7 Questions to Ask Before Buying a New Midwifery Practice

2026-08-21

Before buying a midwifery practice, ask these 7 questions to avoid tax surprises, valuation errors, and hidden liabilities. Practical guide for new owners.

Buying an existing midwifery practice can be a smart way to skip the startup phase, but it comes with financial and tax complexities. If you don’t ask the right questions before closing, you could inherit unpaid taxes, overpay for the practice, or miss out on valuable deductions. This guide walks you through 7 essential questions to ask before you sign, with concrete steps you can take this week.

1. What Is the Practice’s True Tax Liability?

You need to know exactly what the seller owes in federal, state, and local taxes. Ask for the last three years of tax returns (business and personal, if relevant) and any notices from the IRS or state tax agencies. Look for unpaid payroll taxes, sales tax, or property tax. If the practice has employees, unpaid payroll taxes can become your responsibility if you buy the assets, so verify all tax deposits are current.

This week: Request a tax clearance certificate from the IRS and your state revenue department. This document confirms the seller has no outstanding tax liens.

2. What Is the Purchase Price Allocation?

When you buy a practice, the purchase price must be allocated among assets like equipment, goodwill, patient lists, and a non-compete agreement. This allocation matters because each asset has a different tax treatment. For example, equipment can be depreciated over 5 to 7 years, while goodwill is amortized over 15 years. A higher allocation to equipment gives you faster deductions, but the seller may prefer more for goodwill (capital gains). Negotiate this carefully, as it affects both your tax bill and the seller’s.

This week: Ask the seller for their proposed allocation (Form 8594, Asset Acquisition Statement). Review it with your CPA to ensure it’s fair and tax-efficient.

3. Are There Any Hidden Liabilities?

Beyond taxes, you need to uncover any lawsuits, malpractice claims, or outstanding debts. If you buy the stock of the corporation (rather than just assets), you may inherit all liabilities, including unknown ones. Even with an asset purchase, you could assume certain contracts or leases that carry obligations. Ask for a list of all current contracts, leases, and pending litigation. Also, check if the practice has any outstanding loans or lines of credit.

This week: Hire a business attorney to conduct due diligence. They can run a UCC lien search and review all material contracts.

4. How Will the Purchase Be Structured: Asset or Stock Sale?

This is a critical tax decision. In an asset sale, you buy the practice’s assets (equipment, patient records, goodwill) and typically leave liabilities behind. In a stock sale, you buy the entire entity, including all liabilities. For most midwifery practices, an asset sale is cleaner and offers more tax benefits because you can step up the basis of depreciable assets. However, a stock sale may be simpler if the practice is an S-corp or LLC. Discuss with your CPA which structure minimizes your tax burden and risk.

This week: Ask your accountant to model both scenarios. Compare the after-tax cost of each structure, including any transfer taxes.

5. What Is the Patient List Worth, and How Will It Be Transferred?

The patient list is often the most valuable asset, but its tax treatment depends on how it’s classified. If it’s considered goodwill, you amortize it over 15 years. If it’s a separate asset, you might be able to deduct it faster. Also, confirm that the seller will provide a complete, HIPAA-compliant list of active patients, and that you’ll have access to their records. Ask about patient retention rates and how the seller will introduce you to patients.

This week: Request a de-identified patient count and revenue per patient for the last 12 months. Use this to estimate the list’s value and negotiate.

6. What Is the Real Value of the Equipment and Lease?

Midwifery practices often have specialized equipment like fetal monitors, ultrasound machines, and exam tables. Get an independent appraisal to determine fair market value. Also, review the lease for your office space. If the lease is above market rates or has unfavorable terms, it could eat into your profits. Ask if the lease is assignable and what the rent escalation clauses are.

This week: Hire an equipment appraiser (cost: $500-$1,500) and ask to see a copy of the lease. Compare the rent to similar spaces in the area.

7. What Are the Seller’s Post-Sale Plans?

Will the seller stay on for a transition period? If so, how will they be compensated? If the seller becomes an employee or contractor, that has payroll tax implications. Also, ask about any non-compete and non-solicitation agreements. A non-compete prevents the seller from opening a competing practice nearby, and its value is amortizable over the term. Make sure the terms are reasonable and enforceable.

This week: Draft a transition services agreement that outlines the seller’s role, duration, and compensation. Include a non-compete clause that lasts at least 2 years and covers a 10-20 mile radius.

FAQ

Q: Can I deduct the purchase price of a midwifery practice? A: You cannot deduct the full purchase price in one year. Instead, you depreciate or amortize the assets over their useful lives, typically 5 to 15 years. For example, equipment is depreciated over 5-7 years, and goodwill is amortized over 15 years.

Q: What happens if the seller has unpaid taxes? A: In an asset purchase, you generally are not liable for the seller’s taxes, but if you buy the stock, you may be. Always get a tax clearance certificate and include indemnification clauses in the purchase agreement.

Q: Should I buy the practice as an LLC or S-corp? A: It depends on your overall tax situation. An LLC offers flexibility, while an S-corp can save on self-employment taxes. Consult with a CPA to determine the best structure for your practice.

Q: How long does the due diligence process take? A: Typically 30 to 60 days. This includes reviewing financials, tax returns, contracts, and equipment appraisals. Don’t rush this step; it’s your best protection against costly surprises.

The bottom line

Buying a midwifery practice is a significant investment, and the tax implications can be complex. By asking these 7 questions before you buy, you can avoid inheriting tax problems, negotiate a fair price, and set up your practice for financial success. Work with a CPA and an attorney who specialize in practice purchases. Take the first step this week by requesting tax clearances and an equipment appraisal. The time you spend now will save you thousands later.