To Sell Your Practice, Clean up your books
You have a buyer that wants to purchase your practice, you have agreed on a price, and now you are ready to move forward. Your buyer’s bank now needs your financials including P & L’s, balance sheets and tax returns for the past three years. PANIC!! The P & L’s are a mess, and the tax returns hide some of the income that you’ve brought in because you have tried to minimize the amount of taxes you have paid with some aggressive deductions. The buyer has to come back to you and tell you that the bank won’t finance the purchase because the cash flow doesn’t justify the loan requested.
This is why you need to clean up your books before you market your practice. Make sure that any deductions you have taken that won’t need to be paid by the new owner (car payments, cell phones for the family, carpeting paid for by the practice that mysteriously found it’s way to your recreation room) can be identified and verified. Make sure you have clear records for every purchase that you will want to “add back” into the cash flow of the practice for the new owner: clear enough that the bank can see that it truly belongs in the cash flow for the practice. If you don’t, chances are that either the purchase will fall through, or you will have to lower your price to the point where the bank can justify approving the loan.