Your Practice Is Worth What a Stranger Will Pay

Every practice owner I’ve met can tell you what the practice costs. Not the loan, the life: the early mornings, the missed weekends, the years of carrying the schedule on their own hands. That cost is real. It is also not on the closing statement.

The stranger is in the definition

This isn’t a cynical view of practice sales. It’s close to the formal one. The IRS’s long-standing definition of fair market value, set out in Revenue Ruling 59-60, describes a price agreed between a hypothetical willing buyer and willing seller. Neither is forced to deal, and both are reasonably informed. The buyer in that definition is, by design, someone who wasn’t there for any of it.

What the stranger is actually buying

Strip a practice sale to first principles and the buyer purchases two things:

• the cash flow the practice will produce after the seller leaves;
• the risk that the cash flow doesn’t show up.

Everything else, from the equipment to the location to the patient count, matters only to the extent it changes one of those two.

That’s why effort and value come apart. Effort becomes value only when it turns into something a buyer can operate without you: a full hygiene schedule, a team trained to run the day, systems written down instead of carried in your head, a payer mix that holds up. Effort that still lives in your own production leaves the building when you do.

“My buyer won’t be a stranger”

Many practices sell to an associate, a partner, or someone the owner already knows. That changes the conversation but not the arithmetic. A friendly buyer usually borrows, and the lender is the stranger. The lender underwrites the cash flow the practice can demonstrate, not the relationship between you. The friendship may affect the terms. It rarely changes the ceiling.

“It’s worth more to me”

This objection deserves respect, because it’s often true. A practice can be worth more to its owner than to any buyer. It pays you a salary, supports your life, and gives you work you’re good at. That’s a perfectly sound reason to stay. It just isn’t a price. The mistake is mixing the two: pricing the practice by what it means to you, and then being blindsided when the market prices it by what it pays someone else.

This isn’t a valuation

This isn’t a valuation. It’s the question every valuation will eventually ask: how much of this practice’s income survives without the person who built it?

What to do this week

1. Pull the last 12 months of collections by provider. If your software only reports production, use that, knowing it overstates what came in.
2. Separate what you personally produced from what hygiene and any associates produced.
3. Divide the second number by the total.

That percentage is a rough measure of how much of your practice a stranger can actually buy. If it’s low, the question isn’t whether to sell. The question is what you’d need to build first so selling, staying, or slowing down becomes a real choice, not a forced one.

Your effort built the practice. Only what runs without you can be sold.

If your number was lower than you expected

That gap is the distance between what you’ve built and what you can hand over. The next posts work through how owners close it, one mechanism at a time.