Normalisation adjusts historical financials to show what a GP practice would earn under new ownership. Replace the owner's clinical billings with a tenant GP at the existing service fee structure, cost management time against a practice manager salary, add back personal expenses and one-offs, and adjust related-party rent to market. Buyers require two to three years of lodged tax returns.
Most GP owners have a reasonable grasp of what their practice earns. Fewer have a clear picture of what it earns once their own involvement is stripped out. That gap is what normalisation is designed to close.
Normalisation adjusts historical financials to reflect what the business would earn under new ownership, at market-rate costs, without one-off distortions or personal expenses running through the accounts. The resulting figure is what buyers actually use to price a practice. If the seller hasn't done the work, the buyer's due diligence team will, and their version will almost always be less favourable.
Why normalisation works differently in general practice
In most businesses, normalisation is about removing noise from the financials so a buyer can see the underlying profit. In general practice, there's an additional layer: the owner can be a clinician and a manager at the same time.
An owner who sees patients four days a week, manages staff, handles compliance, signs off payroll and negotiates the lease is performing at least two roles. During normalisation, those roles should be separated and costed independently. The owner's clinical billings need to be replaced with the cost of a tenant GP under the practice's existing fee structure. Their management time needs to be replaced with the cost of a practice manager. If neither replacement cost is accounted for, the EBITDA is overstated and the buyer will correct it at the negotiating table.
This is compounded by the Medicare constraint. Revenue in general practice is largely set by MBS item numbers and rebate schedules, not by market pricing. Normalisation here is less about projecting revenue growth and more about demonstrating that current earnings are sustainable and not dependent on the owner's personal effort or non-recurring government payments.
How different buyer types treat owner billings
Corporate and aggregator buyers prefer practices that are not clinically dependent on the owner. They deduct a market-rate GP replacement cost when normalising EBITDA and typically pay higher multiples for practices with independent clinical leads. If the owner accounts for a large share of total billings, the practice looks like a job, not a business.
Incoming GP buyers or internal successors are more comfortable with owner-clinician models if they plan to step into the clinical role themselves. They still expect clarity on the split between owner labour and business profit, but their normalisation assumptions may be less aggressive because they intend to replace the owner's billings with their own.
Investor or consortium buyers usually treat owner billings as non-recurring unless a post-sale service agreement is in place. They either remove those earnings entirely or substitute an equivalent GP cost when calculating maintainable profit.
Adjusting for the owner's clinical time
The owner's clinical billings must be replaced with a realistic GP cost. In service fee practices, the standard model is for tenant GPs to retain 65% to 70% of their billings, with the practice retaining the balance as the service fee. The normalisation should reflect what it would cost the practice to replace the owner's clinical sessions under its existing fee structure, not a notional figure disconnected from the billing model.
If the owner also performs management duties, a realistic allowance for a practice manager's salary must be included. This varies with practice size and complexity but typically sits between $80,000 and $130,000 depending on the scope of the role, the number of GPs and whether it includes financial management responsibilities.
Common add-backs
Beyond owner salary adjustments, normalised EBITDA includes add-backs for expenses that will not recur under new ownership.
Owner wage or superannuation adjustments are the most common. Where the owner has drawn above or below market rate, the figure is adjusted to the replacement cost. This single adjustment can move the normalised EBITDA significantly in either direction.
Personal expenses run through the practice are removed. Motor vehicle costs, family phone plans, wages for non-working family members, private travel and personal insurance all come out. Buyers assume that if an expense is vague or recurring, it continues. The burden of proof sits with the seller.
One-off costs are excluded as non-recurring items. Legal settlements, fitout expenditure, major equipment purchases and COVID-era grants all fall into this category. The same logic applies to one-off revenue: COVID vaccination funding or time-limited incentive payments should be excluded unless there is evidence that equivalent income will continue.
Related-party rent is adjusted to fair market rate. If the practice operates from premises owned by the principal or a related entity, the rent charged must reflect what an arm's length commercial lease would cost. Artificially low rent inflates EBITDA. Artificially high rent deflates it. Buyers will benchmark this against comparable commercial leases in the area, and valuers routinely adjust for it.
Redundant or inflated roles, including family members in administrative positions who would not be retained post-sale, are removed to reflect actual operational staffing requirements.
An illustrative example: a practice reports raw EBITDA of $200,000. Add back above-market owner superannuation of $25,000, personal vehicle costs of $15,000 and one-off legal fees of $10,000. Normalised EBITDA becomes $250,000. That figure, not the reported profit, is what a buyer uses to model returns.
The government funding constraint
Australian GP practice revenue is predominantly Medicare-funded. MBS rebate schedules, bulk billing incentive changes, Practice Incentives Program payments and state-based grants all affect the revenue base in ways that are outside the practice's direct control. Normalisation needs to account for this.
One-off government payments such as COVID vaccination funding, pandemic-era telehealth uplift or time-limited incentive programs should be excluded from normalised EBITDA unless there is evidence that equivalent revenue will continue. Conversely, newly introduced ongoing programs such as the tripled bulk billing incentive may need to be included if they represent a structural change to the revenue base. The test is whether the revenue is likely to persist under new ownership, not whether it appeared in the most recent financial year.
Practices with a high bulk billing rate are more exposed to changes in Medicare rebate indexation. Buyers and their advisers will assess whether current earnings depend on rebate settings that could change. This does not mean bulk billing practices are less valuable, but it does mean the normalisation needs to address the revenue model explicitly rather than leaving buyers to draw their own conclusions.
What the documentation should include
Buyers and their financiers require at least two, and preferably three, years of lodged and verified tax returns. A single year's result is not enough to confirm earnings stability.
The normalised EBITDA statement itself should include:
- An accountant-prepared reconciliation with supporting workpapers that detail every adjustment and its justification
- Lodged tax returns reconciled against BAS and P&L statements
- Clear separation of owner labour from business profit with market-rate costings for each replacement
- Evidence of the EBITDA trend over the period covered
A rising trend signals effective cost control and sustained demand. A flat or declining trend raises questions about revenue leakage, workforce instability or dependence on a departing principal. Either way, the normalisation narrative should explain the trend rather than leave the buyer to interpret it.
Owners who can explain their adjusted EBITDA clearly signal financial literacy and professional management. Those who cannot describe their EBITDA trend or have no financial visibility expose a readiness gap that increases transaction cost and deal risk. Buyers recalibrate offers during due diligence whether the seller has prepared normalised figures or not. Practices that present clean, documented financials upfront reduce transaction friction and avoid the discounts that come from buyers discovering normalisation issues late in the process.