> ## Documentation Index
> Fetch the complete documentation index at: https://mso.getlemma.com/llms.txt
> Use this file to discover all available pages before exploring further.
# Produce investor-grade financial reporting
> The monthly close package a fundable MSO-PC group produces: per-entity P&Ls, eliminations, the MSO EBITDA bridge, PC unit economics, fee coverage, and an AR waterfall.
**Investor-grade reporting** means a monthly package a third party can read without asking you to explain the structure. For an MSO-PC group that means showing the MSO standalone (what investors buy), the consolidated view (what auditors produce), and enough per-PC detail to demonstrate the fee is real.
## Prerequisites
* Identical charts of accounts across PCs — see [Set up bookkeeping](/guides/banking/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.
Each PC and the MSO, standalone. Same format, same account structure, side by side.
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.
**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.
From reported net income to adjusted EBITDA, with each adjustment named and quantified:
| Line |
| --------------------------------------------------------------------------------------- |
| MSO net income |
| + Interest |
| + Taxes |
| + Depreciation and amortization |
| = **EBITDA** |
| + Normalization: friendly-owner compensation to market |
| + Add-back: credentialing J-curve losses (label honestly — buyers argue about this one) |
| + Add-back: non-recurring items, itemized |
| − Deduction: any fee revenue **accrued but not collected in cash** |
| = **Adjusted EBITDA** |
That last line is the one groups omit and buyers always find. Show it yourself.
Per PC, per month:
| Metric |
| --------------------------- |
| Net patient service revenue |
| Clinical compensation |
| Direct clinical expenses |
| Management fee paid |
| **PC residual** |
| Clinician count (FTE) |
| Revenue per clinician FTE |
| Visit volume |
> **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](/concepts/finance/where-the-profit-lives).
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:
| Metric | Why underwriters pull it |
| ---------------------------------- | -------------------------------------------------------------------------------------- |
| **Net collection rate** | Whether you collect what you're entitled to. Below 95% signals revenue cycle problems. |
| **Denial rate**, by payer and CARC | Operational quality and payer risk |
| **Days in AR** and % over 90 days | Working capital intensity |
| **Clean claim rate** | Front-end discipline |
| **Revenue per clinician FTE** | Productivity, and key-person dependence |
| **Clinician retention / turnover** | The largest operational risk in a clinical business |
| **Payer concentration** | Dependence on one contract |
| **Credentialing pipeline** | Revenue waiting on enrollment |
| **Same-store growth** | Growth from existing sites vs from adding sites |
## When audited financials become necessary
| Trigger | Typically requires |
| ---------------------------- | ---------------------------------------------------------- |
| Seed / early venture | Internal statements, sometimes reviewed |
| Institutional Series A+ | Reviewed, often audited |
| Bank debt | Reviewed or audited, depending on facility size |
| Private equity transaction | **Audited**, plus a third-party quality-of-earnings review |
| Sale to a strategic acquirer | Audited plus QoE |
## 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
| Failure | Consequence |
| -------------------------------------------- | ----------------------------------------------- |
| Presenting consolidated revenue as the MSO's | Credibility problem in diligence |
| No MSO standalone view | Investors cannot underwrite what they're buying |
| Eliminations hidden in the totals | Reader can't verify |
| Omitting the uncollected-fee adjustment | The buyer finds it and discounts more broadly |
| No per-PC detail | Cannot demonstrate the fee is supportable |
| No fee-coverage reporting | The weakest PC is invisible until diligence |
| Building the package only when raising | Months of reconstruction at the worst time |
## Sources
1. FASB ASC 810, Consolidation. See BDO, [Control and Consolidation Under ASC 810](https://www.bdo.com/getmedia/8a458199-b9e0-4445-8b0e-f8f1bd7a180f/Control-and-Consolidation-Under-ASC-810.pdf) (May 2024); Deloitte, [Primary Beneficiary](https://dart.deloitte.com/USDART/home/codification/broad-transactions/asc810-10/roadmap-noncontrolling-interests/chapter-2-glossary-selected-terms/2-22-primary-beneficiary). Confirm application to your facts with your auditors.
## Related topics
- [Set up bookkeeping and consolidation](/guides/banking/set-up-bookkeeping.md)
- [Evolve the fee structure (fixed → cost-plus → percentage)](/guides/agreements/evolve-the-fee-structure.md)
- [Move money between PC and MSO (the right way)](/guides/banking/move-money-mso-pc.md)
- [How investors read MSO-PC financials](/concepts/finance/how-investors-read-mso-pc-financials.md)
- [Where the profit lives: MSO economics and fee structures](/concepts/finance/where-the-profit-lives.md)
- [Working capital and lending against healthcare AR](/concepts/finance/working-capital-and-ar-lending.md)
- [Intercompany loans between MSO and PC: structure and example clause](/reference/legal/intercompany-loan-note.md)