Quick Answer: The seven that cost San Diego owners the most: valuing on revenue instead of adjusted earnings, mishandling add-backs, valuing the professional corporation instead of the management company, ignoring owner dependence, working from books that do not reconcile, going to market unprepared, and negotiating with a single buyer.
Why valuation goes wrong
Practice valuation is not complicated arithmetic. Adjusted earnings, a market multiple, a range. Most owners can follow the logic in five minutes.
What goes wrong is the inputs, and the errors are consistent enough to list. Every one below is something we see repeatedly, and every one is fixable before a buyer ever sees your numbers.
One is specific to California, and it is the one most likely to be missed by an advisor who works nationally without understanding how practices are structured here.
📊 At a Glance
- Revenue is not the basis. Adjusted earnings are, with a market multiple applied on top.
- Add-backs cut both ways. Undocumented ones get removed. Missed ones are money you never asked for.
- In California, you may be valuing the wrong entity. The management company is usually what a non-clinical buyer acquires.
- Owner dependence is the largest single discount in most practice valuations.
- A valuation is a range, never one number, and anyone quoting a single figure is overselling their precision.
- One buyer is not a market, so a number nobody competed for is not a market value.
Mistake 1: Valuing on revenue instead of adjusted earnings
The most common error, and the easiest to correct.
Buyers do not purchase revenue. They purchase what is left after the cost of producing it, adjusted for expenses that will not continue under new ownership. Two San Diego practices billing identical amounts can carry very different earnings, and the one with better margins is worth more even though the top line looks the same.
If you have a number in your head based on a multiple of collections, set it aside. Start from earnings.
For how this applies to a surgical practice, see how to value a plastic surgery practice.
Mistake 2: Getting add-backs wrong in either direction
Add-backs are legitimate expenses run through the business that a new owner would not incur. Personal vehicle costs, a family member on payroll who does not work in the practice, one-time legal fees, owner compensation above market rate.
Owners get this wrong in both directions, and both are expensive.
Overreaching. Claiming add-backs you cannot document. A buyer’s accountant will normally strike each one in diligence, and where a multiple-based valuation is in play every struck dollar reduces the price by that dollar times the multiple. On that arithmetic a $40,000 add-back you cannot support is not a $40,000 problem.
Under-claiming. Missing legitimate adjustments because nobody tracked them. This is quieter and just as costly. Money you never asked for is money you do not get.
The fix is documentation as you go, with support attached, so you are not reconstructing three years of expenses under deadline.
Mistake 3: Valuing the professional corporation instead of the management company
This is the California-specific one, and it is where nationally focused advice falls down.
California restricts the corporate practice of medicine and dentistry more tightly than almost any other state. An unlicensed investor, a private equity firm, or a general corporation cannot hold equity in the clinical practice or control clinical decisions here. A professional corporation must be majority owned by licensees of the relevant profession, with certain listed licensed professionals permitted a minority stake. The common structure pairs that professional corporation with a separate management services organization providing everything non-clinical for a fee.
The management company is the part a non-clinical investor can own and fund. It is generally what gets bought and sold.
The consequence for valuation is direct. Most of the enterprise value a non-clinical buyer can acquire sits in the management company’s cash flow and in how durable its relationship with the professional corporation is. A valuation that prices the clinical entity, or that treats the whole arrangement as a simple business sale, is measuring something the buyer is not purchasing.
A San Diego practice already cleanly split into a compliant structure tends to transact faster and hold its value better. One that has never been separated has work to do first, and that work has a cost.
Two 2026 laws sharpened this. SB 351 restricts what a private equity group or hedge fund may control in a physician or dental practice and voids certain non-compete and non-disparagement clauses. AB 1415 expanded the notice a management services organization may owe the state’s Office of Health Care Affordability, with implementing regulations still being finalised through 2026. How cleanly your management company works under those rules is now part of what a buyer is pricing.
Mistake 4: Ignoring how much of the practice is you
Ask what happens to collections if you take eight weeks off. If the answer is that they fall sharply, the valuation has a problem no spreadsheet will fix.
Key-person dependence is the largest single discount in most practice valuations, because it goes to the question a buyer cares about most: does the cash flow survive the transition? Practices with associates producing meaningful volume, patient relationships owned by the practice, and documented systems get better multiples and better deal structures.
It also changes the shape of the offer. Heavy owner dependence tends to produce more deferred consideration, longer post-sale commitments, and larger earn-outs, which means less of your money arrives at close.
Mistake 5: Working from books that do not reconcile
Bank statements, merchant processing, and the practice management system should agree. When they do not, the effect is worse than the discrepancy itself. Every other number you present becomes negotiable, because you have given the buyer a reason to doubt the set.
This is not an accounting nicety. It is the difference between a buyer accepting your earnings figure and re-deriving it themselves, with the benefit of the doubt going in their direction.
For what a full financial analysis covers, see what a financial analysis looks at beyond revenue.
Mistake 6: Going to market before you have prepared
Owners often want a valuation because a buyer has already called. That is the wrong order.
Preparation is the only phase of a sale where you set the pace and where the work you do converts directly into price. Skipping it does not save time, since the same items resurface in diligence, under deadline, with a buyer watching and a repricing conversation attached.
A valuation done on unprepared books tells you what your practice is worth in its current condition, which is usually not what it could be worth in six or twelve months.
Mistake 7: Negotiating with one buyer
A number nobody competed for is not a market value. It is one party’s opening position.
An acquirer who approached you directly, with no competing bid, has no pressure to improve their terms and knows it. Competitive tension is what moves price, structure, the split between cash at close and deferred consideration, and what your post-sale role looks like.
This is the mistake owners regret most, partly because it is invisible. You never find out what the second bidder would have offered.
FAQ
What is my practice actually worth?
It depends on adjusted earnings and on the drivers a buyer prices, so the honest answer is a range and not a figure. Anyone quoting a single number without seeing your financials is guessing.
Is a valuation the same as an appraisal?
Not necessarily. Valuations are prepared for different purposes, including a sale, a partner buy-in, litigation, or estate planning, and the standard of value can differ. Be clear about which one you need before commissioning it.
Should I get a valuation if I am not selling for five years?
It is often worth it. A valuation done early tells you which drivers are holding your number down while you still have time to change them. Done a month before a sale, it mostly tells you what you are stuck with.
Do multiples vary by San Diego neighbourhood?
Location influences a practice through its patient base, competition, and cost structure. What a buyer pays is driven far more by earnings quality, growth, and owner dependence than by which part of the county you sit in.
Who should prepare it?
Someone who understands how practices are structured in California and how buyers in your specialty actually price. A generalist business valuation can miss the management company point entirely, which is the difference between measuring what the buyer is buying and measuring something else.
About Aesthetic Brokers
Aesthetic Brokers is a sell-side mergers and acquisitions advisory firm for medical and dental practice owners, headquartered in La Jolla, California. San Diego is the firm’s home market, not a territory it covers from a distance.
The firm represents sellers only and does not represent buyers. That distinction matters on valuation in particular, because an advisor who also works for acquirers has a structural conflict on the one question that decides your outcome.
Aesthetic Brokers works with medical spas, plastic surgery practices, cosmetic dermatology, cosmetic and specialty dental practices, infusion centers, women’s health, regenerative wellness, and endocrinology. Founder and CEO Bill Walker spent his career in private equity healthcare mergers and acquisitions before moving to the sell side, so owners are advised by someone who has priced practices from the buyer’s side of the table.
Owners who want a confidential ballpark can use the firm’s valuation estimator, which takes about two minutes and requires no email address. For a practice-specific analysis, call 619-742-0310.