Owning multiple dental practices can make financial reporting more complicated, especially when the time comes to sell one location.
Many multi-location owners rely on consolidated financial statements that show how the entire organization performs. Those reports may work well for managing the group as a whole, but they do not always provide the detail needed to sell an individual practice.
A buyer is not purchasing a percentage of your larger organization. They are purchasing one specific location with its own revenue, expenses, employees, equipment, lease obligations, and cash flow.
The financials need to show that clearly.
Buyers need location-specific information
A buyer evaluating one office will want to know whether that location can operate successfully on its own.
They will look at information such as:
- Production and collections
- Provider performance
- Payroll and staffing costs
- Rent and occupancy expenses
- Dental supply and laboratory costs
- Equipment and debt obligations
- Location-level profitability
When those numbers are combined with other offices, it can be difficult to determine what the practice being sold is actually worth.
One location may be highly profitable while another is underperforming. Consolidated financials can hide those differences and make the buyer more cautious.
Clear location-level reporting helps the buyer understand exactly what they are purchasing and gives the seller stronger support for the asking price.
Lenders need to verify cash flow
Most dental practice buyers rely on financing to complete the purchase.
Before approving a loan, the lender needs to confirm that the location generates enough cash flow to cover operating expenses, the buyer’s income needs, and the acquisition loan payments.
When financial information is only available for the full group, the lender may have difficulty determining whether the individual location can support the debt on its own.
This can lead to additional questions, more documentation requests, slower underwriting, or more conservative financing terms.
The practice may be performing well, but the financial records need to prove it.
Shared expenses need to be separated
Multi-location practices often share expenses such as:
- Billing and collections
- Management salaries
- Marketing
- Accounting and payroll
- Insurance
- Technology
- Human resources
- Recruiting and training
These costs should be assigned to each location using a reasonable and consistent method.
For example, if one employee handles billing for three offices, placing the full salary under only one location would distort the profitability of all three.
Buyers also need to understand which shared services will continue after the sale. If the location will lose access to centralized billing, management, or technology support, the buyer may need to replace those services. That replacement cost affects the location’s future profitability.
Owner involvement also affects the numbers
Many practice owners provide both clinical and management support across multiple offices.
An owner may handle staffing, scheduling, purchasing, recruiting, or financial oversight without receiving a separate management salary.
After the sale, someone will still need to perform those responsibilities.
The financials should identify the owner’s production and any management duties that may need to be replaced. This creates a more realistic picture of how the practice may perform under new ownership.
Prepare before the practice is listed
Trying to recreate several years of location-level financial information shortly before a sale can be difficult.
Invoices may not identify the correct office. Shared expenses may not have been allocated consistently. Historical payroll or production information may be incomplete.
Maintaining separate ledgers and location-level financial statements before a sale allows you to build a clear financial history over time.
It also helps you manage the business more effectively by showing:
- Which locations generate the strongest margins
- Where overhead is too high
- Whether one office is supporting another
- Which locations may be ready for growth or sale
One location needs one clear financial story
When selling one practice from a multi-location group, the buyer should not have to guess which revenue, expenses, employees, and obligations belong to that office.
The location’s financial performance should stand on its own.
Separate, organized financial reporting helps buyers understand the opportunity, helps lenders evaluate the cash flow, and helps owners support the value they have built.
At Engage Advisors, we help multi-location dental practice owners improve their financial reporting and prepare for future ownership transitions. Whether a sale is approaching or still several years away, the right time to organize location-level financials is before a buyer asks to see them.
This article is intended for general educational purposes and should not be considered individualized accounting, tax, legal, valuation, or financial advice.