What Buyers Look For in a Medical Spa
How buyers value a medical spa, the records they ask for, what has to transfer, and what tends to sink the sale of a practice built on injectors and repeat clients.
Words by
Matan Michael
A medical spa sits between a clinic and a salon, and a buyer has to understand both halves before making an offer. The treatment rooms, the injectables and the lasers look like a healthcare business. The rebooking calendar, the retail shelf and the Instagram following look like a beauty business. Most owners we talk to think about the second half because that is what they built, and most buyers spend their first weeks on the first half because that is where the risk is.
What a buyer is paying for
A buyer is paying for the cash the practice will keep producing once you are no longer in the room. In a medical spa that cash comes from treatment revenue, retail product, and memberships or packages, and a buyer will want each of those separated by month for at least the last three years. Neurotoxin and filler visits tend to repeat on a schedule, so a buyer can see a pattern if the records are clean. Laser and body contouring work is more lumpy, and a buyer will ask what share of the clients came back after the first course.
Rebooking matters more than almost anything else in the file. A practice that sees a client every few months for years has a business a lender can underwrite. A practice that fills its calendar mainly with new clients from a discount promotion has a marketing expense dressed up as revenue, and a buyer will price it that way. We usually suggest you pull the number of clients who visited more than once in the last year before anyone asks, because you will want to know the answer first.
The second thing a buyer pays for is who does the work. If you are the injector with the long waitlist, the practice is worth what a buyer believes will stay after you leave, and some of that will not. Clients in this business follow the person holding the syringe. A buyer will ask how many providers are on staff, how long each has been there, whether any of them can fill a day on their own, and whether the books are full for them or only for you. Our post on owner dependency goes through how to move your own chair time to someone else before you list.
The medical director and who holds the license
Every medical spa has a physician or other licensed provider connected to it, and a buyer will go to that arrangement early. In many states the practice of medicine has to be owned or supervised by a licensed provider, and the way the spa is structured to fit that rule varies from place to place. Some spas are owned by a physician directly. Others are owned by a business entity that contracts with a physician-owned practice for the clinical side. Rules vary by state and your attorney confirms what applies to your practice and to the buyer.
What this means for a sale is practical. A buyer who is not a licensed provider may have to buy the business side and sign a new agreement with a medical director, or may need a licensed partner in the deal. A buyer who is a physician or nurse practitioner has a different path. Either way, the medical director agreement, the supervision protocols, the standing orders and the chart review schedule all get read closely, and a buyer will ask whether the director signs charts in a timely way or only on paper. If the answer is uncomfortable, it is better to fix it before a buyer finds it.
You should also expect the question of what happens to the director if the practice sells. If yours is a physician who has been with you for years and is willing to stay on for a transition, say so early. If the arrangement ends the day you close, a buyer will want to know who replaces that person and how long it takes.
The records a buyer will ask for
Expect requests for business tax returns, monthly profit and loss statements, a balance sheet, and reports from the practice management software showing visits, revenue by service, revenue by provider, retail sales, and membership counts. If you sell packages or prepaid memberships, a buyer will ask how much has been paid for and not yet delivered, because that is a liability the buyer inherits when the practice changes hands. Many owners have never added it up, and it is worth doing before a buyer does.
They will also want the chart and consent system, the informed consent forms for each treatment, the photo release policy, and a sample of how adverse events and complaints have been recorded. Buyers look for a pattern of problems more than a single incident. One complication handled well and documented properly is a normal part of this business. A pattern with no documentation is what slows a deal. Our guide to getting financials ready for a buyer covers how clean books look from the other side of the table.
Add the employee list with pay, tenure, licenses and certifications, the independent contractor agreements if any providers are paid that way, the equipment list with age, service records and any financing, the vendor accounts for injectables, and the insurance history including malpractice and any claims. Tie the numbers in the software to the numbers on the returns. If cash services or unrecorded add-ons sit outside the system, a buyer will not credit them, and our post on add-backs and what counts explains why.
What makes one practice worth more than another
Practices that sell well tend to look alike. The calendar is booked out a couple of weeks, the providers have their own followings, and the membership base is large enough to carry the fixed costs in a slow month. Retail attachment is steady. Reviews are recent and specific. Marketing spend is a known number with a known return, and the practice is not dependent on a single platform or a single promotion to fill the rooms.
Equipment is a larger question here than in most service businesses. Lasers, light-based devices, body contouring machines and the newer energy platforms cost a good deal when bought and lose value quickly. A buyer will ask which devices are owned, which are leased, which are paid off, and whether any are close to the end of their useful life. A practice carrying leases on machines that no longer bring in much revenue has a drag on cash flow that a buyer will count against you. Service contracts and the history of repairs matter too.
Mix of services changes the price. A practice that earns most of its revenue from injectables and skin treatments with steady repeat visits looks different to a buyer than one that depends on a single high-priced device. Neither is bad. The buyer pool for each is a little different, and we look at the mix before deciding who to approach.
What lowers value is also predictable. Heavy discounting that trained clients to wait for a sale. A provider who handles a large part of the revenue with no contract. A medical director arrangement that looks thin. Lax inventory records for injectables, which buyers read as a sign of other loose practices. Reviews that mention complications with no visible response. Any of these can be fixed in a year, and none of them has to stop a sale.
What has to transfer
The lease is usually the first item. Medical spas build out treatment rooms, plumbing, ventilation and sometimes a laser room with specific electrical and safety requirements, and a buyer or a lender will want enough remaining lease term to justify the investment. The landlord's consent is needed to assign the lease in most cases, and landlords take their time. The lease is part of the deal explains how that conversation tends to go.
Licenses and registrations are the next thing to check. The practice itself, the providers, the devices and sometimes the facility may each carry their own registration or permit, and some of those transfer with the business while others have to be applied for again by the new owner. Controlled or prescription-only products have their own handling rules, and the supply relationships with pharmaceutical and device manufacturers often carry their own terms. Rules vary by state and your attorney confirms what applies.
Beyond those, a buyer will look at the software contracts, the payment processor, the merchant financing arrangements for client payment plans, the membership billing platform and the phone number and website. Domain names, social media accounts and the review profiles are part of what a buyer is buying, and they should be in the name of the business and not in a personal login. A surprising number of practices discover at this stage that the handle with all the followers belongs to a former employee.
Structure is the last piece. Most small medical practices sell as an asset sale, with a buyer picking up the equipment, the client list and the goodwill and leaving old liabilities behind. Whether that works depends on how the practice is organized and what the licensing rules allow, and our post on asset sales and stock sales explains the difference.
What tends to sink a sale
Most medical spa deals that fail do so for reasons visible early. The owner was the practice and the clients left with the provider. The medical director arrangement could not be assigned or did not satisfy the buyer's attorney. Prepaid packages had never been tracked and the liability surprised everyone in the last month. A device lease turned out to be larger than the buyer expected. The records did not support the claimed revenue.
Word getting out is a bigger risk in this business than in most. If clients hear the practice is for sale, some of them will wonder whether their provider is leaving, and providers who hear it first sometimes start looking elsewhere. We market a practice without naming it, and buyers sign a nondisclosure agreement before they see anything that identifies it. Our post on how we market a business confidentially describes the steps. You will also want a plan for when and how to tell your providers, which is covered in when to tell employees.
There is also the matter of what you do after the sale. Buyers usually want the owner to stay for a transition, especially if the owner is a provider or the face of the brand, and they will often want a non-compete. Our post on non-compete agreements covers what is typical.
How to get the practice ready
A year of lead time is better than a few months. Have the books and the practice management software agree. Add up the prepaid packages and memberships so you know the number. Have your medical director agreement and supervision protocols reviewed by a healthcare attorney, and fix anything that looks loose. Bring a second provider up to the level where clients will book with them, and move some of your own appointments to that person while you are still there to back them up. Get the device list, lease terms and service records into one folder. Make sure the website, social accounts and review profiles are owned by the business.
Once you decide to go, Business Advisors of America prices the practice from your own books, puts together the package a lender will want to see, and checks each buyer out before any name or address is shared. Our page on selling a medical spa shows how we approach it, and a short call is the easiest way to find out where your practice stands.
