Understanding the Balance Sheet during Due Diligence

Balance sheet due diligence is not typically a major part of due diligence in a dental practice purchase. But that doesn’t mean it’s not important.

Understanding the balance sheet of the practice you’re buying is a necessary step, though it’s one that rarely turns up any worrying issues.

Luckily, you don’t have to do it. 

It has to be done, but it’s your accountant and your banker who will do the heavy lifting here.

When you apply for a dental practice purchase loan, the bank will handle many of the aspects of financial due diligence in order to protect their interest. Banks love loaning to dentists because it’s an extremely low-risk loan for them—as long as the practice you’re buying is in good shape.

Balance sheet due diligence is all about understanding the assets and the liabilities of the practice in question. What does the practice have, and what does it owe, and to whom? It’s unusual for a dental practice to owe a bunch of money, but it does happen occasionally.

Maybe they owe money on equipment or supplies, maybe to patients in the form of patient credits, maybe even to the IRS. If the seller hasn’t owned the practice for very long, they may still owe money on their own practice loan. The banker will do a lien search to look for any of these potential issues. If they find anything, it will affect the purchase price as well as how much the seller takes home.

So while it’s rare that balance sheet due diligence turns up anything surprising, it does sometimes happen, and is absolutely necessary. It’s an easy step for you, though, especially if you’ve put a great team around you. If you hire us, then between Dental Buyer Advocates and your banker (we can make some great recommendations there) you’ll be in good hands.