Purchasing a dental practice can be exciting but also overwhelming. A financial checklist can help you protect your financial interests and legal rights. Ultimately, you’ll benefit from purchasing a dental practice that will be a financially sound investment.
When you choose Mahan Dental Law, you’re choosing peace of mind. Our legal team, in collaboration with financial experts, will guide you through every aspect of financial due diligence, relieving you of the stress and uncertainty that often accompanies such transactions. We’re here to ensure you make a sound investment in your future.
Conduct Financial Due Diligence
Our comprehensive financial due diligence process, conducted in partnership with a team of financial experts, is designed to leave no stone unturned. This thorough approach significantly reduces the risk of encountering financial difficulties post-purchase, giving you the security you need to move forward confidently.
Financial diligence is one aspect of the overall due diligence process focused on ensuring the practice will generate enough revenue to cover its liabilities. The dental practice needs to make enough revenue to cover its bank loan, overhead, salaries, lease, or mortgage while providing income. The experienced team at Mahan Dental Law works diligently to ensure our lients are well-equipped to begin working in their new dental practice on the first day they own the practice.
Discover the Dental Practice’s True Net Income and Net Profit
Calculating the true net profit and income is likely the most important aspect of conducting due diligence. The first step is to review all tax returns for the last two years and the most recent monthly profit and loss prepared by the seller or their accountant. After determining the net profit, an accountant should add back money from expense items you won’t be responsible for paying, such as the seller’s salary if the dental practice is incorporated, depreciation and amortization of dental equipment, and contributions to the seller’s retirement plan.
Although reviewing the most recent month’s profit and loss statement is important, you’ll need to carefully review at least two years of data to see a more accurate picture of the practice’s true net profit over a longer period.
Review the Dental Practice’s Collection Reports
After you’ve narrowed potential dental practices down to one, our team can help you carefully review the practice’s financial stability. We can help you confirm that the seller’s statements regarding annual revenue are accurate.
Reviewing the last two years of various financial statements and comparing the collections stated in each statement is crucial. The collection amounts stated in the following financial documents don’t need to be the same, but the amounts should be within 1 to 2 percent of each other:
- The management software’s collections summary
- Profit and loss statements within the general ledger
- Profit and loss statements prepared by accountants
- Bank statements
- Local, state, and federal tax returns
- Sales tax returns
Get a Realistic Picture of the Dental Practice’s Ongoing Expenses
Getting a realistic picture of the dental practice’s expenses is also important. Sellers may downplay some expenses to make purchasing the practice more appealing. You’ll need an in-depth understanding of all of the practice’s ongoing expenses, including, but not limited to, the following:
- Overhead
- Staff salaries
- Employee benefit plans
- Dental supplies
- Loans for equipment
- Property management and maintenance expenses
- Arrangements with third-party vendors
- Equipment warranty contracts
Check the Revenue from the Dental Practice’s Hygiene Department
Most dental insurance plans cover all or most dental cleaning fees twice yearly. As a result, the practice’s hygiene department should make up approximately 30 percent of the dental office’s total production. Expanding routine cleaning services will help you increase the net profit of the dental practice. It’s also important for patients to receive access to email and text information after purchasing the dental practice. You’ll be able to use this information to remind current patients to schedule their bi-annual dental cleanings.
Negotiate the Asking Price
When you work with Mahan Dental Law, we will consult financial experts to determine the true value of the dental practice you’re interested in purchasing. We’ll analyze the area’s market, including demographic data, market trends, and competitive practices. After determining the fair value, we will begin negotiating with the seller.
Flexibility and quick thinking during negotiations are key to reaching a favorable outcome. When you work with Mahan Dental Law, we will consult financial experts to determine the true value of the dental practice you’re interested in purchasing. We’ll analyze the area’s market, including demographic data, market trends, and competitive practices.
After determining the fair value, we will begin negotiating with the seller. Our negotiating strategies incorporate the seller’s motivation. For example, if the seller wants to retire soon, we’ll develop a strategy focused on their needs. We will also quickly inform you of any price negotiation updates so you can make decisions.
Carefully Review the Purchase Agreement with Your Attorney
Understanding your rights and responsibilities under the proposed purchase agreement is crucial and can significantly impact your decision to proceed with the sale. The agreement reflects important legal differences and approaches. For example, it will state whether you’re purchasing all of the assets of the dental practices without assuming all of the liability, a stock purchase, or a membership purchase.
The type of agreement will significantly impact the practice’s finances when you take ownership. Reviewing this agreement with a dental attorney to ensure you fully understand its implications and protect your interests is important.
Mahan Dental Law will negotiate to include indemnification clauses in the contract to protect you from undisclosed liability. We provide every client with a hands-on, personalized approach to reviewing, negotiating, and drafting purchase agreements. We’ll also ensure the agreement addresses concerns such as the transfer of employment agreements and patient records.
Purchasing a Dental Practice? Our Dental Attorneys Are Here to Help
Following a financial checklist for purchasing a dental practice can help you make an informed decision. The team at Mahan Dental Law can help you carefully review the dental practice’s profits, expenses, creditors, and other important financial information.
Our skilled attorneys will handle every aspect of the financial and legal due diligence process to ensure you’re well-protected. Don’t hesitate to contact Mahan Dental Law to schedule a complimentary, no-obligation case evaluation to learn more.
