When you are considering the purchase of a dental practice, after signing a Non-Disclosure Agreement, you will ordinarily be provided with an initial packet of information.
If the sale is being handled by a dental practice broker, that packet will ordinarily be pretty complete. If the dentist is trying to sell the practice without a broker, you may not be given a complete packet of information, so you may have to request what you need.
Usually you will be provided with Profit and Loss Statements for the past 3 years and a Year-to-Date Profit and Loss Statement for the current year.
Also, you will be given production reports for the last 3 years showing charges and collections for each procedure by ADA code. You should receive an Accounts Receivable Aging report, information about the employees, a Fee Schedule, patient demographic information, and often a questionnaire completed by the Seller providing background information about the seller and the practice. Tax returns may be included but often are provided when you are seeking financing for the purchase.
A review of this information by you and your accountant or other representative along with an office visit and a meeting with the Seller will often be sufficient enough to encourage you to make an offer to purchase the practice. Your chances of having your offer accepted is enhanced if you also have preliminary financing approval.
If your offer is accepted an Asset Purchase Agreement (APA) or other sale document will be prepared and a closing date for the purchase of the practice will be agreed upon.
As part of the APA, you will be granted a period of time after the APA is signed and before the closing date, to perform “Due Diligence” with respect to the practice.
Due Diligence Details
As stated in our Dental Buyer’s Guide, this is an important – possibly crucial – element to purchasing any practice. It is the process by which you learn all you need to know about the practice before purchasing or investing in it, in order that your decision to do so is an informed and wise one.
Individual situations will vary but most often, Due Diligence will include a review by you of the patient charts. You need to see how the dentist keeps his or his dental records and treatment plans. For some of you, it will be the first time you have ever looked at a paper chart!
Due Diligence would also include a review and inspection of the practice equipment.
- Does everything work?
- Has the equipment been well maintained?
- What additional equipment will you need?
The help of an equipment salesman can be a big help here.
A thorough review of the financial information with the help of your accountant should be part of this review. Some of this work will have been done prior to your offer.
Download Our Free Buyer’s Guide
Clearly, there is a lot to be done in this phase of the process – more than we can cover in a short article.
Fortunately, the Otten-Rey Dental Practice Buyer’s Guide has detailed checklists to help you and your advisors with this vital aspect of the purchase of a dental practice. Click the link to download your free copy.