If you are an associate dentist or recent dental school graduate who is thinking about purchasing a dental practice instead of starting your own from the ground up, you must perform a thorough due diligence investigation into the financial, legal, and practice management aspects of the practice before you sign final documents. You do not want to face any unpleasant surprises when the ink on the purchase agreement is dry and the practice is officially your own.
Your due diligence work begins after your letter of intent to purchase has been accepted, but before you enter into and sign a purchase agreement.
There are three types of due diligence that must be conducted when you are buying a practice:
An experienced dental practice management consultant can conduct the practice management due diligence necessary to confirm that the operational aspects of the dental practice meet your expectations. You want the practice management issues to be exactly as the seller represents them to be. Consult this checklist to guide you through an in-depth practice management due diligence analysis.
Most tasks can be performed by the consultant. Some tasks, like an in-person visit to the dental office and discussion with the selling dentist, you may want to personally perform or perform with your legal representative in attendance with you.
Make a personal visit to the office. A personal visit to the office is important for many reasons. It is an opportunity for you to discuss with the seller the reasons for selling the practice. What are the expectations of the seller for the practice after the sale? Does he or she expect to stay on in the practice part-time? Is the selling dentist retiring? Discovering this at this stage can avoid future misunderstandings.
This is a good time to personally view the operatories and determine if the physical description of the office is as it has been presented. You can inspect the equipment and compare it to an itemized list prepared for you by the seller.
Make sure the equipment is all in good working order. When was it last updated and when will it need to again be updated? Be sure your dental attorney has copies of all maintenance contracts for review.
This is a time for you to discuss the seller’s patient care philosophies to be sure the two of you have a similar outlook. This will help you determine whether the practice will be a good fit for you.
This is also a good time to check out the practice management software to confirm the accuracy of the patient count and other practice management information provided to you by the seller.
Review the appointment book. There should be active returning patients as well as new patients. This information gives insight into the historical and future business potential of the practice. This overlaps with financial due diligence in that it also provides information on the cash-flow of the practice. It is also very important to review the recall system to determine how many hygiene patients are pre-appointed and other details related to the hygiene department.
Check the new patient in-flow. Has the owner reduced his or her own clinical time and not accepted new patients as he or she prepares to sell the practice? If so, this can present a problem. A new patient inflow of 20-30 patients a month is an indication of a viable practice. If the practice is accepting only a few new patients each month, this may require an investment in marketing programs.
Conduct a chart audit. Reviewing active patient charts and reading the seller’s notes can give valuable insight into the type of treatment that is generally provided as well as the practice philosophy. Determining the time frame between each patient's visits gives you a picture of the patient base that you will be purchasing and verify you have been given an accurate active patient count. Other important aspects of the practice the audit can assist you with include:
Look at the fee schedule. Is it consistent with what you know about fees in the area? When was the last fee schedule updated and how often in general are fees increased?
Equipment inspection and inventory. You should request a room-by-room equipment list and inspect each room to be sure the equipment is as itemized and in good working order. Assess all hand instruments and usable clinical supplies. Determine how all office supplies are provided and who in the office is responsible for reordering and making sure the ordered supplies arrive and are put away. Is this done on a routine automatic basis, or is it done on an as needed basis?
Determine how the practice recruits new patients. If it is a specialty practice, is there a list of referring dentists? If not, how are new patients brought into the practice? Is there any type of routine marketing plan?
Is there potential for expanding the practice? This means evaluation of whether operating hours can be increased, whether fees can be increased, or whether services can be added that are not currently being provided.
Is there potential for reducing routine expenses? Although this overlaps with financial due diligence, there may be practice management reasons that dental labs or dental supply companies should not be changed. Have there been unpleasant experiences with other similar companies?
Evaluate employee staff: who is staying, who is going, and why? Identify team members who will be staying with the practice and determine the strengths and weaknesses of each one. Ask what each specific employee contributes to practice management. Why are some staff members leaving the practice at the changeover? Have there been any complaints against staff members and if so, how have those complaints been resolved?
Have an understanding of ongoing expenses. There are expenses that relate to practice management which you need to be aware of and know how they are currently being handled. This includes things like:
Understand Invisalign or orthodontic cases that the seller performed. When it comes to orthodontics, it is very important that you analyze how patients paid the seller for their treatment, how much treatment is left and who is expected to finish it and who is responsible if the patient is unhappy and wants to continue their treatment.
How does the practice handle patient credits? The best way to handle this is to be sure the seller refunds all patient credits prior to the close of the sale. Although this should be an ongoing process, credit refunds often slip through the cracks. How these will be handled must be resolved before the sale is finalized.
Dental and Medical Counsel is proud to be one of the most trusted law firms that dentists use when they are buying a dental practice. Ali Oromchian and our team of dental attorneys can answer any of your questions and assist you with all aspects of practice management due diligence when you decide to purchase a dental practice, and can introduce you to reputable consultants to assist you.
Stay updated with industry news!
