Exit Planning for Healthcare Business Owners: Steps to Take 2–3 Years Before a Sale

By John Herubin, Managing Director – Business Development

Selling a healthcare practice is a unique proposition from selling other types of businesses. Between regulatory complexity, reimbursement models, patient continuity, and staffing challenges, there are many moving parts. Often the main healthcare provider or team of providers consider their employees like family members, which can also add another layer of complexity and consideration.  Yet, when planned properly, a sale can be a major value event—both financially and personally—for the owner as well as creating a rewarding future work environment for their employees.

The key is time. Ideally, healthcare business owners should begin preparing two to three years before they plan to sell. That window allows time to improve operations, strengthen financials, address compliance gaps, and present a clean, organized business that commands top market value.

Here’s a step-by-step guide to developing a well-planned exit strategy that can apply to a healthcare business.

Clarify Your Goals

The first step in exit planning is not about numbers—it’s about intent. Ask yourself:

• Do I want to retire fully or stay involved after the sale?
• Am I hoping to sell to a strategic buyer (like a larger healthcare group) or to private equity?
• Is my priority maximizing the sale price, ensuring continuity for my patients and staff, or maintaining the culture I built?

Clear answers to these questions shape the entire exit process. For instance, a physician who wants to stay employed post-transaction will structure a different type of deal than one who wants to step away entirely.

Get a Preliminary Valuation

Before making changes, it’s crucial to understand your starting point.

A professional valuation—done by an experienced M&A advisor or healthcare valuation specialist—provides an estimate of what your business is worth today and identifies what drives or detracts from value.

Valuations in healthcare are typically based on:

• EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization)
• Add-backs (normalizing adjustments typically around owner compensation and discretionary expenses that reflect true operating profit)
• Comparable transactions in your specific niche (e.g., behavioral health, physical therapy, urgent care)

This process helps you see what buyers will value most—often consistency of revenue, payer mix, and scalability—and what improvements could boost your sale price.

Strengthen Financial Reporting

Buyers want to see clean, transparent, and well-organized financials. If your books aren’t clear, it raises red flags and can hurt valuation or delay closing.

In the two to three years leading up to a sale:

• Use accrual-based accounting (not just cash basis)
• Ensure your financial statements are reviewed or audited
• Clean up owner-related expenses that reduce true EBITDA
• Segment revenue by payer and service line to demonstrate trends
• Make sure any governmental and insurance billing records are complete and       accurate (i.e. Federal & State Medicare and Medicaid billing codes if applicable)

Many healthcare owners run legitimate personal or discretionary expenses through the business—common in private practices—but these must be normalized and documented clearly during a sale process.

Assess and Improve Operations

Operational readiness is just as important as financial performance. Buyers are drawn to businesses that are organized, scalable, and less dependent on the owner.

Key areas to review:

• Staff structure: Build a strong management team that can operate without daily owner oversight.
• Contracts and payers: Review payer agreements, referral patterns, and any expiring contracts.
• Documentation: Update policies, procedure manuals, compliance plans, and employee files.
• Technology: Ensure your EMR and billing systems are modern and fully utilized. Outdated systems or inconsistent documentation can hurt perceived value.

By tightening operations early, you make the business more “plug-and-play” for an acquirer.

Address Legal and Compliance Risks

Regulatory compliance is a major area of diligence in healthcare M&A. Buyers will dig deeply into compliance history, billing practices, and licensing.

Before going to market:

• Conduct a mock compliance audit (e.g., HIPAA, OSHA, Stark, Anti-Kickback)
• Verify all provider licenses and certifications are active and up to date
• Ensure employment agreements and non-competes are enforceable and current
• Clean up ownership structures, particularly if there are minority owners, family members, or silent partners

Proactively fixing compliance issues protects deal value and prevents buyers from using these as negotiation leverage later.

Diversify and De-Risk Your Revenue

A healthy payer mix, and diversified referral base are attractive to buyers. Heavy dependence on one referral source, physician, or payer can reduce value because it adds risk.

If possible:

• Expand services or referral sources
• Balance payer mix (commercial, Medicare, Medicaid, private pay)
• Demonstrate stable recurring revenue or contract-based income

Buyers will pay more for a business that’s predictable and not overly reliant on a few key relationships.

Plan for Tax Efficiency

Taxes can dramatically impact your net proceeds. The earlier you plan, the more strategies are available—whether through entity restructuring, asset allocation planning, or retirement contribution optimization.

Work with your CPA and M&A advisor to:

• Understand the tax impact of an asset sale vs. stock sale
• Evaluate corporate structure (e.g., converting from C-corp to S-corp if advantageous)
• Explore estate planning or trust strategies for long-term wealth preservation

Tax planning done a year before a sale is often too late—starting two or more years out allows time for optimization.

 Engage the Right Advisors

Selling a healthcare business is a specialized process. Surround yourself with advisors who understand the sector:

• Investment Banker with healthcare transaction experience
• Attorney focused on healthcare and transactions
• CPA familiar with healthcare accounting and tax implications
• Wealth Manager to plan how to manage sale proceeds and more importantly engage in pre-sale planning

Early engagement ensures your advisors can guide pre-sale improvements rather than reacting under pressure later.

Build a Story for Buyers

Beyond the numbers, buyers want to understand the growth story—why your business is well-positioned for the future. This narrative should highlight:

• Market demand for your services
• Competitive advantages
• Opportunities for expansion or efficiency
• Strong patient and referral relationships

When you can clearly articulate this story, it helps justify a higher valuation and inspires buyer confidence.

Preparing to sell a healthcare business isn’t just a financial exercise—it’s a strategic process that takes time and intention. By starting two to three years early, you give yourself the runway to refine operations, document performance, and resolve any issues long before a buyer conducts due diligence.

The result? A smoother process, stronger negotiating position, and a higher sale value—all while ensuring your patients, staff, and legacy continue to thrive long after the transaction closes.

This playbook worked successfully with one of our clients who operated a multi-location behavioral health practice but was very dependent on the efforts of the two owners.  They had identified several key management employees they wanted to elevate to increase management depth.  We determined in consultation with the client that spending the estimated one-year to integrate these key management people and implementing all the steps outlined above, resulted in creating a significantly higher value than what we estimated at the time of our original discussions.  We’re certain this outstanding result was the result of the above preparation efforts undertaken to prepare for the sale.

EdgePoint specializes in guiding healthcare business owners through this journey—from early planning and valuation to buyer selection and transaction execution. Contact us for a confidential conversation.

© Copyright by John Herubin, Managing Director, EdgePoint Capital, merger & acquisition advisors. All rights reserved. John can be reached at 216-342-5865 or on the web at www.edgepoint.com