Practice Sale Proceeds Calculator: know what you actually keep

Owner compensation gets normalized because a buyer is purchasing the earnings the business produces, not the earnings it happens to report while you are underpaying or overpaying yourself.

Only what runs through payroll counts here. Distributions and profit draws are not a business expense, so they never hit the profit line and there is nothing to add back.

For a practice where the owner personally produces revenue (injecting, operating, seeing patients), a buyer has to hire back both the management and the production. That replacement frequently costs more than the owner was paying themselves, especially where the owner kept W-2 wages modest and took the rest as distributions. When that happens the adjustment is negative and adjusted EBITDA comes down.

A negative number here is not a mark against your practice. It is an honest accounting of what a buyer has to spend to keep the doors open, and it is far better to see it now than to have a Quality of Earnings provider surface it in diligence.

Enterprise value is what the business is worth to any owner, before accounting for how it is financed. Equity value is what is left for you. Buyers acquire the business free of your borrowings, so anything outstanding at closing (term loans, equipment financing, the line of credit, an SBA loan) is paid off out of the purchase price before you receive anything.

This surprises owners who think of an equipment note as a normal cost of doing business. In a sale it is a dollar-for-dollar reduction in what you take home. Paying debt down before a sale does not create value, but it does convert the outcome from a reduction at closing to cash you spent earlier.

A buyer expects to receive the business with enough day-to-day working capital to keep operating: inventory on the shelf, receivables in process, payables current. The peg is the agreed normal level, usually an average of your recent months.

At closing your actual working capital is measured against that peg. Deliver more and you are paid the excess. Deliver less and the price is reduced. Injectable and product inventory lives here, which is why it does not belong in the purchase price allocation as well.

The peg gets negotiated in the letter of intent, when you still have bargaining power, and it gets measured months later at closing, when you do not. How it is calculated (which months, whether it is a straight average, how prepaid items are treated) routinely swings six figures. Your broker can make sure it is set on a defensible basis before you sign.

When a patient prepays for a package of treatments or pays for a membership, you have collected cash but you have not finished earning it. Under accrual accounting that cash is a liability called deferred revenue, and it stays a liability until you deliver the service.

It should not be sitting in your EBITDA. If it is, because you are on cash basis accounting and counted the money when it arrived, a Quality of Earnings review will pull it out, and your adjusted EBITDA will fall by more than you expected.

Either way, the buyer inherits the obligation. Someone has to staff and supply those treatments, and it will be them. So the value of what is still owed comes off the price, the same way debt does.

Private equity buyers generally do not want to purchase your real estate. Buying it consumes cash that could otherwise go toward the operating business, and it uses up borrowing capacity that their model depends on. Real estate returns are also not what their investors signed up for.

The far more common outcome is that you keep the building and lease it to the buyer, usually on a long-term triple-net lease at market rent. That turns the property into an income stream you still own, with a tenant whose credit is now backed by a larger platform. It is a reasonable outcome and often a good one.

If you do want to sell it, treat that as a separate transaction on its own timeline, with its own buyer pool and its own tax treatment. Depreciation you have already taken comes back as unrecaptured Section 1250 gain at up to 25%, and a Section 1031 exchange can defer the whole thing if it is set up before the sale closes.

What you should not do is assume the building is included in the multiple. It almost never is, and finding out late changes the arithmetic on your whole plan.

Escrow is a slice of your purchase price, typically 5% to 10%, held by a third party for 12 to 24 months as security in case something in the agreement turns out to be wrong. Absent a claim, you receive all of it.

When you pay tax on it depends on how the escrow agreement is drafted. If release depends on conditions outside your control, such as no indemnification claims during the survival period, your right to the funds is subject to substantial restrictions. The escrow is then generally reported under the Section 453 installment method, and you are taxed in the year the money is released to you.

If you have current control of the funds, or the restrictions are ones you asked for rather than ones that protect the buyer, the deposit is generally treated as paid at closing and taxed that year, even though the cash arrives later. Either way, the installment method does not reach depreciation recapture, which is taxed in full at closing.

Raise it with your CPA and your transaction attorney while the agreement is still being written. The checkbox in Module 5 switches this model between the two treatments.

A covenant not to compete is separately identified in an asset purchase agreement. The buyer pays part of the price for your promise not to open a competing practice, and to you that money is ordinary income rather than capital gain.

Here is the part worth knowing. Both goodwill and covenants not to compete are Section 197 intangibles that the buyer amortizes over the same 15 years, so the buyer is close to indifferent between them. You are not. Shifting allocation from the covenant to goodwill converts ordinary income into capital gain at almost no cost to the other side, which makes it one of the few low-friction wins available to a seller.

The equipment allocation is a different story. Buyers want more allocated to equipment for faster depreciation. You want goodwill for capital treatment. That one is a hard negotiation with an actual cost to the buyer, and your broker and attorney will have to trade for it.

In an asset sale the buyer purchases your equipment, goodwill, and contracts, leaving the legal entity with you. In a stock sale the buyer purchases your ownership interest and takes the entity as it stands, liabilities included.

Buyers prefer asset sales. They get a stepped-up basis in what they purchase, which generates future depreciation and amortization deductions, and they leave unknown liabilities behind.

Sellers usually prefer stock sales. The entire gain is capital, there is no allocation to negotiate, and the liabilities transfer.

In practice, most private equity practice deals land somewhere in between. The buyer takes your equity, so your entity and everything attached to it survives, and the two sides elect to have the transaction taxed as an asset sale anyway. Your paperwork will say equity. Your return will say assets. That structure has a name, and it is worth understanding before you sign the letter of intent.

If your attorney, your buyer, or the buyer's counsel has mentioned an F reorganization, a new holding company, or a QSub election, your deal is almost certainly being structured so that you sell equity and are taxed as though you sold assets. That combination is the single most common structure in private equity acquisitions of practices held in an S corporation, and most owners meet the term for the first time somewhere between the letter of intent and the first draft of the purchase agreement.

What actually happens. You form a new holding company and contribute your S corp stock to it. The holding company elects S status and files a QSub election for your original company. Your original company then converts to a limited liability company. None of those steps is a taxable event, and the point of doing them is preservation: your EIN, your contracts, your leases, your state licenses, your payor enrollments, and your provider numbers all survive, with no assignment consents to chase and no re-credentialing.

Then the buyer buys a percentage of the LLC. Under Revenue Ruling 99-5, the tax law treats that purchase as though you sold an undivided percentage of every asset in the practice and then contributed the remainder to a new partnership alongside the buyer. So the portion you sold is taxed like an asset sale. Equipment comes back as ordinary income under Section 1245. Your covenant not to compete is ordinary. Goodwill is capital. The portion you roll is generally deferred until the next liquidity event.

A Section 338(h)(10) election gets to the same place by a different road. There the transaction really is a stock sale, and both sides jointly elect to treat it as an asset sale for tax purposes. Different mechanics, same answer for you. If your documents mention it, choose the same option in Module 4 that an F reorganization seller would.

Why sellers agree to this. Because the buyer is paying for it. A step-up lets the buyer amortize purchased goodwill over fifteen years under Section 197, and that deduction stream has a measurable present value that shows up in the price a competitive buyer will offer. Meanwhile the incremental tax cost to you is narrower than it sounds. A practice built by its founder is mostly self-created goodwill with little or no basis, and goodwill is capital gain in an asset sale just as it would be in a stock sale. The extra cost is generally confined to the equipment and noncompete slices of the allocation, which is exactly why the allocation is worth negotiating rather than accepting.

Does any of this change your multiple? No. Price and tax are two separate conversations that happen to occur in the same room. Your multiple comes from your earnings, your growth, your provider concentration, and how many buyers want what you have. The structure decides how that price is taxed and how much of it you keep. Both an asset sale and a stock sale are priced off a multiple of earnings. Nothing in Module 4 changes the number in Module 2, and it should not.

How to tell which one you are in. Search your letter of intent and purchase agreement for F reorganization, holding company, QSub, conversion to a limited liability company, membership interests, and 338(h)(10). Then ask your attorney or CPA one question and get the answer in writing: am I being taxed on this as a stock sale or as an asset sale? Nearly every other tax question in your deal follows from that answer, including which option you should select above.

If you have talked to anyone about selling a business in the last year, someone has mentioned qualified small business stock. Section 1202 lets certain C corporation shareholders exclude a large share of their gain from federal tax, and the One Big Beautiful Bill Act expanded it meaningfully for stock acquired after July 4, 2025: a tiered exclusion of 50% at three years, 75% at four, and 100% at five, a per-issuer cap raised from $10 million to $15 million, and a gross asset ceiling raised from $50 million to $75 million, both now indexed for inflation.

That is a large benefit, and it is the reason the topic comes up so often. It is also, for most practice owners, unavailable.

Section 1202(e)(3) excludes any trade or business performing services in the field of health, along with any business whose principal asset is the reputation or skill of one or more of its employees. A med spa delivering medical aesthetic procedures under physician supervision sits squarely in the health category. So does a dental practice, and so does a surgical practice. A business built around one star injector or one surgeon runs into the second exclusion as well.

Eligibility is fact-specific and it is not automatic in either direction, which is exactly why you should not act on it based on a conversation at a conference or a page like this one. If someone has told you QSBS will save you seven figures, take that to your CPA and ask them to put their analysis in writing before it influences a single decision about your structure or your timing.

Converting an S corporation to a C corporation to chase the exclusion is also worse than it sounds. Only appreciation after the conversion is eligible; the built-in gain at conversion is not. The full exclusion requires a five-year hold. And converting back triggers a five-year built-in gains tax period.

This calculator does not model Section 1202 for exactly these reasons.

Most states tax capital gains as ordinary income at their regular rates. Only a small number provide preferential treatment or an exclusion, and the rates change often enough that this page asks you to enter your own rather than guessing on your behalf.

Business income is generally sourced to where the business operates, not where the owner lives. A Florida resident selling a practice with Georgia locations may owe Georgia tax on the Georgia-apportioned portion. Your resident state will usually credit tax paid elsewhere, but the credit is rarely a full offset. Owners consistently get this wrong, and it is the most expensive state-level surprise in a practice sale.

Rollover equity means you did not sell all of your business. You sold most of it and reinvested part of your proceeds into the buyer's platform, and you get paid on that piece only when the platform itself sells, typically five to seven years later, sometimes longer.

The multiple used in the rollover section means something different from the multiple used to price your practice. There, a 6x meant six times your annual earnings. In the rollover table it means how many times your rolled dollars come back: a 2.0x turns $1 million rolled into $2 million at exit.

The structural fact that decides how it goes does not appear in the headline percentage: where you sit in line. Rollover equity usually comes as common stock, and a seller note gets paid before it. So does the sponsor's preferred stock, which carries a liquidation preference entitling it to be made whole first. If the platform struggles, the order is bank debt, then any seller note, then the sponsor's preference, then you. That is why a bad outcome for a rollover holder is often much worse than proportional, and it is worth asking your broker and attorney exactly what class you are being offered.

Rollover can be a very good trade. It is how sellers participate in a second, larger exit, and plenty of owners have made more on the rollover than on the original sale. It is simply not the same money with a longer horizon, and it should not be counted as though it were.