If you run a car lease or conference travel through your practice, we’re not about to tell you to stop. What can cost you at the closing table is something else: proving those expenses to a buyer who has never seen your books.
You Run a Business First
Most physicians don’t run their practice with a sale in mind. They run it like any smart small business owner would. If an expense can legitimately go through the practice, it does, because lower taxable income means a lower tax bill. Far from sloppy, that’s good planning, and your CPA probably encouraged it.
The trouble starts when a sale enters the picture. A buyer values your practice on what it earns, which is often more than your tax return shows. So every personal expense running through the business has to be added back to show the practice’s true profitability. In deal terms, those are add-backs, and each one raises the earnings a buyer is paying for.
But a buyer doesn’t take your word for it. Every add-back has to be proven.
The Utility Bill That Cost Real Money
We worked with a physician who paid all his utility bills, personal and practice, through a single account. He knew exactly which portion belonged to his home and which belonged to the practice. It was all in his head.
None of it was on paper.
When the buyer’s diligence team reached those expenses, there was nothing to separate one from the other. No split, no records, no support. So the buyer added back none of it. Not a partial credit or a negotiated middle ground. The buyer didn’t doubt the expenses were real. They simply had no way to verify them, and buyers don’t pay for what they can’t verify.
Here’s why that matters more than it seems. Say a practice has $25,000 a year of commingled personal expenses that can’t be documented, and it sells at seven times earnings. That’s $175,000 of purchase price gone, and the only thing wrong with those expenses was that nobody could prove them.
Your personal expenses cost you more than once: at a sale, every dollar gets multiplied.
Keep Expensing, Start Documenting
This is where we expect some pushback. “So I should pay more in taxes now for a sale that might be years away?”
No. If an expense legitimately belongs to the practice and your CPA has signed off on it, keep running it through the practice. We’d tell you the same thing in a diligence meeting. The fix is changing how you track what you expense.
Start by untangling anything that mixes personal and practice spending: utilities, phones, vehicles, credit cards, travel that blends a conference with a family vacation. Wherever you can, separate the accounts. Where you can’t, keep a clear record of the split and the support behind it.
You don’t have to do this alone, and you shouldn’t. Bring in your team. Your office manager or bookkeeper can flag personal items as they come through. Your accountant can review them regularly and make sure the documentation will hold up. Done consistently, it becomes routine bookkeeping instead of a frantic reconstruction project two months before a buyer shows up.
When the time comes, you want every add-back to arrive with its receipts attached. A clean, documented schedule tells a buyer you run a tight operation. A pile of “trust me” explanations tells them the opposite. That impression shapes how they read everything else in your numbers.
The Add-Backs You Don’t Know You Have
Most physicians know about the obvious items, like the car or the trip. What surprises them is how many legitimate adjustments they’ve never considered.
After many physician practice transactions, we’ve learned where those dollars tend to hide. Examples include family members on payroll, personal insurance policies paid by the practice, memberships, and one-time costs that won’t recur under a new owner. We regularly find add-backs the physicians themselves didn’t realize they could get credit for.
That’s the part generalist advisors often miss. Knowing the physician practice market means knowing who the buyers are, and it also means knowing what a practice’s numbers really look like underneath and how to present them so a buyer pays for all of it. Every dollar of adjustment we find and document gets multiplied in the purchase price. Across a full set of add-backs, that’s often the difference between a good outcome and the right one.
Start Now, While It’s Easy
Sit down with your office manager and your accountant this quarter. Separate what you can, document what you can’t, and make it part of how the practice runs. None of it changes your tax strategy. All of it protects the value you’ve spent years building.
If you’d like a second set of eyes before a sale is even on the table, we’re glad to help you find the dollars you didn’t know you were leaving behind.
