Due diligence is the procedure that a buyer will embark on to acquire details about the dental practice that they wish to purchase. This process helps the buyer understand the practice in more detail to assure that it is a viable practice.
Before making a life change as significant as buying and running a dental practice, it's crucial to do your research. A due diligence period allows you to investigate the practice you're considering buying. Due diligence is when you look deeply into the practice you're thinking of buying. Here are the major things you should take care of:
- Determine if the practice to be purchased is worth the price being asked
When you're looking at a potential practice, you should look carefully at its current finances. Look at its profit and loss (P&L) statements from the past three years to get a true sense of how profitable the practice is.
You should also look at the practice's monthly cash flow statements, accounts receivable ledger, accounts payable ledger, and cash receipts ledger to get a complete picture of the practice's finances.
You need to:
- Examine the practice's revenue
- Examine the practice's expenses
- Examine the practice's earnings
- Examine the practice's receivables
- Examine the practice's efficiency
- Examine the practice's patient base
- Examine the practice's equipment
- Examine the practice's reputation in the community
- Evaluation of all office systems to determine strengths and weaknesses
Before purchasing a dental practice, it is important to make a careful evaluation of all office systems to identify the practice's strengths and weaknesses. A few of the things that should be evaluated include internal and external marketing, online presence, financial and insurance information, scheduling and appointment system, hygiene department, etc.
- Evaluate staff (if possible). Interview seller doctor
The dental practice's seller should be willing to meet with the buyer's doctor(s). This is a great opportunity for everyone to get to know each other, along with discussing the best transition plan. This also allows the doctor(s) to understand the buyer's expectations, goals, and aspirations.
Interviewing the seller doctor about staff can be an excellent way to learn more about the practice. The seller doctor may have great insight into the staff.
- Develop an Action Plan to proceed
Once you have completed your due diligence, it is now the time to close the deal. The dental transition process is fairly straightforward, but closing the deal does take some work.
You'll need the following items:
- A purchase agreement from the dental practice owner
- The dental practice owner's consent and signature on the purchase agreement
- Proof of funding
- A buyer profile
- A buyer's guide
Once you've finalized the deal, you'll need to hire a dental CPA to complete the acquisition documents.
After due diligence and closing the deal, develop a plan to begin the transition process and ensure that everything goes as planned.
Need help with dental due diligence? Call us at (714) 293-2195