Every serious buyer of a medical practice underwrites the last three years of financial statements. The trailing 36 months determine the EBITDA the buyer will pay a multiple on, the working capital peg the buyer will demand at closing, and the quality-of-earnings story that either supports the asking price or invites a discount.

A physician-owner who decides to sell 12 months out can still get a deal done. A physician-owner who begins the financial cleanup 36 months out gets a materially better one. This piece walks through what should happen in each of the three years leading up to a sale, what the working capital peg actually means, and the tax cleanup that prevents a late-stage retrade.

Year 3 to Year 2: Financial Discipline That Shows Up in a QoE

Year three (36 months before close) is the earliest point where cleanup decisions will land inside the trailing period a buyer reviews. This is the year to establish the financial discipline that will read as steady, professional operation during diligence.

Three moves matter most:

• Reconcile the P&L to a chart of accounts a buyer can read on the first pass (see the medical-practice chart of accounts guidance)
• Stop running personal expenses through the practice; every dollar of personal spend still on the books at diligence will need to be identified, defended, and often added back
• Move to accrual-basis internal management financials, even if the tax return stays on cash

The trailing 36-month window is the entire dataset the buyer will underwrite. Discipline established in year three sets the baseline the following two years will build on.

Year 2 to Year 1: Normalize Owner Comp and Related-Party Rent

Year two is when the two largest normalization adjustments should already be sitting cleanly in the numbers.

Owner compensation should reflect a realistic replacement salary for the specialty and market, or be cleanly identifiable as owner-discretionary. Under-paid or over-paid owner comp forces a buyer-side normalization that reduces the practice’s negotiating leverage. Fixing this two years out gives the practice a full year of trailing data with the adjustment already made.

Related-party rent (practice paying rent to an entity the physician owns) should reflect fair market value or be disclosed with a documented FMV analysis in the file. Rent that is materially above or below market is one of the most common EBITDA adjustments in medical practice deals, and it is one buyers use to negotiate price down.

Year 1: Contracts, Credentialing, and the Rev Cycle Story

Year one (the final 12 months before close) is when the operational story gets tightened.

Payer contracts should be current, in the file, and reviewed for change-of-control provisions that could complicate a sale. A physician-owner who cannot produce clean copies of all major payer contracts during diligence has already lost negotiating credibility.

Credentialing should be verified for every provider, with all state licenses current and any adverse actions disclosed. Late-stage credentialing surprises kill or delay deals.

Revenue cycle metrics should be trending stable or improving through the final trailing period. A denial rate spike or DSO drift in month 33 of the trailing 36 is a signal buyers pick up quickly, and it invites either a price cut or an earnout to bridge the confidence gap.

The Working Capital Peg: What Buyers Actually Watch

Every practice sale includes a working capital adjustment. The buyer wants to acquire a practice with “normal” levels of receivables, payables, and other working capital, not a practice stripped of cash or overburdened with obligations at closing.

The peg is set by looking at the trailing 12 to 24 months of average working capital. If the practice delivers less than the peg at closing, the price gets reduced dollar for dollar. If it delivers more, the seller receives an increase.

Practices that spend the last six months before closing collecting hard on receivables and delaying payables can inflate the working capital they deliver, but the peg calculation catches this. Managing the peg means running the practice normally in the trailing period, not sprinting for extra cash at the finish line.

The Tax Cleanup That Prevents a Late-Stage Retrade

Three tax items surface late in diligence and can force price adjustments if not addressed early:

• Sales tax exposure on any product sales the practice has been running (contact lens sales, orthodontic appliance sales, retail products)
• State income tax nexus in states the practice has telehealth or occasional in-person presence
• Payroll tax classification on independent contractor arrangements that might not survive audit scrutiny

Each of these can be addressed cleanly with 12 to 24 months of runway. Addressed at diligence, they become reasons for the buyer to hold back price or hold back closing.

Cooper Norman’s business transition planning team runs three-year practice cleanup engagements for owner-doctors across Idaho and Utah, in coordination with the tax planning team. To start the runway on your own practice, talk with a Cooper Norman advisor.

An annual budget tells a medical practice what it hopes will happen. A 90-day cash flow forecast tells it what is actually going to happen. For a practice where insurance reimbursement lags service by 30 to 60 days and payroll runs every two weeks like clockwork, the gap between promise and payment is where liquidity squeezes hide. Most practices only see the squeeze the week payroll clears the operating account and the balance is uncomfortably low.

A rolling 90-day forecast, updated weekly, is the single most useful cash management tool a small-group practice can build. It does not require a CFO, and it does not require software the practice does not already have. This piece covers why 90 days is the right window, what rows belong in the model, how to tie it to DSO and payer mix, and how to keep it current without spending Sunday nights in Excel.

Why 90 Days (Not 12 Months)

A 12-month forecast is useful for planning big moves: a new provider hire, a build-out, a new location. It is close to useless for managing next Tuesday’s payroll. Twelve-month forecasts smooth out the timing that matters. A practice with $2.4 million in annual collections averages $200,000 a month, but the actual pattern is lumpy: a $260,000 month follows a $170,000 month, and the payroll obligations do not care.

Ninety days is the window where receivables are close enough to predict but far enough out to give the practice time to react. If a squeeze is coming eight weeks out, there is time to adjust. If it is coming next week, there is not.

The Rows That Belong in a Medical Practice Cash Flow

The model does not need every account. It needs the ones that move.

On the inflow side: net collections by payer category (commercial, Medicare, Medicaid, self-pay, workers’ comp), patient responsibility collections, and any known ancillary revenue like lab pass-through. Split by payer so a slowdown in one category is visible immediately.

On the outflow side: provider compensation, staff payroll and payroll taxes, occupancy, malpractice, medical supplies, software and clearinghouse fees, and debt service. Group everything else as “other” and only break it out if it exceeds 3% of monthly spend.

The bottom row is opening balance, plus inflow, minus outflow, equals ending balance, which becomes the next week’s opening balance. That single line, forward 13 weeks, is the whole model.

Tying Inflow to DSO and Payer Mix

The inflow side is where most cash flow forecasts fail. Practices project future collections based on future charges, which double-counts the reimbursement lag. Charges submitted today do not become cash for 30 to 60 days depending on payer. The forecast has to reflect that timing.

The cleanest way is to use current AR by payer as the base for the next 60 days and only lean on charge projections for weeks 9 through 13. That treats the aged AR as a known quantity (it is, more or less) and only forecasts the parts still in the future. Practices with meaningful DSO drift can build a payer-level collection curve from their own last 90 days and apply it forward. The model is not exact; it does not need to be. It needs to be closer than the alternative, which is guessing.

How to Update It Weekly Without a CFO

The update takes 20 to 30 minutes if the source data is clean. The steps are:

• Pull last week’s actual collections by payer from the practice management system
• Replace the projection for that week with actuals
• Roll the model forward one week
• Add a fresh week at the end based on charges submitted the prior week
• Look at the ending balance line for any week that goes negative or below the target reserve

Practices that assign this to a specific person on a specific day (Wednesday morning is common) keep it running. Practices that treat it as “the CPA’s job” usually let it lapse.

The Warning Signs a 90-Day Model Catches

A well-run model surfaces three patterns early: a payer slowdown that is not showing up in the P&L yet, a payroll or vendor cost drift that is quietly eating margin, and a receivables aging drift that means the practice is billing fine but collecting slower. Each one has a fix, and each one is much easier to fix at week eight than at week one.

Cooper Norman’s healthcare accounting team builds and maintains 90-day cash flow models for practices across Idaho and Utah, and connects them to the practice’s revenue cycle and comp planning. To set one up for your practice, talk with a Cooper Norman advisor.

Every January and February, medical practices with 50 or more full-time equivalent employees run through the same annual exercise: Forms 1094-C and 1095-C, the Affordable Care Act’s employer reporting regime. The forms themselves are routine. The determination of whether a practice is an Applicable Large Employer (ALE) in the first place, and which affiliated entities aggregate with it for that determination, is where practices routinely get burned.

For a medical group in Idaho or Utah with two or three related entities (a professional corporation for clinical work, a management LLC, a real estate holding company), the aggregation rules can flip a “not an ALE” answer to “ALE with penalty exposure” almost without notice. This piece walks through how ALE status is determined, the aggregation rules physicians miss, what the forms actually report, deadlines and penalty structure, and the state add-on reporting practices in some states also owe.

How ALE Status Is Determined for a Medical Group

An Applicable Large Employer is one that employed an average of at least 50 full-time employees (or full-time equivalents) on business days during the preceding calendar year. Full-time employees are those averaging at least 30 hours per week; full-time equivalents are computed by aggregating part-time employee hours and dividing by 120 per month.

A single-entity practice with 45 physicians, nurses, and staff members might not clear the threshold. Add a management company with additional employees or aggregate a related entity, and the answer can change.

The determination is made on the prior year’s numbers. A practice that grew across the ALE threshold last year is an ALE this year, regardless of current-year headcount.

The Aggregation Rules Physicians Miss

The ACA uses the same “controlled group” and “affiliated service group” rules that apply throughout the Internal Revenue Code. If two or more entities are under common control, or provide services to each other in ways that trigger the affiliated service group rules, their employees aggregate for ALE determination.

Common medical-group structures that aggregate:

• A PC or PLLC and a management LLC owned by the same physicians
• Multiple PCs owned by overlapping physician groups
• A practice and its imaging center joint venture where the practice has substantial ownership
• A practice and its real estate holding LLC (though the holding LLC typically has zero employees, so the aggregation may not change the answer)

The determination requires looking at every entity a physician-owner has an interest in, not just the practice itself. Practices that never asked the question sometimes discover they have been an ALE for two or three years without filing.

Form 1094-C and Form 1095-C in Plain Language

Form 1094-C is the transmittal form: it reports the ALE’s aggregate information (employee count by month, minimum essential coverage offer, and any aggregation members).

Form 1095-C is the individual-employee form. Each full-time employee receives one, and each is filed with the IRS. It reports each month whether the employee was offered coverage, whether the coverage was affordable, and whether the employee enrolled.

The forms themselves are not complicated. Getting the codes right on Form 1095-C (particularly the offer-of-coverage code and the safe harbor code for affordability) is where mistakes happen and where subsequent IRS notices originate.

The Deadlines and Penalty Structure

ACA reporting has two key deadlines each year: furnishing Forms 1095-C to employees (typically end of January or early March depending on the year’s specific rules), and filing Forms 1094-C and 1095-C with the IRS (electronically, typically end of March). Verify the current-year deadlines before assuming last year’s dates still apply.

Penalties come from two sources:

Failure to file or furnish penalties. Assessed per form. Modest for small numbers of late forms; substantial for large numbers or intentional disregard.

Employer shared responsibility (ESR) penalties under §4980H. These are the larger risk. Section 4980H(a) applies when an ALE fails to offer minimum essential coverage to at least a threshold percentage of full-time employees. Section 4980H(b) applies when coverage is offered but is unaffordable or does not provide minimum value, and at least one employee receives a premium tax credit through the marketplace. Both penalties are indexed annually; verify current amounts.

State Add-On Reporting You Cannot Skip

Several states have their own individual mandate and reporting regime that runs in parallel with the federal ACA reporting: California, District of Columbia, Massachusetts, New Jersey, and Rhode Island. Practices with employees in those states owe additional filings and may need to send state-specific versions of Form 1095 to affected employees.

Idaho and Utah do not currently have state-level individual mandates or their own 1095 filing regime. Practices with employees who work remotely in another state should check that state’s rules; the practice’s obligation follows the employee’s work location, not just the practice’s home state.

Cooper Norman’s tax planning team runs ALE determinations, aggregation analyses, and 1094/1095 filings for medical practices across Idaho and Utah. This overview is general information, not tax advice for your specific practice. Talk with a Cooper Norman advisor about your practice’s ACA obligations.

Benchmark data is one of the most requested and most misused inputs in medical practice management. The Medical Group Management Association (MGMA) publishes annual survey data on compensation, overhead, staffing, and productivity that is used industry-wide, and similar data sets exist from other publishers. Used well, benchmarks give a physician-owner a reference point for where their practice sits relative to peers. Used poorly, benchmarks distract from the specific questions the practice should be answering about itself.

For a small-group practice in Idaho or Utah without a $2,000 annual MGMA subscription, the question is what to benchmark against, how to use the data responsibly, and what to do when a benchmark gap shows up. This piece covers what these data sets actually measure, the ratios worth benchmarking first, why regional medians are not always the right target, alternative data sources, and how to act on a gap.

What MGMA and Similar Data Sets Actually Measure

The MGMA cost and revenue survey, along with equivalents from AAPC, ADA, and other specialty associations, collects operating data from thousands of medical practices annually. The data covers physician compensation, staff compensation, overhead ratios, productivity measures (wRVU per FTE, encounters per FTE), payer mix, and revenue cycle metrics.

These are self-reported figures from participating practices. The samples are meaningful but not statistically representative in the strict sense. Rural practices, small practices, and independent practices are often underrepresented relative to their share of the U.S. medical marketplace, which matters when a rural Idaho or Utah practice is comparing itself to the median.

The takeaway: benchmarks are directional, not definitional. A practice at the 30th percentile on overhead is not necessarily failing, and a practice at the 70th percentile is not necessarily thriving. Context, always.

The Ratios Worth Benchmarking First

For most small and mid-sized practices, five ratios are worth checking against peer data:

• Overhead as a percentage of net collections
• Non-provider staff FTE per provider FTE
• Provider compensation per wRVU
• Encounters or wRVU per provider FTE
• Payer mix relative to specialty and region

These five together answer most of the “how does the practice compare?” question. Adding a dozen more ratios does not usually add information; it adds noise.

Why Regional Median May Not Be Your Right Target

The regional median is a starting point, not a target. A practice’s right target depends on:

Specialty. An orthopedic practice’s overhead percentage will run materially lower than a primary care practice’s, and comparing them across specialties is misleading.

Market. A rural practice in eastern Idaho does not face the same wage inflation, real estate cost, or payer mix as an urban Boise or Salt Lake practice. Regional medians blur these differences.

Practice model. A practice with a physical therapy line, in-house lab, or dispensing pharmacy behaves differently from a pure office visit practice, and benchmark data built on averages washes out those differences.

The right target is often “top quartile among practices similar to this one on the three dimensions that matter most,” which is a harder question than “match the regional median” and a more useful one.

Alternative Free and Low-Cost Data Sources

Not every practice can justify an MGMA subscription. Alternatives:

• Specialty association publications (AAOS, AAP, AAFP, ADA) publish periodic aggregate figures for their specialties, sometimes free to members
• CMS and HHS publish substantial public data on utilization and compensation patterns (Physician Compare, Medicare Payment Data)
• State medical societies sometimes publish region-specific data
• A good CPA firm with medical practice clients has aggregate insights across its client base that are not published but can inform conversations

The public data sets take more work to interpret than a packaged survey but often provide better local relevance for a rural or small-market practice.

How to Act on a Benchmark Gap

When a benchmark comparison shows a gap, the useful response is not “match the benchmark.” It is to ask three questions:

Is the gap real? A ratio that differs from the benchmark by 1 to 3 percentage points is inside the noise of survey data. A ratio that differs by 5 to 10 percentage points is a real signal.

Is the gap explainable? Every practice has structural reasons its ratios differ from peers (specialty mix, market, model). Some of those reasons are strategic choices; others are unexamined habits.

Is the gap fixable in a way that improves the practice, not just the ratio? Cutting staff to match a benchmark can lower overhead and lower revenue at the same time. Chasing a ratio is not the same as improving the business.

Cooper Norman’s healthcare accounting team builds benchmark-informed practice reviews for physician-owned groups across Idaho and Utah. To place your practice against the right peers, talk with a Cooper Norman advisor.