Common Pitfalls to Avoid When Selling Your Dermatology Practice

Selling your dermatology practice is one of the most significant decisions you will make in your career. It’s a complex process that requires careful planning and execution to ensure you achieve your desired outcome. However, many practice owners encounter challenges that can jeopardize their sale or reduce their practice’s valuation. As experienced dermatology practice brokers, we’ve identified five critical pitfalls that sellers must avoid to maximize success.

1. Failing to Prepare Accurate and Comprehensive Financial Records

Financial transparency is paramount when selling a dermatology practice. Buyers rely on financial records to assess the practice’s profitability, sustainability, and growth potential. Disorganized or incomplete records can create distrust, delay the transaction, or result in lower offers.

Key Financial Elements to Address:

Revenue Streams: Clearly segment revenue from medical dermatology, cosmetic procedures, and surgical services to showcase diversified income.
Revenue by Provider: Tying revenue streams to providers helps the buyers to identify potential key man risk, team members that may be considered for equity positions in the future business, and areas of need within the business. Understanding these metrics help them to determine exactly how they’ll approach valuing the business and a prospective transition of ownership.
Profitability Trends: Buyers scrutinize year-over-year EBITDA performance. Fluctuations should be explained with detailed context. IE-Covid
Expense Categorization: Break down operational expenses to highlight cost-control measures and identify areas of efficiency.
Accounts Receivable: Provide detailed aging reports to show collection efficiency and minimize perceived risk.

Solution: Partner with a healthcare-focused accountant to audit and organize your financial records. Create a data room with clean, detailed financial documents that buyers can easily access during due diligence. This proactive approach instills confidence and accelerates the transaction. It also dramatically reduces the possibility of a valuation drop during closing due diligence.

2. Neglecting Operational Efficiency

Operational inefficiencies not only lower valuation but also signal potential integration challenges for buyers. A streamlined practice with well-documented workflows and robust infrastructure is more attractive to prospective buyers.

Common Operational Challenges:

Scheduling Bottlenecks: Inconsistent patient scheduling reduces revenue potential and can indicate poor operational management.
Underutilized Technology: Practices without EHR systems, patient portals, or telehealth options may appear outdated. Websites that haven’t had a refresh in over 5 years should be reviewed. Any equipment that is available for use should be tracked for usage metrics and prospective future investment.
Staffing Instability: High turnover or over-reliance on a single provider raises concerns about long-term operational continuity. Key man risk (high concentration of production from a single provider) is a common topic of discussion and can lead to a drop in valuation if the percentage of revenue tied to one provider (including the owner) is too high.
Inefficient Billing Processes: Delayed reimbursements or high denial rates can signal issues with revenue cycle management.

Solution: Conduct an operational audit to identify inefficiencies. Invest in updated technology, streamline workflows, and ensure your team is well-trained and stable. Document all standard operating procedures (SOPs) to show buyers that your practice is organized and ready for integration.

3. Setting Unrealistic Valuation Expectations

Overvaluing your practice can deter serious buyers, while undervaluing it can result in lost financial opportunities. Many sellers base their expectations on anecdotal comparisons rather than a comprehensive understanding of the market.

Valuation Missteps to Avoid:

Ignoring Market Dynamics: Practices in high-growth areas or with specific specialties (e.g., Mohs surgery) command higher valuations, but this varies widely by region and buyer interest.
Not Adjusting EBITDA: Personal expenses or one-time costs that artificially lower EBITDA should be adjusted to reflect true profitability. Our process at Tusk helps to identify these and models them into your P&L to ensure valuation maximization, informed by accurate data.
Overlooking Buyer-Specific Metrics: Private equity groups and MSOs often value practices based on scalability and synergies rather than standalone metrics.

Solution: Work with a specialized broker to conduct a detailed valuation that incorporates market trends, buyer criteria, and normalized financial metrics. This ensures your asking price is competitive and realistic, attracting serious offers while maximizing value.

4. Failing to Hire the Right Advisor

Selling a dermatology practice is a nuanced process that requires expertise in valuation, negotiation, and healthcare regulations. Attempting to navigate the sale on your own or hiring an inexperienced advisor can lead to costly mistakes.

Common Advisor-Related Issues:

Underpricing or Overpricing: Lack of market knowledge can result in financial losses or prolonged market time.
Weaker Negotiations: Inexperienced advisors may fail to secure favorable terms or overlook critical deal elements.
Limited Buyer Access: Advisors without a strong network in the dermatology industry may miss out on competitive offers.

Solution: Partner with a specialized dermatology brokerage firm. Experienced advisors bring industry knowledge, buyer connections, and negotiation skills to the table, ensuring you achieve the best outcome. They can also guide you through every stage of the process, from valuation to closing, with minimal stress.

5. Failing to Develop a Transition Plan

The post-sale transition period is critical for maintaining patient loyalty, staff morale, and operational continuity. Buyers value practices that demonstrate foresight and planning for a seamless handover.

Transition Risks to Avoid:

Associate/Key Provider Retention: Buyers are heavily focused on mitigating risk post close. Having open communication throughout the process about how your associates and key team members will be taken care of in the transation is a key focus of the closing process. Understanding how you would like to address this on a person by person basis will go a long way towards ensuring trust from the prospective buyer.
Patient Attrition: Poor communication with patients about ownership changes can erode trust and retention. In most cases, the patient facing elements of the business will remain largely unchanged however word spreads fast and thinking through any prospective announcements will be valuable in your pre-close conversations.
Insufficient Handover: Failing to provide adequate training and support for the new owner can disrupt operations.

Solution: Create a comprehensive transition plan that includes:

Staff Communication: Be transparent with employees about the sale timeline and reassure them about their roles post-sale.
Patient Outreach: Send personalized communications to patients explaining the transition and introducing the new owner.
Owner Support: Offer to remain involved for a defined period post-sale to assist with the transition and ensure continuity. Five years is optimal, however many buyers can get comfortable with shorter timelines, especially if there are additional providers in the business.

Conclusion

Selling your dermatology practice is a significant milestone that requires careful preparation and execution. By addressing these five critical pitfalls—financial transparency, operational efficiency, realistic valuation, hiring the right advisor, and transition planning—you can maximize the value of your practice and ensure a successful sale.

At TUSK Practice Sales, we specialize in guiding practice owners through every stage of the sales process. From valuation to negotiation to transition planning, our expertise ensures you achieve the best outcome. Contact us today for a confidential consultation and take the first step toward a seamless and profitable sale.