Prerequisites
- Identical charts of accounts across PCs — see Set up bookkeeping
- Intercompany balances reconciling monthly
- Management fees invoiced and paid in cash
- 835-level data accessible for the AR waterfall
The monthly package
Seven documents. Produce them from month one; the cost is low early and prohibitive to reconstruct later.1
Per-entity P&Ls
Each PC and the MSO, standalone. Same format, same account structure, side by side.
2
Consolidated P&L with eliminations shown
Show the eliminations as a visible column, not folded silently into the totals. Anyone reading it needs to see that management fee revenue and expense net to zero.
3
MSO standalone P&L
This is the entity investors buy. Consolidated statements show patient service revenue from all the PCs, which is a much larger number than the MSO’s fee income. Presenting consolidated revenue as “our revenue” while selling equity in the MSO is a conversation you will have to un-have during diligence. Show both, labeled clearly.
4
MSO EBITDA bridge
From reported net income to adjusted EBITDA, with each adjustment named and quantified:
That last line is the one groups omit and buyers always find. Show it yourself.
5
PC-level unit economics
Per PC, per month:
6
Fee-coverage check, per PC
Can this PC pay its management fee out of its own collections, after clinical compensation and direct expenses?Report it as a ratio per PC, with a trend. A PC persistently below 1.0 — not during the ramp, but steadily — signals either a fee above what the entity can support (an FMV problem as well as an economic one) or unit economics that don’t work. See Where the profit lives.
7
AR waterfall from 835 data
Cash conversion by service-month cohort: for services rendered in month N, how much had been collected by month N+1, N+2, N+3, and so on.This is the single most informative revenue-cycle report you can produce. It shows collection velocity, reveals deterioration before it shows up in days-in-AR, and is exactly what an underwriter builds if you don’t give it to them.
The KPI pack
Alongside the financials, monthly:When audited financials become necessary
What auditors will ask about consolidation
Expect the PCs to be consolidated into audited financials even though the MSO owns no equity in them. Under ASC 810, an entity consolidates a variable interest entity when it is the primary beneficiary, having both power (directing the activities most significantly affecting economic performance) and economics (absorbing losses or receiving benefits that could be significant). In a typical MSO-PC structure, the MSA supplies the power and the management fee supplies the economics. ASC 810’s related-party guidance also treats parties subject to agreements restricting transfer of their interests as de facto agents, which describes your friendly owner under the transfer restriction agreement.1 Auditors will want: the MSA, the transfer restriction agreement, evidence the fee was paid, and the intercompany reconciliations. Have them ready.Verify it worked
- All seven documents produced monthly
- MSO standalone shown separately and labeled
- Eliminations shown as a visible column
- EBITDA bridge includes the accrued-but-uncollected fee deduction
- Per-PC unit economics reported
- Fee-coverage ratio reported per PC with a trend
- AR waterfall built from 835 data
- KPI pack alongside the financials
- Consolidation documentation ready for auditors
Common failure modes
Sources
- FASB ASC 810, Consolidation. See BDO, Control and Consolidation Under ASC 810 (May 2024); Deloitte, Primary Beneficiary. Confirm application to your facts with your auditors.