Let’s say there’s a young doctor whose goal is to own a dental practice. She found a general practice where the current owner is preparing to retire and sell 100% to her. The practice is in an area she loves, and she strongly respects the owner and the business he has built.

The caveat: this is a life-altering decision. This young doctor is moving away from the state she grew up in, away from her family and friends to start a new chapter and become a business owner. Couple that with the significant financial implications of purchasing a practice, it’s not a decision to be taken lightly. While she feels ready to move forward with this opportunity, she wants to be absolutely certain that she’s making the right choice.

How can this doctor, or any individual, looking to purchase a practice confirm that the opportunity is not only profitable, but aligns with their personal and professional goals? This is where the due diligence process comes in.

In dental practice transitions, due diligence involves researching and analyzing pertinent information about the seller and the practice, allowing the buyer to be better equipped to make an informed decision and move forward with certainty.

It can be a lengthy, complicated process that requires significant effort from all parties, but the goal is to ensure you—the buyer— trusts what is being presented by the seller.

Types of Information to Consider

The due diligence process allows you to look at sensitive financial documents, such as tax returns, production/collection reports, profit and loss statements and other applicable practice metrics.

To understand the full picture and make an informed decision about your next move, doing your due diligence on the practice involves interpreting these documents and looking at the following key factors.

Overall Practice Health: To better understand the overall practice, you’ll want to look at practice overhead, operational profitability, production by provider (doctor and hygiene), collection ratio, practice performance in recent years, current fee schedule, insurance mix, details on the practice’s referral network, number of operatories and practice location’s curb appeal and visibility.

Patients & Staff: When looking at the current patient base and the team of staff members, the type of factors to consider include active patient count, average patient age, average number of new patients over the last 12 months, where those patients are coming from, the referral network, dentist-to-population ratio in the city and surrounding area, number of staff members and their roles, key staff who are close to retirement age, benefits offered to existing staff and spouse involvement in the practice.

Partnership: If buying into a practice, as opposed to an outright sale, you should assess factors such as the percentage of the practice being purchased, legal structure, how the money will be split, how you will ultimately exit the deal, how the schedule is shared, how new patients are assigned and how decisions are made.

Orthodontic-Specific: For orthodontic practices, this requires additional due diligence. You may seek orthodontic-specific information, such as the contracts receivable balance, conversion rate from new exams to starts, case start types (phase 1, phase 2, observations, debanding, etc.), patient financing options and ratio of Invisalign to traditional bracket and wire patients.