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Washington State Dental Association

Constructive Due Diligence

Purchasing all or part of a dental practice is one of the biggest decisions of your life. To help you identify the potential “right” practice for you, I have outlined some straightforward approaches to follow, that will help to ensure that you have a solid understanding of the practice you are considering.

Production by procedure code report: Request a report for the last 2 years that breaks down each procedure by code that was performed by doctor and staff. Check through the report to see what procedures the practice offers. Check to see if there are any procedures that you can offer that the current provider does not. Are there any procedures offered that you will need to discontinue or will you need to get further training or certification to enable you to offer these same services?

Current scheduling methods: Go through the daily schedule from 6 months prior through the future 6 months. Are you comfortable with the time allotment allowed for procedures? Keep in mind that initially you will spend a little more time getting to know your patient base. It will take 6-12 months to meet all of your new patients. If you can emulate how the current provider is practicing, you will be able to support the current production/collections of the practice, which is a large part of the value or sale price associated with the practice. If you can provide additional procedures and efficiencies, you will have an even stronger position in maintaining and growing the practice.

Chart audit: Although this can take you anywhere between 3 to 6 hours to complete you will have a much better understanding of the practice if you complete this task. Pull a minimum of 2 active patient records/charts from the database for each letter in the alphabet. For purposes of this audit, an active patient is a patient who has been seen for a cleaning within the last 12 months. Within these records you will begin to see patterns of practice. Make your own spread sheet to understand the patterns. Look at the following markers:

  • How long has the person been a patient of the practice (new patient date)? Age of the patient? Zip code?
  • What is the status of the patient? Is it clearly defined? Do they have their next appointment scheduled?
  • When are they due for their next hygiene appointment and are they scheduled? 
  • Has all the restorative treatment been rendered? 
  • Track if they have any restorative needs and if so, do they have their next appointment scheduled for restorative?  
  • What does their treatment plan look like? Based on the notes and x-rays are you comfortable with the treatment plan?

New Patients: New patient flow is vital to a growing thriving practice. While some well-established practices seem to have a steady flow of new patients other practices may not and it’s good to determine what the current trend is for new patient flow. It is important to note that some geographic areas are more prone to transient patients moving in and out of the area and this is not always a negative indicator.

  • How does the practice attract new patients? 
  • Are new patients tracked?
  • Average monthly number of new patients last year? What is current YTD average?
  • Are departing patients tracked? What is the average monthly number of departing patients?  

Miscellaneous Markers:

  • Accounts receivables – Check for timely billing and outside vendor for payment plans. Majority of total should reflect in the current due with minimal amount in the 90+ day column. (Current 70%, 30 days 15%, 60 days 10%, 90+ days 5%) 
  • Practice financial policy
  • Number of PPOs accepted
  • Staff longevity, benefits offered, office manual indicating policies and procedures

Lynne Nelson is a Vice President of Professional Banking servicing Columbia Bank’s growing client base of dentists, veterinarians and physicians in Eastern Washington. She has more than 25 years of experience in the dental industry and works with a team of dental experts across the Pacific Northwest to provide targeted insight and financial solutions. Connect with Lynne today to learn more about starting your dental practice.

Are you a member looking to buy or sell a practice? Consider attending the WSDA Practice for Sale Event on February 11, sponsored in part by Columbia Bank. Learn more. 

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