The single-most important factor in determining the practice sales price is the collection total of the previous calendar year. Lenders and buyers like to see stability without large variances from year to year. It should be obvious that steady, slight increases in revenues are always better than even the slightest of decreases. Poor performance of one of three years should not affect pricing, unless it is the last calendar year that shows a significant drop. Therefore, try to maintain a stable practice, make sure you finish strong and make all your December deposits for that last year you will be filing! Practices are priced based heavily on gross receipts. All these items can make for a strong valuation.
| Years Left to Practice | Investment Recommendation |
|---|---|
| 2–3 years | Avoid major spending; focus on finishing strong |
| ~5 years | Be selective; new tech may not return its cost |
| 8–10 years | Modernize fully — equipment and leasehold improvements pay off |
Let’s work through some scenarios and options. If you plan to practice 2-3 more years before you sell your practice, it is not worth investing extra money in the practice. In this case, I would just advise finishing strong, especially to reflect your last tax return which will be filed.
If you plan to practice approximately 5 years, spending large amounts of money for new technology may not necessarily return the investment unless it helps to increase your production.
