Due Diligence for Buying a Dental Practice: Financial Guide

Define the exact purchase and review question

A proposed purchase may involve practice assets, an ownership interest, accounts receivable, equipment, real estate, contracts, debt, and transition obligations in different combinations. Record what is included, what is excluded, which entities are involved, and which date the analysis must support before requesting a document package.

The U.S. Small Business Administration advises buyers to examine the financial position and the broader operating picture, including contracts, leases, cash flow, licenses, and permits. The American Dental Association recommends building an experienced purchase team early. Those sources frame the investigation; the buyer's advisers must define the actual deal and jurisdiction-specific work.

• The exact buyer, seller, entities, assets, and proposed transaction structure
• The financial questions that could change price, terms, financing, or the decision to proceed
• The requested records, reporting periods, source systems, and delivery dates
• The accountant, attorney, lender, valuation professional, and buyer responsible for each answer

Reconcile the financial story to source records

IRS Publication 583 explains that business records support financial statements and the income, deductions, and credits reported on tax returns. In a purchase review, ask the accountant to identify which statements agree to the tax returns, general ledger, bank and merchant deposits, debt records, payroll filings, and other source records for the same period.

A difference is not automatically an error. Timing, accounting method, classification, owner activity, and later corrections can create differences. Record the amount, period, explanation, supporting source, and person responsible for resolving each material difference.

• Business tax returns and the financial statements used to prepare or support them
• General-ledger detail, bank reconciliations, merchant deposits, and deposit timing
• Debt, lease, fixed-asset, depreciation, payroll, and benefit records
• Owner, related-party, personal, or one-time items with a documented business explanation

Use consistent definitions for production, collections, and receivables

The ADA distinguishes production, adjusted production, collections, expenses, overhead, and accounts receivable when discussing a dental-practice purchase. Compare figures only after the seller, buyer, accountant, and lender agree on the date range, provider and location coverage, adjustment rules, and source report behind each number.

Practice-management totals and accounting deposits answer different questions. Completed treatment can precede payment, adjustments can reduce gross production, refunds can reverse collections, and receivables can remain open. Reconcile each bridge rather than treating one report as the whole financial picture.

• Gross and adjusted production by the relevant providers and locations
• Patient and insurance collections, refunds, financing deposits, and timing differences
• Contractual adjustments, write-offs, discounts, and other reductions
• Patient and insurance receivables by age, status, and collectibility assumption

Separate recurring operations from seller-specific items

Historical profit does not establish the buyer's future cash flow. Separate recurring costs, seller-specific choices, related-party arrangements, deferred maintenance, transaction costs, and planned buyer changes. Keep the original amount, source, reason, and responsible adviser with every proposed adjustment.

Equipment records need the asset description, ownership, purchase and placed-in-service dates, financing, tax basis, accumulated depreciation, repairs, and expected replacement needs. IRS Publication 946 explains federal depreciation concepts, but book depreciation does not establish current market value, physical condition, or the tax result for a particular transaction.

Assign each question to the right adviser

An accountant can reconcile records, test financial assumptions, explain tax questions within the engagement, and identify information gaps. That work does not replace legal review of the purchase agreement, lender underwriting, a formal valuation when one is required, or clinical and regulatory judgment about the practice.

Write the handoff into the engagement. Name who reviews the purchase structure, tax allocation, leases, employment terms, licenses, payer agreements, patient-record obligations, valuation, financing, and closing adjustments. Record the scope, standard, conflicts, and exclusions when one adviser covers more than one role.

• Accountant: source-record reconciliation, financial assumptions, tax scope, and open accounting questions
• Attorney: transaction documents, entity and contract terms, leases, liabilities, and legal obligations
• Lender: underwriting, debt service, working capital, collateral, covenants, and funding conditions
• Valuation professional: the stated standard, method, assumptions, conflicts, and intended use
• Buyer and dental advisers: clinical fit, staffing, facilities, operations, patient relationships, and transition plan

Limit and protect sensitive records

Begin with aggregated financial and operating information when it can answer the question. Do not place tax returns, bank records, payroll files, credentials, patient information, or purchase documents into a public form or ordinary email merely because diligence has started.

HHS states that a covered entity engaging a business associate for work involving protected health information needs a written business-associate contract or other compliant arrangement. Before sharing patient-level information, determine whether HIPAA applies to the exact parties and work, whether the information is necessary, and which safeguards are required.

Record unresolved issues before price or terms harden

A useful diligence result does not hide uncertainty inside one score. It distinguishes records received, reconciliations completed, seller explanations, adviser conclusions, assumptions, missing evidence, decision impact, and the owner and deadline for the next check.

Before relying on the analysis, ask which figures reconcile, which adjustments depend on seller assumptions, which obligations transfer, and which unresolved item could change price, terms, financing, timing, or the decision. A deadline does not convert an unsupported answer into evidence.

Continue with a source-separated accountant review

This article prepares questions; it does not select an adviser or evaluate a deal. Compare the exact professional, firm, license, engagement scope, fees, conflicts, professional-liability coverage, data controls, and transaction experience at their current sources before sharing records.

Use the broader dental practice accounting guide and readiness checklist to organize recurring accounting questions that are outside this acquisition-specific review.

Review the source-separated Spiro Leunes pilot profile. It records MRL Advisory Group's published practice-acquisition and due-diligence scope, alongside unresolved evidence; LA Trusted Professionals has not independently validated delivery or outcomes.

Read how accountant evidence is separated before treating a license record, firm statement, submitted document, or unresolved claim as equivalent proof.

Questions to ask before acting.