Dental and Medical Counsel Blog

Due Diligence When Purchasing an Optometry Practice

May 7, 2022
opto office

Purchasing an optometry practice that is already operating with an established client base can be exciting and daunting all at the same time. There are rewards and drawbacks. You need to be sure to do your due diligence before signing the purchase contract. This is the only way to avoid unpleasant surprises when you take over the practice.

What Does Due Diligence Mean?

Due diligence is the process of investigating every aspect of the practice to confirm it is what the seller has represented it to be and that it is a practice that you want to buy. This includes checking out everything from the demographics to the cash flow. It involves:

Financial due diligence. You evaluate every piece of financial information to be sure the practice will provide you with the income you expect and pay the overhead expenses of running the practice. You also want to be sure that there are no outstanding bills that will take you by surprise.

Practice management due diligence. You want a practice that is managed in a way that is consistent with your style and expectations.

Legal due diligence. You need to make certain the practice has followed all local, state, and federal licensing requirements and regulations.

Some information you gather may belong in more than one category.

Who Performs Due Diligence and When is it Done?

The onus of conducting due diligence falls on the shoulders of the buyer. It takes place after the acceptance of the letter of intent (LOI) but before the purchase agreement is signed. The seller is obligated to provide all the requested information to the buyer.

There are some buyers who believe they can conduct due diligence on their own. Most employ the services of a professional company, like Dental & Medical Counsel, that is experienced in conducting this process. DMC has a team of professionals, including accountants and attorneys, who know what to look for.

In conducting due diligence, DMC is efficient and thorough. DMC offers a free consultation to discuss this with you. You can also download DMC’s complimentary White Paper on “The Top 10 Pitfalls to Avoid When Purchasing an Optometry Practice.”

What is Financial Due Diligence?

Financial due diligence is the process of reviewing every available piece of financial information to be sure the practice is what it has been represented to be. This includes reviewing:

  • Tax returns from the last two to three years.
  • Bank statements from at least two years, preferably three.
  • Profit and loss statements for two to three years.
  • General ledger to review for cash flow and outstanding collections.
  • Equipment inventory records. This includes lab equipment and office furniture. Will any item need to be replaced now or shortly after you purchase the practice?
  • Lab, lens, and frame inventory records, including contact lens inventory.
  • Amount of the monthly lease or mortgage payment and is it reasonable for the area?
  • What are overhead costs? Get a list of all expenses. Including costs of supplies, monthly payroll, advertising costs, maintenance fees for equipment, laboratory fees, and any vendor fees.
  • Staff salaries and benefit plans including funding of any 401k plan. Check to see how vacation time is accrued and how this will be paid for if an employee quits or is terminated after you take over the practice.
  • What is the value of the goodwill of the practice?
  • Review the accounts receivable. Check out when and how patients pay. Does the practice in general have a high outstanding accounts receivable balance? You want to beware of a practice where patients are not paying for the services rendered and collections are not pursued.

What is Legal Due Diligence?

The legal due diligence process involves reviewing all legal documents, contracts, licensing requirements, vendor contracts, and any legal document pertaining to the optometry practice. Some specific documents you need to analyze include:

  • Local, state, and federal licensing requirements for the practice to be sure the practice is legally compliant.
  • Check employee salaries and benefits packages. Are they compliant with state and federal minimum wage requirements and other wage/benefit laws?
  • Is there an employee handbook? Is it adequate to meet legal requirements? Do employees stay with the practice for long periods of time, or is there a high employee turnover rate? If a high turnover rate, are you able to talk to any employees to find out why?
  • Review all leases and other contracts, including the lease for the space. Are there any restrictive covenants? If so, are they ones you are comfortable with?
  • Review leases for equipment, and vendor contracts. Are you committed to using certain vendors for a long period of time, or will you have the option to consider other vendors?
  • Are the business name and intellectual property registered as required by law? If not, is it possible to do this? If so, how much will it cost you, and do you want to deduct this cost from the purchase price of the practice?

What is Practice Management Due Diligence?

If possible, spend some time in the office itself. Learn how it runs. Talk to associates and other employees if you can. Check first with the seller. Some sellers do not tell their employees of their plan to sell the practice, so you want to be sure to get authorization from the seller before talking to the employees.

If you can talk to the employees, find out how they feel about the practice. Are they expecting to stay with the practice when a new owner takes over? Will you want them to? If they plan to leave, try to find out why.

Other information you want to glean includes:

  • Does the seller have any plan to stay with the practice for any length of time?
  • Are there associates? If so, why is not one of them purchasing the practice?
  • Is the physical space how you envision it or will you want to do any remodeling?
  • How many patients are seen every day? Are they private pay patients or on some type of government aid like Medicaid? If on Medicaid, will you need to see a high volume of patients to generate enough income, or is there a good mix of private pay and government pay patients?
  • Is there a high volume of patients who require you to bill their insurance? Is this billing process done efficiently so collections are prompt?
  • Is the practice in a location where it is easily accessible to walk-ins? If so, is this what you want your practice to be like?
  • Review demographics of patients. Are they mainly young or old? Primarily children or adults? Are they within the demographics you hope to work with?
  • Are you comfortable with the mix of patient needs? For example, is the practice more focused on contact lenses when you prefer to prescribe glasses?
  • Review employee contracts, benefits packages, and handbooks. Are you comfortable with what is represented there? What is the employee turnover rate? If high, can you discern why?
  • Are there any problems with the building structure and physical arrangement you are not comfortable with or that need to be fixed?
  • Are there any logistics that may prevent prospective clients from reaching the practice, such as a far walk from the parking lot, a difficult parking lot to access, or any other apparent roadblocks?
  • What is the likelihood of patients leaving the practice when ownership is transferred to you, a new owner?

Professionals at Dental & Medical Counsel are Experienced in Conducting Due Diligence for the Purchase of Professional Optometry Practices

Purchasing an established optometry practice may be rewarding or devastating. It all depends on your due diligence.

At Dental and Medical Counsel, we are proud to be one of the most trusted law firms that optometrists use when they are buying an optometry practice. When you are ready to learn more, the optometry attorney team at Dental and Medical Counsel is available to help. Contact us to set up a complimentary consultation with, award-winning attorney, Ali Oromchian.

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Dental & Medical Counsel is committed to helping doctors avoid legal pitfalls. We take care of the legal stuff so you can take care of your patients. Our passion is to help you traverse the legal landscape and it is a job we take very seriously. We provide a wide range of services, including practice transitions, partnerships, employment agreements, employment law, lease reviews, real estate purchases, estate planning, trademarks, incorporations, and more. We can’t wait to work with you!


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