Why sellers get repriced
The letter of intent (LOI) is not a promise. It is a starting price, subject to whatever the buyer finds during diligence. Med spa sellers who go into diligence unprepared get repriced. Sellers who go in prepared close at their LOI number.
Here is exactly what buyers look for, and the documents you should have ready.
1. Quality of earnings
Buyers hire a quality-of-earnings (QoE) firm to reconcile your P&L to source documents. They are checking:
- Do your revenue records match your merchant processor reports?
- Do your expenses reconcile to bank statements?
- Are the add-backs you claimed defensible?
- Is there any revenue that shouldn't be counted (one-time events, discontinued services)?
What to prepare: 24 months of P&L, bank statements, merchant processor reports (Square, Stripe), and a mapped list of add-backs with support documents for each.
2. Provider agreements
Every provider on your team is a diligence item. Buyers check:
- Employment vs. contractor status (misclassification is a real risk)
- Non-compete and non-solicit clauses
- Length of tenure
- Change-of-control provisions
- Compensation structure
What to prepare: All current provider agreements, W-2s or 1099s for the past 2 years, and a summary of any provider disputes or exits in the last 3 years.
3. Medical director structure
If your state requires a physician medical director (Florida, Texas, California, and most others do), buyers scrutinize:
- The medical director's contract and compensation
- The chain of supervision for injectable procedures
- Any past regulatory actions or complaints
- The transition plan if the medical director leaves post-close
What to prepare: Medical director agreement, credentialing documents, and a written succession plan.
4. Patient records and retention
Buyers look at:
- Patient retention curves (12-month, 24-month)
- Average revenue per patient
- Membership vs. one-off patient mix
- Patient complaint history
What to prepare: An export from your EMR showing patient visit history for the last 24 months (anonymized), and any patient complaint or reimbursement records.
5. Real estate and lease
The lease shows up in every diligence review. Buyers check:
- Remaining term and renewal options
- Rent-to-revenue ratio
- Any co-tenancy or exclusivity clauses
- Assignment and change-of-control provisions
What to prepare: Full lease document, most recent property tax and CAM statements, and a written analysis of your rent as a percentage of revenue.
6. Compliance and licensing
State medical boards actively audit med spas. Buyers investigate:
- Current business licenses
- Any past board actions
- HIPAA compliance
- Consumer product safety compliance (for retail)
What to prepare: All current licenses, a HIPAA risk assessment, and a written statement of any past or pending regulatory actions.
7. Inventory and equipment
Buyers count everything. They check:
- Inventory age (expired product is a discount)
- Equipment condition and deferred capex
- Service contracts and warranty status
- Depreciation vs. actual condition
What to prepare: A physical inventory count with unit costs, equipment list with age and last-service dates, and all service contracts.
The clean-up sprint window
You should be running the clean-up sprint 60 to 120 days before you expect to sign an LOI. Compressed timelines lead to compressed prices.
Common timeline:
- Day 1: Reconcile P&L to bank statements.
- Day 15: Map add-backs with supporting documents.
- Day 30: Review and refresh provider agreements.
- Day 45: Compliance audit (self or third party).
- Day 60: Physical inventory count.
- Day 75: Final diligence binder assembled.
The bottom line
Sellers who prepare these seven items before signing an LOI close within 5% of the LOI number. Sellers who don't get repriced by 10-25% during diligence.
The clean-up sprint isn't optional. It is the single highest-ROI investment you make in the sale process.