When looking to purchase a dental practice, there is a lot of due diligence you need to consider. You are making quite possibly the largest purchase of your life, and you need to make sure what you are purchasing is what is being presented. Here are just a few things to consider:
Financial Review
Profit and Loss Statements: Analyze at least 3–5 years of financial statements to assess revenue trends, expenses, and profitability.
Tax Returns: Review tax filings to verify the financial data.
Accounts Receivable: Evaluate the outstanding accounts receivable and their collectability.
Production Reports: Examine production by provider (e.g., dentist vs. hygienist) to understand revenue drivers.
Fee Schedule: Compare the practice’s fee schedule to regional averages.
Debt Obligations: Assess any loans or leases associated with the practice.
Operational Review
Patient Base:
Number of active patients (typically seen within the last 18–24 months).
New patient flow per month.
Retention rates and demographics of the patient population.
Service Mix: Understand the types of procedures performed and potential for growth.
Staff Review: Analyze staff roles, tenure, salaries, benefits, and employment agreements.
Office Hours and Productivity: Review hours of operation and the schedule's efficiency.
Legal and Compliance Review
Licenses and Certifications: Verify that all licenses and certifications are up to date and transferable if needed.
Contracts:
Lease agreements for the premises.
Vendor contracts.
Employment agreements with staff.
Regulatory Compliance: Ensure compliance with HIPAA, OSHA, and other applicable regulations.
Facility and Equipment
Condition of Equipment: Inspect dental chairs, X-rays, and other major equipment for wear and tear.
Technology: Review the practice management software and any other tech infrastructure.
Facility Lease: Understand the lease terms, including renewal options, and whether the location is desirable.
Inventory: Check the supplies and materials included in the sale.
Market Analysis
Competition: Assess the level of competition in the area.
Market Potential: Understand the population growth and potential for practice expansion.
Referral Patterns: Evaluate how the practice acquires new patients.
Transition Plan
Seller Involvement: Discuss whether the seller will assist in transitioning patients and staff post-sale.
Non-Compete Agreement: Ensure the seller agrees not to open a competing practice nearby.
Staff Retention: Plan for retaining key team members to ensure continuity of care.
Practice Valuation
Appraisal: Obtain a professional valuation of the practice to ensure the asking price is reasonable.
Comparison: Compare the purchase price with similar practices in the area.
Legal and Financial Advisors
Retain experienced legal and financial advisors to review all documents and negotiate terms.
By addressing these aspects during due diligence, you can minimize risks and position yourself for a successful dental practice acquisition.
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