The $400,000 Difference Hidden in Doctor Compensation
Two offers with nearly identical enterprise value differed by roughly $400,000 in total economics because of the compensation formula the seller would work under after closing. This teardown is fictionalized and illustrative.
The practice
Oral surgery, two surgeons, $3.8M collections, $1.3M normalized EBITDA. The selling surgeon personally collects $2.1M a year and plans to work four more years.
The offers on the surface
| Offer A | Offer B | |
|---|---|---|
| Enterprise value | $8,450,000 (6.5x) | $8,320,000 (6.4x) |
| Cash at closing | $6,760,000 | $6,656,000 |
| Rollover | $1,690,000 | $1,664,000 |
Offer A was $130,000 higher. On these three lines, the seller's advisers agreed A was better.
The compensation terms
| Offer A | Offer B | |
|---|---|---|
| Formula | 30% of adjusted production | 35% of collections |
| Adjustment | Production net of contractual write-offs and a 6% lab and implant deduction | None; collections as received |
| Anesthesia | Included in the 30% | Paid separately at 40% of anesthesia collections |
| Hygiene exams | Not applicable | Not applicable |
| Schedule | 4.5 clinical days required | 4 clinical days required |
The math
Offer A: adjusted production after write-offs and the 6% deduction came to roughly $1.85M. At 30%, the surgeon earned about $555,000 a year.
Offer B: $2.1M of collections at 35% was $735,000, plus anesthesia collections of about $180,000 at 40%, adding $72,000. Total about $807,000 a year, on four days instead of four and a half.
Annual difference: roughly $252,000. Over the four years the surgeon intended to work: just over $1,000,000. Even discounting for the fact that compensation is earned by working and is taxed as ordinary income, the after-tax present value of that gap was in the neighborhood of $400,000 in the seller's favor under Offer B, comfortably more than the $130,000 headline advantage of Offer A.
Why it was hidden
The compensation terms were in a separate employment term sheet that arrived two days after the LOI. The LOI itself said "market-rate associate compensation" for both. The seller had compared the LOIs and not the term sheets.
The lesson
For any seller who plans to keep working, the employment agreement is part of the purchase price. A 5-point difference in the compensation rate on a high producer can outweigh half a turn of EBITDA in the multiple. The formula's base matters as much as the rate: 30% of adjusted production and 30% of collections can be $100,000 a year apart.
DexCompare puts the compensation formula on the same page as the purchase price.
See how DexCompare worksThis teardown is fictionalized. Practices, buyers and figures are constructed to illustrate deal mechanics and do not describe any real transaction. Market ranges on this page are illustrative planning ranges, not offers. Involve qualified legal and tax advisers on any transaction.