The 2023 Health of the Nation report found that 29% of GPs intend to retire within five years (RACGP, 2023). Many of those owners will consider selling the practice to someone already working in it: an associate, a partner, or a GP the owner knows well. It looks like the simplest of the exit paths. The buyer already knows the practice. There is no third party to vet. The parties share an interest in a smooth transition. In our observation, these are the transactions most likely to collapse.
The reason is structural rather than personal. The parties are in a continuing working relationship, which affects how the transaction is approached. It lowers the pressure to document properly. It can sometimes discourage independent advice. It may also treat commercial disagreement as a failure of trust, rather than a normal feature of a commercial negotiation. The perceived advantages can produce problems.
Five patterns repeat.
The valuation disconnect
The owner arrives at a price based on external market comparables. A broker indication, a corporate transaction in the area, or an EBITDA multiple that the owner regards as appropriate. The internal buyer cannot service that number from existing practice income and, because they work in the practice, knows how much of the billings depend on the owner continuing to consult. They factor owner-dependency into their view of the multiple.
The owner considers the owner-dependency to be overstated because the plan is to transition slowly. Both positions are internally consistent. The gap is rarely resolved without an independent valuation, a staged structure, or both, and the independent valuation often confirms the owner's number without solving the buyer's affordability problem.
The service fee discussion
GP practices typically operate through a service entity that charges independent GPs a percentage of gross billings, typically 25% to 35%. The GP reads this as the cost of using the practice infrastructure. During due diligence, the buyer sees the service entity's financials for the first time and works out what the owner has been earning on those billings. If the service fee is 32% of gross fees and the underlying cost of premises, staff, and systems runs at 22%, the owner's margin through the service entity is 10% of gross fees, earned every year on the associate's clinical work. The ATO's GP-specific safe harbour rates are 40% (urban) and 45% (rural) of gross practice fees (ATO, 2024), so a 32% service fee sits inside safe harbour. The commercial question is not compliance.
Once the information is out, the associate has a live negotiation lever, whether the buyout proceeds or not. If the deal continues, the buyer may discount the valuation to reflect a margin they now know the practice has been earning from their billings. If the deal stalls, the associate may push for a lower service fee going forward or a share of the service entity's profits, with the implicit option of moving their billings to another practice. The owner who opens the books to enable a sale can't restrict that conversation to the sale; having opened the economics of the practice, they are also available to GPs to negotiate the service fee.
Trust as a commercial substitute
The conversation begins informally. A price is discussed, a structure is outlined, and the parties shake hands. Months pass before anything is documented because both assume the detail will follow from the in-principle agreement. It doesn't, though. By the time the detail is contested, the relationship has absorbed the strain of a negotiation neither party acknowledged was occurring. Walking away is expensive. Proceeding on terms that don't work is more expensive, and transactions may continue past the point they should have stopped because neither party wanted to be the one to end them.
The buyer who knows the clinic, not the business
The internal buyer often treats clinical familiarity with the practice as equivalent to due diligence on the business. They are not the same. The entity structure, the terms of the lease, the facilities and services agreements with other GPs, the accreditation status, the billing compliance history, and the normalised EBITDA once owner compensation is accounted for are the elements an external buyer would examine. An internal buyer can and should examine them too. Resistance to formal due diligence is rarely hostile. It reads as unnecessary given the buyer's existing knowledge. The absence of it is what causes most post-settlement disputes.
Advisors kept out of the room
Both parties want to keep the process simple. They may share an accountant. They may share a lawyer. Avoiding separate advisors to keep costs and perceived conflict out of the transaction. The seller receives advice that serves the transaction rather than their specific position. The buyer often receives none. The absence becomes visible when a problem emerges, and the parties realise they were not advised from the same starting point.
Vendor finance without an exit mechanism
Most internal buyouts that clear the valuation stage use vendor finance in some form. Lenders are usually reluctant to fund the goodwill component of a business acquisition on standard terms because goodwill is an intangible asset that lacks the physical, tangible nature of security (such as property or machinery). If a business fails, goodwill typically has no residual or resale value, making it difficult for lenders to recover their capital and creating a higher risk.
Vendor finance is not inherently problematic. A vendor finance arrangement without clear provisions for what happens if payment stops is. The seller is exposed because the buyer now controls the practice and the cash flow. If the security is unregistered or incomplete, the seller sits behind any secured lender and alongside the unsecured creditors. ASIC reported 11,053 companies entering external administration in 2023-24, a 39% increase on the prior year (ASIC, 2024). Default risk is not theoretical. The documentation required to address it is standard. Its absence or incompleteness is what I see most often when a transaction becomes a dispute.
The resale window
A GP sells the practice to the independent GPs at an internal-transition price. Often this rate is lower than an external sale. The buyers hold it for two years, then resell to a corporate acquirer assembling a regional portfolio. The corporate pays at portfolio multiples. The seller, still working at the practice under facilities and services arrangements, watches the uplift bank to the people they sold to. There is no published case law in Australia on this specific pattern, but there is sector precedent. The ForHealth medical centres business was sold by Healius to BGH Capital in 2020 for approximately $500 million, and reports in 2024 suggested BGH was positioning the business for sale at close to $1 billion. Individual-practice flips do not make the financial pages. That does not mean they do not occur. The standard contractual protection is an anti-embarrassment clause that gives the seller a percentage of the uplift if the buyer resells within a defined window, typically two to five years, with the percentage stepping down over time. A 12-month window is not enough.
What this means for owners considering an internal sale
The people attempting internal buyouts are not incompetent. They run practices, manage staff and make commercial decisions every day; if they have an interest in an internal sale, they are often motivated by a legacy interest. The failures sit in the assumption that an internal transaction is simpler than an external one. It is not simpler. It is different. A continuing working relationship raises the cost of disagreement and lowers the pressure to document properly. Both effects cut the wrong way.
The decision to open the books to independent doctors and to justify the time spent on managing the practice and setting facility fees is one of the most difficult discussions in an internal sale. It's valuable to have a few steps between the release of profit data to ensure that purchasers have a genuine interest in acquisition, perhaps even a release fee. Where the sale is being made for legacy reasons, a clear-eyed assessment of the buyers' management expertise is also required.
This is the first article in a series on internal GP practice buyouts. The second article, Valuing a GP practice for an internal sale, covers how EBITDA multiples create the three buyer objections that explain most failed negotiations, and why post-settlement clinical arrangements decide the outcome. The third article, Structuring the deal: vendor finance, earnouts and staged equity, addresses documentation, PPSR security and earnout design. The fourth article, The documents an internal GP practice buyout requires, covers the full document suite: shareholders agreement, sale agreement, restraint of trade, post-settlement consulting, facilities and services agreements, and employment obligations.