Why Due Diligence Matters
So, you’ve found a dental practice that seems like a perfect fit—great location, solid collections, loyal patients. The numbers look promising, and the seller seems trustworthy.
Now it’s time for due diligence—the phase where you verify everything you’ve been told before finalizing the purchase.
- Think of due diligence as your opportunity to “look under the hood” and confirm that the practice is everything it appears to be.
In this post, we’ll walk you through the key areas every buyer should review so you can move forward with confidence—and avoid surprises after closing.
Financial Statements and Tax Returns
Start by requesting the past 3 years of:
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Profit & Loss Statements
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Tax Returns (Federal)
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Production and Collection Reports
Look for:
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Trends in revenue and expenses
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Consistency between tax returns and internal reports
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Profitability after adjusting for seller’s perks (owner add-backs)
Pro Tip: Have a dental CPA help you interpret the numbers—especially to calculate adjusted EBITDA or cash flow.
Patient Base and Production Mix
You’re not just buying numbers—you’re buying patient relationships.
Review:
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Number of active patients (typically defined as those seen in the last 12–24 months)
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New patient flow
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Procedure codes and production by type (restorative, hygiene, specialty, etc.)
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Treatment referred out (growth opportunity!)
Ask: Is this a recall-driven practice or one dependent on new patient flow?
Hygiene Program and Recall System
The hygiene department is often the lifeblood of a general dental practice.
Request data on:
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Hygiene production as a % of total production
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Recall scheduling systems
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Frequency of continuing care visits
Strong hygiene = stable recurring revenue.
Fee Schedules and Insurance Participation
Review the practice’s:
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UCR fees (Usual, Customary, and Reasonable)
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PPO participation and reimbursement rates
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In-network plans and potential credentialing needs
Compare fees to regional benchmarks.
Ask if there are opportunities to drop low-paying plans post-sale.
Staffing and Payroll
A great team can make or break your first year of ownership.
Request:
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Staff roster with roles, hours, and length of employment
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Compensation and benefits
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Employment agreements or contracts
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Any known issues with morale or turnover
Be sure to factor salaries and benefits into your cash flow projections.
Lease, Real Estate, and Equipment
If the practice is in a leased space:
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Review the current lease agreement
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Check for assignment clauses or landlord approval requirements
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Understand rent escalations and renewal options
If the real estate is for sale:
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Get an independent appraisal
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Consider whether owning or leasing makes more sense
Also inspect:
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Equipment age and condition
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Digital vs. analog systems
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Technology you may want to upgrade
Legal and Compliance Review
Have your attorney review:
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Corporate structure and ownership
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Licensure and permits
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HIPAA compliance and record keeping
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Any pending legal issues, claims, or audits
It’s rare—but not unheard of—for legal or compliance concerns to surface during diligence. Better to uncover them now.
Watch for Red Flags
Be alert to signs of concern, such as:
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Drastic year-over-year revenue drops
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Incomplete patient records
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Over-reliance on high-production procedures
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High staff turnover
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Unusually low net income despite high collections
These don’t always mean a deal-breaker—but they require deeper investigation.
Do the Work Now, Avoid Regret Later
Due diligence isn’t the most exciting part of buying a practice—but it is one of the most important. It’s your chance to validate the opportunity, reduce your risk, and plan your transition with eyes wide open.
The more thorough your review, the smoother your ownership journey will be.
Need Help Navigating the Due Diligence Process?
At American Practice Consultants, we specialize in helping buyers assess practices from every angle—financial, operational, and clinical. Let us help you make a confident decision.
Contact us today to schedule a confidential buyer consultation.