Documented assets and contested projections are not the same thing

Most dental M&A deals close with proven upside sitting undocumented in the practice management system. The seller has no leverage to negotiate for it, and the buyer discovers it six months later during integration.

Lapsed recall patients, unscheduled treatment plans that never got followed up on, no-show patterns across providers, all of it sits invisible because none of it ever appeared on the P&L and nobody pulled the PMS data to document it.

The reason this happens is structural. Financial quality of earnings audits capture what the practice earned, but they don't capture what should have been earned yet wasn't. That revenue was never collected, so it never touched the P&L. It exists in patient-level data inside the PMS, and unless someone pulls treatment plan acceptance rates by provider, recall reactivation conversion, and scheduling variance across operatories, the gap just sits there until someone decides to look.

Earn-outs get structured around future growth projections, and those projections are always contested because nobody has baseline data to anchor them. The seller can say the practice will grow 15% with the right systems, but the buyer says maybe, maybe not, and we're not paying for hypotheticals. So the compromise becomes an earn-out clause tied to trailing twelve month performance increases, which shifts all the execution risk to the seller even though the buyer controls operations post-close. And many of those earn-outs never pay out.

The distinction that doesn't exist yet in most deals is between paying for future growth and paying for documented assets that already exist. Future growth is a projection. But recoverable revenue sitting in the PMS is documented fact that can be quantified by patient cohort, loss reason, treatment plan value, and time since last contact.

Earn-out clauses are built on speculation about what might happen post-close, but earn-up clauses are built on documentation of what already exists. The legal mechanism is the same, payments over time based on performance metrics. But the justification is fundamentally different, as one asks the seller to bet on the buyer's execution and the other asks the buyer to pay for documented assets they're about to own.

When that documentation exists in the deal room before the LOI, sellers can structure earn-up clauses anchored to capturing specific assets that already exist, rather than betting on earn-out growth targets that may not materialize. Buyers get clarity on what they're buying instead of discovering gaps post-close. And advisors can structure deal terms around metrics both sides can verify.

When that layer gets documented, sellers stop walking away from recoverable enterprise value they couldn't prove existed. Deals stop getting retraded late in diligence because the baseline was documented upfront, and the earn-up versus earn-out distinction becomes meaningful: documented assets against contested projections. One is more valuable than the other.