Dental Practice Due Diligence Checklist for Buyers

By Spiro Leunes, CPA | CEO, MRL Advisory Group – New Jersey and New York Dental CPAs

When looking to buy or build dental practice, there is a lot of due diligence you need to consider. We will focus on the due diligence of purchassing a practice. 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

1. Profit and Loss Statements: Analyze at least 3–5 years of financial statements to assess revenue trends, expenses, and profitability.

2. Tax Returns: Review tax filings to verify the financial data.

3. Accounts Receivable: Evaluate the outstanding accounts receivable and their collectability.

4. Production Reports: Examine production by provider (e.g., dentist vs. hygienist) to understand revenue drivers.

5. Fee Schedule: Compare the practice’s fee schedule to regional averages.

6. Debt Obligations: Assess any loans or leases associated with the practice.

   
   

Operational Review

1. 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.

2. Service Mix: Understand the types of procedures performed and potential for growth.

3. Staff Review: Analyze staff roles, tenure, salaries, benefits, and employment agreements.

4. Office Hours and Productivity: Review hours of operation and the schedule's efficiency.

   
   

Legal and Compliance Review

1. Licenses and Certifications: Verify that all licenses and certifications are up to date and transferable if needed.

2. Contracts:

   • Lease agreements for the premises.

   • Vendor contracts.

   • Employment agreements with staff.

3. Regulatory Compliance: Ensure compliance with HIPAA, OSHA, and other applicable regulations.

   
   

Facility and Equipment

1. Condition of Equipment: Inspect dental chairs, X-rays, and other major equipment for wear and tear.

2. Technology: Review the practice management software and any other tech infrastructure.

3. Facility Lease: Understand the lease terms, including renewal options, and whether the location is desirable.

4. Inventory: Check the supplies and materials included in the sale.

   
   

Market Analysis

1. Competition: Assess the level of competition in the area.

2. Market Potential: Understand the population growth and potential for practice expansion.

3. Referral Patterns: Evaluate how the practice acquires new patients.

   
   

Transition Plan

1. Seller Involvement: Discuss whether the seller will assist in transitioning patients and staff post-sale.

2. Non-Compete Agreement: Ensure the seller agrees not to open a competing practice nearby.

3. Staff Retention: Plan for retaining key team members to ensure continuity of care.

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Practice Valuation

1. Appraisal: Obtain a professional valuation of the practice to ensure the asking price is reasonable.

2. 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.

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By addressing these aspects during due diligence, you can minimize risks and position yourself for a successful dental practice acquisition.

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