If you are purchasing a dental practice, whether it’s as an asset purchase, a practice merger, or a stock purchase, you need to ensure you do your due diligence. What is due diligence? It’s in-depth research and investigation into your practice’s financial records.
When you perform your due diligence, you gain a better understanding of your dental practice and, subsequently, a fair price of your healthcare business for sale. Depending on the outcome of your research, you may want to include specific seller obligations in a proposed letter of intent.
Here are a few items you should consider prior to agreeing to purchasing a dental practice.
Performing Legal Due Diligence
Corporate or LLC Documents
When you encounter a dental practice owned by a professional corporation, you need to review the Certificate of Incorporation, Good Standing Certificate, By-Laws, the minutes from shareholder agreements, and any other outstanding agreements.
If the practice is owned by a limited liability company or LLC, then you need to review the Articles of Organization, Good Standing Certificate, Operating Agreement, the minutes of membership meetings, and the Manager’s Agreement.
Agreements
Reviewing Major Contracts: you must review all agreements, including non-compete agreements, associate agreements, intellectual property or licensing agreements, and equipment leases.
Real Estate: You need to review all real estate agreements including lease agreements, purchase sale agreements, surveys, title insurance policies if you are purchasing real estate property. You also need to determine if any type of consent is required for the contemplated dental transaction.
Licenses and Permits
Determine if the dental practice is required to maintain certain state, local or federal licenses and/permits. If so, you will need to obtain a copy of all licenses and permits in order to proceed to the next step in purchasing your dental practice.
List All Major Assets and Liabilities
Before the sale, you need to know exactly which assets you are purchasing. You also need to know all liabilities that come with the practice.
In eyeing a healthcare practice for sale, assets may include but are not limited to cash, securities, equipment, intellectual property (like trademarks, patents, copyrights, domain names, etc.), accounts receivable, notes, real estate property (both leased and owned), and inventory.
Liabilities will include employee benefits and bonuses earned, bank debt, threatened and pending lawsuits, licensing violations, etc.
Patient Complaints
It’s a good idea to search the internet for reviews of the dental practice. Sites like Google Reviews will likely have patient reviews, both negative and positive. Also, research whether or not the dental practice seller has had any board complaints or if they are on probation.
UCC Liens
Having your attorney perform a UCC-1 lien search is one of the most overlooked parts of the due diligence process. Make sure you ask your attorney to perform a UCC lien search immediately after the Letter of Intent is signed.
Performing Financial Due Diligence
Tax Returns
Ensure you review the practice’s tax returns for federal, state and local taxes going at least three years back.
Financial Statement
For any healthcare business for sale, you need to have the owner provide you with detailed financial statements for the past 3 to 5 years.
Tax Liens
Have your attorney review all tax liens that may have been filed on any assets owned by the practice.
Performing due diligence is critical when you are ready to purchase a general dental practice for sale. If you need help, the dental practice brokers at Aptus Exchange are ready to assist you.
