Preparing a Healthcare Business for Sale

When does preparation actually start?

Most of the work below only counts once it has been in place long enough to show up in the accounts a buyer will read, which is why owners who sell well tend to begin two to three years ahead. Changing how practitioners are engaged moves reported earnings while it happens, and the new arrangement needs a year or more before it is a base anyone can rely on.

Preparation seldom lifts earnings quickly. What it changes is the risk attaching to those earnings, and risk is what a buyer prices when it settles on a multiple. It also removes the reasons a buyer discounts or walks away, because every unresolved item becomes a price adjustment, a warranty, a condition, or a retention, being part of the price held back until the risk is resolved.

Reducing dependence on the owner practitioner

Goodwill is the value of a business above its identifiable net assets, and in healthcare it divides into two parts that behave differently on a sale. Personal goodwill attaches to a practitioner: their reputation, their clinical relationships, the referrers who use their name. Transferable goodwill, sometimes called commercial goodwill, attaches to the business: the location, the brand, the patient base, the clinical team and the systems. Only the second can be sold, and key-person risk is the exposure created when too much of the earnings sits in the first.

The work is to shift what genuinely can be shifted from one to the other: billings spread across more than one practitioner, so no single departure would destabilise the business; patients treated as patients of the practice, with recall and communications in its name rather than the principal's; and referral relationships held at practice level. See how practitioner dependence affects business value and does a medical practice have transferable goodwill.

There is an earnings consequence too. Maintainable earnings is the profit a business can be expected to sustain under ordinary ownership on arm's length terms, and it is the figure most healthcare valuations are built on. If the owner works clinical sessions and draws profit rather than a commercial wage, the cost of replacing that work belongs in it. See what is maintainable earnings.

Contractor arrangements and payroll tax exposure

Payroll tax is a state and territory tax, and the relevant contract provisions in each jurisdiction can bring payments to practitioner contractors within the definition of taxable wages. For many medical, dental and allied health practices it is the exposure a buyer's advisers probe first, because it does not appear in the accounts and can accrue across earlier years.

The relief is jurisdiction-specific and has been changing, so a seller with sites in two states can face a different position in each. In New South Wales, at the time of writing, Revenue NSW explains that the Revenue Legislation Amendment Act 2024 exempts unpaid payroll tax on relevant general practitioner wages paid or payable before 4 September 2024, and provides an ongoing rebate for those wages paid or payable on or after that date where conditions are met, though an employer that had already paid the tax is not entitled to a refund.

The conditions matter to a buyer. Revenue NSW states that a relevant proportion of all general practitioner services provided through the medical centre must be provided under prescribed billing arrangements, meaning bulk billing or approved veterans arrangements, being at least 80 per cent for a medical centre in Metropolitan Sydney and at least 70 per cent otherwise. It states that the proportion is counted on services rather than on practitioners or patients, that services by employed general practitioners count towards it, and that it is tested at each location. It also states that the relief reaches only contractor general practitioner services, not employed general practitioners, nursing, reception, administration, pathology or allied health, so a dental or allied health practice sits outside that measure.

A practice relying on that rebate has tied part of its cost base to billing in a particular way, and a buyer intending to change the mix will price it. The treatment turns on the terms of each practitioner agreement and on the jurisdiction, and should be confirmed with your accountant or lawyer. See payroll tax, contractor arrangements and medical practice value.

Securing the premises and the equipment

A buyer funding goodwill needs tenure that outlasts their finance, so remaining term plus exercisable options is examined closely. A lease near its end with no option is one of the few issues that can stop a sale outright, because the landlord gains leverage over both parties at once.

In parts of the sector the premises and the right to trade from them are inseparable. The Department of Health, Disability and Ageing treats relocating an approved pharmacy and changing its ownership as separate applications, so a pharmacy site and its Pharmaceutical Benefits Scheme approval move together. A dental surgery, a procedure room or a suite housing imaging equipment carries a fit-out that is costly to reproduce, and the chairs, imaging units, sterilisation plant and dispensing systems inside it all have replacement cycles: deferred replacement is not a saving, it is a cost the buyer deducts.

Where the premises are owned by the vendor or a related trust, rent set for tax or family reasons is normalised to a market rate in any credible assessment of earnings. Where the landlord is a third party, the assignment clause, any personal guarantee and whether the permitted use covers the services actually provided all matter before a contract is drafted. See premises and lease terms in healthcare valuations.

Documenting the practice and preparing the information pack

Due diligence is largely an exercise in finding out whether what the owner says is written down anywhere, and the gap between a well-run practice and a well-documented one is where price is lost. What belongs in the pack is set out in the FAQs below and in what information is needed for a business valuation.

The contracts that carry revenue deserve their own list, because a buyer's lawyer reads them for two things: whether they can be assigned, and whether a change of control lets the other party walk. These include wholesaler and banner group agreements in a pharmacy, health fund arrangements in a dental practice, participant service agreements in a disability services business, and any insurer, corporate or government contract elsewhere. One that cannot be assigned is a reason a buyer prefers a share sale, makes consent a condition of settlement, or pays less for the earnings it produces.

Two items are specific to healthcare and are regularly left late. The first is clinical records: who holds them, in which system, and how they are dealt with on a change of ownership, which carries privacy obligations that outlast the sale and is worked through with your lawyer. The second is open compliance matters. A regulator's question, an unresolved complaint or an outstanding corrective action is rarely fatal, but it typically needs closing out early, or disclosing with an account of what has been done.

Tidying the financials and the normalisations

Normalisation is the adjustment of reported accounting profit so it reflects the ongoing economics of the business rather than the owner's arrangements, one-off events and tax planning. A buyer will do it whether the seller has or not, and a seller who has done it credibly controls the starting point.

The recurring adjustments are owner and family remuneration at market rates, related-party rent at market, private costs run through the practice, non-recurring items such as a software migration or a dispute, and income unrelated to the practice. Where practitioners are paid a service fee, the sustainability of the rate matters more than its history, because a rate below what the local market now requires will not survive the owner who set it. Each adjustment needs a document behind it, applied consistently across every year presented.

One housekeeping item shortens due diligence noticeably: billings reconciled to bank receipts by practitioner and by funding source, separating bulk billed and privately billed Medicare services, Department of Veterans' Affairs and workers compensation work, private health insurance rebated services, NDIS supports and, in a pharmacy, Pharmaceutical Benefits Scheme dispensing from front-of-shop retail. Tax returns, activity statements and management accounts should also agree, with a clean position on stock, debtors and income in advance.

Managing concentration before it is priced

Concentration is the extent to which earnings depend on a small number of sources, and in healthcare it takes more forms than owners expect: one practitioner generating a dominant share of billings, one referrer supplying a specialty practice, a handful of participants funding a disability services provider, or a single contract, insurer or government program.

Some of it is structural and cannot be engineered away in two years. What can change is whether the relationship sits with the business or with a person, whether it is documented, and how far it has been diversified. See patient, participant and referral concentration.

Asset sale or share sale: a decision that comes early

Whether the buyer acquires the business assets or the shares in the company that owns them affects tax, employees, contracts, registrations and warranties, and it is hard to reverse once a process has begun.

On tax, the Australian Taxation Office describes a going concern as a business that is operating and making a profit, and states that no goods and services tax is payable on the sale of a going concern if certain conditions are met. Where a company's shares are sold it states the sale is a financial supply and input taxed, so the credits claimable on the costs of sale may instead be restricted. The ATO describes the small business capital gains tax concessions as requiring an eligible entity, which may be a capital gains tax small business entity with aggregated turnover of less than two million dollars or an entity meeting the maximum net asset value test, an active asset, and further conditions where that asset is a share in a company or an interest in a trust. Eligibility is specific to the entity and the asset, and should be confirmed with your accountant.

On people, an asset sale ends employment with the seller and starts it with the buyer, while a share sale leaves the employer unchanged. Which entitlements a new employer must recognise, and which it might not, are set out by the Fair Work Ombudsman and summarised in the FAQs below.

On contracts and approvals, a share sale keeps the entity, and with it the lease, the supplier agreements, the software licences and most registrations, while an asset sale requires each to be assigned, consented to or applied for again, which is often the deciding factor in regulated sectors. A share sale also carries the entity's history, so a buyer will want warranties and often an indemnity for something like an unquantified payroll tax position, and that risk transfer is part of the price. See valuing a healthcare business for tax purposes and business sale valuations.

Which registrations and approvals actually transfer?

Very few. Services Australia states that a Medicare provider number requires registration with Ahpra or an approved body, that you cannot use another health professional's provider number, and that a practitioner needs more than one if they work in different locations. A buyer that has not organised its own practitioners and numbers for the site cannot bill on day one.

Sector approvals have their own processes, and their lead times sit on the critical path to settlement:

• Pharmacy. The Department of Health, Disability and Ageing states that under section 90 of the National Health Act 1953 a pharmacist intending to become the new owner of an approved pharmacy must apply for approval to supply Pharmaceutical Benefits Scheme medicines, and must provide evidence that the requirements of the relevant state or territory regulatory authority have been met. It states that processing an application not involving relocation may take up to 30 business days, and asks for applications at least 30 days before the anticipated settlement date. See pharmacy valuations.
• NDIS providers. The NDIS Quality and Safeguards Commission states that an NDIS registration is linked to a single Australian Business Number and is not transferable to a different one, so a business needing a different number requires a new registration application. For changes of ownership from 1 July 2026 it states that it must be notified as soon as possible, and that a provider with a registration group requiring a certification audit must start a condition audit no later than three months after the purchase where the change significantly alters the organisation or its governance. Participants must not be automatically moved to a new owner. See NDIS business valuations.
• Aged care and community care. The Aged Care Quality and Safety Commission states that under the Aged Care Act 2024 there are nine types of change in circumstances a registered provider must notify within 14 days, including changes affecting suitability to be a registered provider, changes to responsible persons, and significant changes to organisation or governance arrangements. See aged care business valuations.

For a medical, dental or allied health practice the equivalent constraints are practitioner-level: Ahpra registration, provider numbers, and any program the practice takes part in on its own account. Mapping each one, with the responsible party and the lead time, keeps a settlement date realistic. See medical practice valuations.

Understanding value before going to market

Owners commonly obtain an independent valuation before a sale process starts, for reasons that have little to do with setting an asking price. It establishes the earnings base and the adjustments behind it, identifies the risks a buyer is likely to raise, and gives the seller and their advisers a position before anyone is under time pressure. See how it works.

Value and price are different things. Value is an assessment of what a business is worth on stated assumptions at a defined valuation date, being the date the conclusion applies to. Market value is generally described as the amount a willing but not anxious buyer and a willing but not anxious seller, at arm's length and reasonably informed, would agree on. Price is what two particular parties negotiate, and a buyer with an adjoining practice or a funding deadline may pay something other than value.

The basis matters too. A sale of the whole business, or of all the shares in the company that owns it, is a control transaction: the buyer can appoint the practitioners, change the billing model and take the synergies. A shareholder selling part of a holding is selling something different, and that parcel is not simply the whole divided by the shares on issue. See share and equity valuations and valuing a healthcare business for a shareholder exit.

A healthcare business with stable earnings is most often valued by capitalising future maintainable earnings, applying a multiple that reflects the risk and growth prospects of those earnings. The multiple is the arithmetic inverse of a capitalisation rate, so everything above, practitioner dependence, an unresolved contractor position, a short lease, concentrated referrals, reaches value through that one number. Discounted cash flow, which discounts forecast cash flows back to a present value at a rate reflecting their risk, suits a business whose future is genuinely different from its past. Net assets, being the market value of the assets less the liabilities, applies where earnings do not support a value above asset backing. Comparable transaction evidence tests that result rather than replacing it, and needs care, because private practice sales are rarely disclosed and reported figures often bundle earnouts, restraints and property into one number. See healthcare business valuation methods and business valuation versus business appraisal.

The headline price is not the proceeds. Offers are typically expressed as enterprise value, the value of the operations before funding, so interest-bearing debt and equipment finance come out and surplus cash goes in before the owner is paid the equity value. A working capital adjustment usually follows, working capital being the funding tied up in debtors, stock and prepayments less trade creditors, and a retention or an earnout, being consideration payable later only if agreed measures are met, defers more of it again.

If you are considering a sale, HPNA can value your healthcare business independently and explain what is most likely to affect what a buyer pays. Request a valuation or read about succession planning valuations.