidder to provide an enterprise value bridge and a clear definition of the assumed cash-free, debt-free transaction. Reconcile enterprise value to expected equity proceeds by identifying cash at closing, debt payoff, working capital, escrow, indemnity holdback, transaction expenses, rollover, contingent consideration, and required reinvestment. Define debt-like items and working capital precisely. For working capital, request the proposed target, calculation method, excluded accounts, and example closing statement. Small differences in these definitions can change proceeds even when headline value is unchanged.

Model the closing statement using the practice's balance sheet. Include receivables, payables, accrued payroll, prepaid expenses, deferred revenue, and liabilities assigned to the seller. Ask the accountant for low, expected, and high cases. Separate cash at close from holdbacks or performance-based amounts. Ask tax counsel to estimate after-tax proceeds; gross value alone is not a personal financial plan.

Treat employment as a separate economic contract. Compare compensation formula, benefits, schedule, call obligations, term, termination rights, restrictive covenants, and administrative responsibilities. If compensation is productivity-based, define the production measure, payer adjustments, attribution for shared work, timing of collections, and treatment of refunds or denials. Model income if volume falls, overhead allocations rise, or the physician works fewer sessions. Clarify whether any signing or retention payment is repayable and what happens if the buyer terminates the role.

Do not value rollover by multiplying an ownership percentage by the buyer's stated platform value. Request the security class, capitalization table, debt and preferences, dilution provisions, distribution waterfall, information rights, transfer restrictions, leaver treatment, and recapitalization mechanics. For an earnout, define the metric, accounting policies, measurement period, permitted expenses and central allocations, access to calculations, and dispute process. Ask whether the seller can influence the measure after closing. If an earnout depends on results controlled by the buyer, model it as uncertain rather than guaranteed proceeds.

Protect confidentiality and staff continuity

Create a disclosure sequence before sharing materials. Early presentations can use aggregated financial information and coded provider identifiers. Limit access to a small group under confidentiality agreements and keep a log of who has received what. Decide who can contact employees, hospitals, landlords, vendors, and payers; require owner approval before any outreach. Counsel should review the handling of sensitive business and patient-related information and specify any safeguards required for data access.

The practice must continue operating during diligence. Assign one internal coordinator to route requests, maintain a question log, and check that responses agree with previously approved materials. Protect time for financial and operational leaders to keep routine work moving. Establish a process for urgent business decisions so a sale project does not delay hiring, vendor payments, or ordinary management. A leak or a rumor can unsettle staff, so prepare a concise internal communication plan for use when disclosure is appropriate.

Do not promise a retention payment or specific future role before the buyer's funding, conditions, and employment terms are understood. Once owners are legally and practically able to communicate, explain what is known about reporting lines, schedules, benefits, and timing, and distinguish confirmed terms from items still under discussion. Give managers a route for staff questions and document agreed commitments. Consistency matters: informal assurances from different owners can create expectations that the final documents do not support.

Common mistakes are contacting a landlord or payer too early, allowing a buyer to reach staff without an agreed protocol, and assuming a confidentiality agreement alone controls every risk. Use staged disclosure, role-based access, and written approval for exceptions. Before opening a folder or granting download rights, consider whether the recipient needs that material at the current stage and whether a less detailed schedule will answer the question.

Quality of earnings and diligence readiness

A seller-side quality-of-earnings review tests whether financial performance can be understood and repeated. Ask the accountant to examine revenue recognition, payroll accruals, owner benefits, credit balances, refunds, bad debt, and the timing of large expenses. Reconcile monthly collections to deposits and compare billed services with claim submission and cash receipt. If billing software changed, preserve a mapping between the old and new reports and document any period when reports are not directly comparable.

Review physician and related-party arrangements from the buyer's perspective. A family member on payroll, an owner-paid vehicle, personal travel, or rent paid to a physician-owned property company may have a legitimate business explanation, but each requires evidence and a clear proposed treatment. For related-party rent, assemble the lease, payment history, ownership information, and relevant market support. If a function must be replaced after closing, include a realistic cost. If a role will disappear, explain who will absorb the work and why that is operationally feasible.

Prepare a risk register with the issue, estimated exposure or timing effect, evidence, responsible owner, and proposed resolution. Examples include a payer consent clause, expiring lease, key administrator approaching retirement, unresolved receivables, or inconsistent entity records. Rank items by potential effect on value, closing conditions, or post-closing obligations. Ask counsel how to disclose known issues accurately. Concealment can damage trust, derail negotiations, or broaden indemnity disputes.

Use diligence questions as a test of readiness, not as a reason to improvise. When a buyer asks why productivity changed, provide the underlying operational explanation and supporting schedule. When records are incomplete, say what exists, identify the gap, and offer a path to resolve it. Keep a single approved response log so different advisers do not give different answers. Avoid altering historical records to make a trend appear smoother; preserve source material and clearly label any management-prepared analysis.

Build a controlled diligence room

Organize the data room around likely requests: corporate documents, financial statements, compensation, payer and hospital contracts, leases, employment, technology, compliance, and operations. Give each schedule a source owner and reviewer. A request log should record the question, preparer, reviewer, upload date, and version. Separate drafts from approved materials and retain an archive of what each bidder received. This prevents contradictions and highlights facts that belong in transaction documents.

Before access begins, decide user permissions, download restrictions, watermarking, retention, and whether access expires when a bidder leaves the process. Remove unnecessary patient identifiers and ask counsel to determine which information can be shared and what safeguards apply. Keep sensitive files in a restricted folder with access limited to people who need them. Track buyer questions and the final answer so the practice handles recurring topics consistently across bidders.

Common mistakes include uploading unreviewed exports, allowing multiple people to replace files without version control, and using file names that do not explain the reporting period or entity. Establish a naming convention and date each approved schedule by period covered, not by a changing draft label. Do not hide a gap by omitting the document silently; identify the gap and its expected resolution in the log. A well-controlled room makes it easier for a buyer to verify claims and for the sellers to see where uncertainty remains.

Before opening the room, run a mock request: provide monthly financials, explain an adjustment, locate an assignment clause, and identify the owner of a credentialing task. Note missing records or unclear approvals. Fixing those gaps in advance is easier than researching them while a buyer waits and the practice manages daily operations.

Sale preparation checklist

Confirm ownership, approval rights, seller priorities, and transaction perimeter.
Reconcile financial statements, tax returns, payroll, general ledger, and bank activity.
Prepare a documented earnings bridge that includes replacement labor.
Map provider, payer, hospital, location, contract, and staff dependencies.
Inventory consents, renewals, debt, leases, guarantees, and related-party agreements.
Select transaction, legal, tax, and accounting advisers with written scopes.
Compare enterprise value with likely proceeds, employment terms, rollover, and tax effects.
Set confidentiality rules, staff communications, and diligence-room permissions.
Assign an owner to every open risk and diligence request.
Keep practice operations stable and disclose known issues accurately.

Questions about your own practice? Contact richard@doctorsinvestorclub.com.