How to Perform In-Person Due Diligence on a Dental Practice

When you buy a dental practice, you’ll need to do in-person due diligence in addition to scrutinizing the financial aspect of the business.

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Why In-Person Due Diligence Matters

Your team of advisors (accountant, banker, attorney) can do a lot of the financial due diligence needed. Most of the in-person footwork will be up to you. 

In-person due diligence gives you many of the details that you can’t get from the practice’s financials. You’ll get a real sense of how the practice is run, and whether you and the seller are aligned on approach—an overlooked but important factor. 

You’re planning to be running this practice for a good many years, and this is your chance to make sure you’re going to like it. 

Evaluate the Seller

How you connect with the selling doctor can be a huge indication of how the transition will go and how you can anticipate your integration into the office post-sale may be. 

You don’t need to be best friends with the seller, but you should mesh well together in a couple of ways: seriousness about the sale and clinical cohesion.

  1. Assess retirement readiness. Sincere sellers ensure smoother transitions. Beware sellers who aren’t ready to retire but are seeing a payday.
  2. Verify clinical alignment. Avoid clashes in diagnosis and treatment philosophy. You want a smooth transition from the selling doc to your management, and the best way to ensure that is to acquire from a dentist who aligns with your own approach.
  3. Evaluate rapport. Good personal chemistry enables compromises, which helps a lot with tricky negotiations.
  4. Probe motives and methods. This can reveal problems you’ll inherit, or can point to a clean hand-off.
  5. Review reputation and relationships. Well-liked sellers ease patient trust transfer and increase practice goodwill.

You Want a Ready-to-Retire Seller

So many times I’ve seen a seller ask top dollar for his practice and require that the buyer keep him as an associate for 5-10 years. 

These sellers are usually a bit of an emotional rollercoaster. One day they’re telling you all the things you want to hear:

  • “You’re the exact person I want to care for my patients” 
  • “I want to be out in 90 days” 
  • “How can I help move this along?”

Then another day they’re dragging their feet while hemming and hawing and saying things like:

  • “I just want to make sure this is right for both of us” 
  • “Well, maybe you should just come on as an associate for a bit before we proceed” 
  • “I think it would be easier for you if I stayed on for a few years”

This is the type of language that may set off some warning lights that the transition is likely going to take longer than you anticipated or may, in the worst cases, signal dishonesty.

Look For Alignment

Your clinical alignment with the seller matters hugely. Especially if they stick around as an associate post-sale, your treatment philosophies need to mesh.

You don’t want awkward moments where the seller underdiagnosed a condition that you identify upon examining the patient. This can undermine the patient’s trust in both of you. The seller looks negligent and you seem money-driven.

Patients trust the seller’s judgment after years under their care. If you prescribe expensive new treatment and the seller said everything looked fine before, patients may see you as just wanting to pad your bills.

But with shared diagnostic values, the transition can be smooth. The seller can retire easy knowing their patients are in good hands. And you avoid drama around conflicting treatment plans.

Bottom line: Clinical cohesion with the seller enables an ethical, trusting patient hand-off. Misalignment causes tension and erodes that trust. Assess your philosophies upfront to set the stage for harmony after acquisition.

Ask the Right Questions

If you don’t ask the right questions, you won’t get the right answers. Prepare in advance so you know what questions you want to ask the seller. Don’t be embarrassed to have them written on a card or in a notebook; you don’t want to omit anything critical.

Read our article on questions to ask the seller for a complete list of recommended questions, then add in some of your own. 

Meet the Staff

When buying a practice, you want the full behind-the-scenes scoop. And who better to provide it than the people who work there? Some sellers are hesitant to introduce you to employees before the deal goes through, but you should always jump at the chance when you can get it.

If you get to meet the staff, just do a few simple things. All it really takes is a little sincerity and being a good human. 

Learn their names and positions prior. Bring a box of donuts. Ask questions about themselves. Invite them to ask you questions.

What Should In-Person Due Diligence Cover?

Beyond meeting the staff and assessing seller fit, there are a whole lot of other things for you to take stock of when you visit the dental practice premises.

  1. Tour the office. Assess layout, condition of equipment and technology, cleanliness, patient flow, and OSHA compliance.
  2. Review facility needs: parking, signage, accessibility, room for growth.
  3. Evaluate supplies and inventory stocked.
  4. Assess office policies and procedures.
  5. Review HR policies and employee records.
  6. Examine patient records, care protocols, and quality of documentation.
  7. Analyze schedule: capacity, openings, wait times for appointments.
  8. Observe front office operations: phone etiquette, patient interactions, check-in/out.
  9. Sit in on hygiene and doctor exams.
  10. Tour storage areas: assess organization, security.
  11. Examine marketing materials and online presence.
  12. Discuss technology used: dental software, digital systems, data back-up.
  13. Evaluate patient demographics and referral sources.

Each practice is a bit different, so don’t treat this as a comprehensive list. Take some time to really get a feel for a practice and what makes it tick. Don’t be overly suspicious, but keep your eyes and ears open. 

Realize that no practice is perfect, so don’t be spooked every time you see room for improvement. In fact, “room for improvement” can often be your best friend, because it means you can increase profit margins or cut expenses after you take over.

Most of all, enjoy the experience. If all goes well, this will be your practice soon.

You Won’t Do Due Diligence Alone

With in-person due diligence, you’re the expert, so you’re front and center there. But when it comes to financial due diligence, you don’t have to do it yourself—you’ll have a whole team in your corner.

  • Your accountant will handle the financial due diligence, going through the practice’s records, looking at accounts payable, accounts receivable, overhead, and all the rest.
  • Most thorough of all is the bank due diligence. The bank does the deepest dive of all, checking bank records, pulling credit reports, and checking everything against IRS records. It’s the bank’s money on the line, after all, and they’re going to protect their investment.

If the thought of buying a dental practice sounds overwhelming, you’re not alone. There’s a lot to manage, from finding a practice to buy, through putting an accurate value on it, negotiating with the seller, getting financing, and finally closing on the practice.

We can help. We take hundreds of dentists every year through the path to ownership. Contact us for a free consultation. If you want a roadmap of the entire acquisition process, our 27-point checklist should be just what the dentist ordered.


Buying a Practice is a Big Decision

Brian Hanks helps dentists navigate the acquisition process, from due diligence through closing on a practice. Contact us for a free consultation, and give our practice acquisition checklist a look.

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Listen to this podcast episode to understand how and when to complete your due diligence.

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