The Seller's Deal Dictionary

Add-backs are specific expenses on your practice’s books that get added back into earnings because a new owner would not incur them, discretionary owner perks, one-time legal or remodeling costs, and above-market family salaries are common examples. They exist to show a buyer your practice’s true operating profitability, not the profitability distorted by how you personally chose to run it.

Why it matters in your sale: An undocumented or aggressive add-back does not just get rejected, it can make a buyer distrust every other number in your financials, so conservative, well-supported add-backs protect your credibility as much as your price.

A quality of earnings analysis is an independent review, usually run by an accounting firm, that tests whether your reported earnings are sustainable, repeatable, and likely to continue after you sell, not just accurate on paper. It looks past a standard financial statement to examine revenue trends, customer concentration, and working capital patterns that a compliance audit would not flag.

Why it matters in your sale: A QoE finding that contradicts your own numbers can reopen price negotiations late in a deal, so getting ahead of it with your own review before you go to market is one of the highest-leverage moves a seller can make.

A letter of intent is the document where a buyer puts a proposed price and deal structure in writing for the first time, before either side commits to a binding purchase agreement. Most of an LOI’s terms, including price, are not legally binding, but a few provisions, most often exclusivity, confidentiality, and expense allocation, typically are binding even inside a non-binding letter.

Why it matters in your sale: The exclusivity clause inside your LOI takes you off the market for other buyers while this one runs diligence, so the terms you accept in this one document shape your leverage for the rest of the deal.

An earn-out is a portion of your sale price that is not paid at closing. Instead, it is paid later, contingent on your practice hitting agreed performance targets, often revenue or earnings goals, during a defined period after the sale. Earn-outs exist to bridge a gap between what a seller believes the practice is worth and what a buyer is willing to pay upfront given uncertainty about future performance.

Why it matters in your sale: An earn-out is only as good as the effort standard and the metrics behind it, so a seller who does not negotiate exactly how those targets are measured and who controls the business during the earn-out period can end up doing the work without ever collecting the payment.

Rollover equity is the portion of your sale proceeds that you reinvest into the buyer’s new ownership structure instead of taking entirely in cash at closing. Rather than a full exit, you become a minority owner in the combined business, with the opportunity for a second payout, often called a second bite of the apple, when that buyer eventually sells the business again.

Why it matters in your sale: Rollover equity ties part of your outcome to a business you no longer control, so understanding who runs it, how it is valued at the next sale, and what protections you have as a minority holder matters as much as the headline price.

An MSO is a business entity that handles the non-clinical side of a practice, billing, staffing, marketing, compliance, and vendor relationships, under a management services agreement with the clinical entity that actually treats patients. The MSO and the clinical practice are legally separate on purpose, with the MSO staying out of medical decisions entirely.

Why it matters in your sale: How cleanly your MSO and clinical entity are separated, on paper and in practice, is one of the first things a buyer’s counsel checks, because a blurred line between the two can put the whole transaction’s structure at risk.

The corporate practice of medicine doctrine is a body of state law that restricts who can own a medical practice or employ physicians to deliver care, generally keeping that control in the hands of licensed clinicians rather than outside investors. Not every state enforces it the same way, so the rules that apply to your practice depend entirely on where you are located.

Why it matters in your sale: A buyer’s structure has to be built around your state’s version of this doctrine from the start, so the deal that works cleanly in one state can require an entirely different ownership structure in another.

A friendly PC, sometimes called a captive PC, is the licensed professional corporation side of an MSO arrangement, owned on paper by a physician but tightly bound to the MSO through a long-term management agreement. The label “friendly” refers to the physician owner being aligned with, and often replaceable by, the MSO under the terms of that agreement.

Why it matters in your sale: Buyers who use this structure will ask hard questions about how much control you are willing to give up on paper, and how that control is documented matters more to your deal’s durability than the price itself.

The working capital peg is the target level of net working capital, current assets like receivables and inventory, minus current liabilities like payables, that you agree to deliver with the practice at closing. Because your balance sheet changes daily, the peg gives both sides a fixed baseline to measure against, usually built from a normalized average of your recent operating history.

Why it matters in your sale: A peg set without your input can quietly reduce your proceeds after the price is already agreed, so negotiating how it is calculated is as consequential as negotiating the headline number.

An indication of interest is a short, non-binding letter a prospective buyer sends early in a sale process to signal that they are seriously considering an offer, usually including a preliminary price range and a general sense of deal structure. It commits neither side to anything, but it is enough for a seller to decide whether a buyer is worth advancing to deeper conversations.

Why it matters in your sale: A wide or vague IOI is not a red flag on its own, since buyers have limited information this early, but how a buyer’s IOI narrows as diligence progresses tells you a great deal about whether their final offer will hold up.

Purchase price allocation is how your total sale price gets divided among the specific assets being sold, equipment, goodwill, and non-compete agreements among them, for tax purposes. Both you and the buyer are required to report this allocation to the IRS on the same form, so the numbers on your side and the buyer’s side must match.

Why it matters in your sale: The allocation is negotiated, not automatic, and buyers often prefer allocations that favor their own tax position, so agreeing on this early, rather than after the price is settled, protects what you actually keep from the sale.

Representations and warranties are factual statements you make to the buyer about your practice, its finances, its compliance history, and its contracts, as part of the purchase agreement. They exist to give the buyer a basis for recourse if a statement turns out to be untrue after closing, through a process called indemnification.

Why it matters in your sale: The reps and warranties you sign do not disappear when the wire hits your account, so understanding exactly what you are promising, and for how long, is what determines whether the deal is truly finished on closing day.

An escrow or holdback is a portion of your purchase price that is not paid to you at closing. Instead, it is held by a neutral third party for a defined period to cover any post-closing claims the buyer might have under your representations and warranties or other purchase agreement terms. If no valid claims arise, the held funds are released to you once the period ends.

Why it matters in your sale: The size of the holdback and the length of time it sits in escrow are both negotiable, and every point you move on either one changes how much of your sale price you actually have in hand on day one.

Payor mix is the breakdown of where your practice’s revenue actually comes from, commercial insurance, Medicare, Medicaid, or self-pay, and in what proportion. It matters because different payors reimburse at meaningfully different rates for the same service, so two practices with identical revenue can have very different underlying economics depending on their mix.

Why it matters in your sale: Buyers model your future earnings against your payor mix, not just your current revenue, so a practice with a durable, favorable mix is easier to underwrite and often easier to price with confidence.