When a buyer values your practice they are pricing its earnings, not its revenue — and specifically the earnings that will still exist after you have gone. That number is rarely the one on your tax return, because every small business runs things through itself that a new owner would not inherit.
Identifying those items is one of the highest-value pieces of preparation available to an owner, and it is routinely the thing sellers leave money on. One of the biggest mistakes we see is a practice going to market without all of its legitimate add-backs identified.
The common add-backs
- Owner compensation above market. Whatever you pay yourself beyond what the practice would have to pay a veterinarian to produce what you produce.
- Personal expenses. Travel, meals, vehicles or entertainment run through the practice that are not required to operate it.
- One-time and non-recurring costs. An unusual repair, a legal matter, a one-off project — anything that will not recur after closing.
- Owner benefits. Retirement contributions or insurance arrangements that exist because you are the owner rather than because the practice needs them.
The ones owners forget
- Family members on the payroll who are not working in the business.
- Charitable contributions made through the practice that do not affect operations.
- Owner-only continuing education, conferences and travel that a replacement doctor would not require.
- Revenue or receivable adjustments that will not carry forward after the sale.
Why documentation decides whether they count
An add-back you can name but cannot evidence is an add-back a buyer's diligence team will strike. They are not being difficult — their job is to price the risk that the expense is real and continuing, and an unexplained item is priced as if it is.
That is why the reconciliation work matters more than the list. Your practice management software, your bookkeeping and your tax return will not match exactly, and that is normal. What matters is being able to explain each difference before you are asked, rather than during the meeting where you are being asked.