What Financial Records Should You Review Before Buying A Dental Practice?

Before you buy a dental practice, you need to understand how the practice actually performs financially. A practice may look attractive based on its asking price or annual collections, but those numbers don’t tell the whole story.

A thorough financial review helps you determine whether the practice can support your purchase price, operating expenses, and debt payments.

Financial Records To Review

During due diligence, ask to review several years of financial information along with current year-to-date results. The American Dental Association recommends reviewing practice accounts, financial statements, balance sheets, and federal tax returns as part of the due diligence process.

Pay particular attention to:

• Profit and loss statements: Review revenue, operating expenses, and profitability over time.
• Balance sheets: Look at assets, liabilities, and the practice’s overall financial position.
• Federal tax returns: Compare reported income with the practice’s other financial records.
• Production and collections: Review trends by doctor and hygienist where available.
• Accounts receivable: Understand how much is outstanding and how consistently the practice collects it.
• Procedure mix: Determine where revenue comes from and whether the current mix fits your clinical goals.
• Staffing expenses: Review wages, benefits, and other employee-related costs.
• Overhead: Identify major expenses and determine whether they have been stable or increasing.
• Fee schedule and insurance mix: Understand how fees and payer participation affect collections.

Look For Trends, Not Just One Year

A single strong year doesn’t necessarily tell you whether a practice is financially healthy. Look for patterns in production, collections, profitability, expenses, and patient activity. Lenders may also look at multiple years of financial performance when evaluating a dental practice purchase.

You should also compare the financial information with what you see operationally. For example, declining collections may warrant questions about patient retention, staffing, fees, or production.

Get Professional Help With Due Diligence

Your accountant can help analyze the financial records and identify issues that may affect the purchase. An attorney experienced in dental practice acquisitions can review the legal documents and transaction structure. At US Dental Transitions, we help buyers navigate the transition process and understand the information they need before moving forward.

Call 678-482-7305 to schedule a consultation with US Dental Transitions in Suwanee, GA 30024.