Dentists considering the purchase or sale of a clinical practice face a range of complex decisions. Whether the proposed transaction is with an individual licensee, group practice, or dental service organization (“DSO”), it is important to conduct robust due diligence to evaluate the opportunity and mitigate any identified risks.
Evaluating Financial Health and Patient Base
A critical first step is to review the financial health of the practice. This includes analyzing the practice’s revenue streams, expenses, profitability, and outstanding debts. It is likewise important to evaluate the size and demographic composition of the patient base, retention rates, and referral sources. These factors directly impact the ongoing viability and growth potential of the practice.
Assessing Operations and Legal Compliance
Operational due diligence involves examining the practice’s day-to-day management, staffing, technology, and workflow efficiency. Assessing regulatory compliance includes, among other things, a review of the underlying practice structure, as well as any pending or past legal issues. Identifying operational strengths and weaknesses, as well as compliance risks, can help avoid costly surprises post-transaction.
Valuation and Negotiation of Terms
Obtaining an accurate assessment of value from a reputable valuation firm is fundamental to any transaction. Thereafter, negotiation of the purchase price, payment terms, and transition arrangements will align the parties’ expectations. Attention to details, such as allocation of work-in-progress and any necessary “redoing” of previous work helps to minimize future disputes. If the owner of the target practice is retiring, the likely impact is lower patient retention rates. It is also important to take into consideration whether any associate dentists of the target practice are subject to employment contracts and/or restrictive covenant agreements.
Understanding Governing Documents
Finally, it is essential to review and understand the practice’s governing documents, e.g., shareholders’ agreements or operating agreements, which outline ownership rights, decision-making processes, and dispute resolution mechanisms, all of which can significantly impact the transaction and future operations.
How Frier Levitt Can Help
Dentists contemplating a practice transaction should approach the process with a comprehensive due diligence strategy. Frier Levitt attorneys are experienced in counseling dentists through a variety of transactions and transitions. For more information, contact us to speak with an attorney.
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