Dental Due Diligence Checklist: 9 Proven Strategies for Buyers

Dental Due Diligence: A Comprehensive Guide for Buying a Dental Practice

Purchasing a dental practice is a milestone for many dental professionals, but it’s also a complex process that requires careful evaluation and strategic planning. Whether you’re buying your first practice or expanding your existing operations, dental due diligence is the cornerstone of a successful acquisition. It’s the process of thoroughly investigating every aspect of the practice to ensure it aligns with your professional goals and minimizes risks.

At its core, dental due diligence involves an in-depth review of the practice’s financial health, patient base, operational structure, and legal obligations. This meticulous approach is essential not only to understand the practice’s current value but also to identify opportunities for future growth. Skipping or rushing this critical step can lead to unforeseen challenges, from financial losses to operational disruptions.

This guide will walk you through the key aspects of dental due diligence, focusing on:

• Financial Analysis – Understanding revenue streams, expenses, and profitability trends.
• Patient Base Review – Analyzing the demographics, retention rates, and overall patient satisfaction.
• Staff Evaluation – Assessing the dynamics and expertise of the existing team.
• Operational Efficiency – Reviewing the state of the practice’s technology, workflows, and compliance.

By the end, you’ll have a clear roadmap to navigate the due diligence process confidently, ensuring a smooth transition and setting the foundation for a thriving practice.

1. Understand the Existing Patient Base

Understanding the patient base and practice demographics provides the foundation for evaluating whether a dental practice aligns with your goals and long-term vision. As Dr. Gretzula and Dr. Bogan highlight, analyzing patient loyalty, treatment patterns, and demographics can reveal opportunities for sustained growth. For instance, practices catering to family-friendly or all-ages services, as emphasized by Dr. Bogan, often attract diverse and loyal patients.

When buying a dental office for the first time, conducting thorough due diligence is vital. One key area I emphasize is understanding the existing patient base and the potential for growth. At North Orange Family Dentistry, we’ve benefited immensely by thoroughly analyzing demographics and patient needs. This allows for strategic planning and targeted services, especially focusing on an all-ages approach which attracts more families – a strategy also succeeded at Advanced Smiles Marion.

Another crucial aspect is evaluating the facility’s technology and equipment. Modern tools significantly improve patient experience and outcomes. When I established Advanced Smiles Marion, investing in advanced technologies was pivotal. Ensure the practice you’re considering has updated equipment. If it doesn’t, be ready for an investment in technology as this will pay off in patient satisfaction and operational efficiency.

Lastly, assess the team dynamics and existing staff. A motivated and competent team can make a significant difference in transitioning smoothly after acquisition. Building a positive, cohesive team culture at North Orange Family Dentistry has been fundamental in delivering our five-star patient experiences. Meet with the existing team, understand their roles, and evaluate if they align with your practice vision.

Dr Kyle Bogan, Dentist & Owner, North Orange Family Dentistry

If I were looking into buying a dental office, the first thing I would do when it comes to ‘due diligence’ is look into and research the patient base and practice demographics. Take a good hard look at who the patients are, their loyalty, what treatments they might need, and their insurance details. Getting a clear picture of these factors tells me a lot about the practice’s potential to flourish in the long run.

Next, pour over the financial records. It’s important to see where the money’s coming from and to spot any trends. Are certain procedures or insurance plans keeping the business afloat? Be on the lookout for a practice that has different services and has multiple payment options. That mix usually means the practice is solid and flexible.

Then, there’s the team. Make it a point to meet with the staff, understand what they do, and see if their philosophy of care goes hand in hand with mine. Staff members who know their stuff and have stuck with the practice through thick and thin? They’re super useful. They help make sure everything keeps running smoothly and keep patients happy during the transition.

The practice’s location and its reputation are also high on the checklist. The state of the office and its location heavily influence whether patients stick around or if new faces will walk through the door. I’d look for a place that’s well-kept and meets all health regulations. Scope out any legal entanglements or bad atmospheres in the community that could hurt you down the line.

I wouldn’t go at it alone. Hiring an expert in dental practice transitions is necessary (if you aren’t an expert). They’ll help you sift through the specifics—records, contracts, equipment—making sure you have all the facts before making a decision.

Buying a practice is a big deal and a big commitment. Taking the time to really understand the ins and outs will set you up for success right from the start.”
Dr. Kristy Gretzula, Dentist/Owner, Hawley Lane Dental

Additionally, reviewing financial records in tandem with patient data helps identify revenue trends and areas of strength. Practices with a varied mix of services and payment options tend to offer more stability, as Dr. Gretzula notes.

Team dynamics and the practice’s reputation are equally critical. Staff members with strong expertise and a shared care philosophy can drive operational consistency and patient satisfaction. Evaluating the team’s morale, roles, and alignment with your vision is key to ensuring a smooth transition.

Finally, consider the practice’s location, upkeep, and compliance with health regulations. A well-maintained, accessible office with a strong community reputation can ease the transition and create a foundation for growth.

Dental Due Diligence Action Step: Use demographic and patient data to forecast retention rates and growth opportunities. Work with a dental attorney and consultants to evaluate the patient base, financial records, and team structure. Their expertise can uncover potential risks and ensure the practice aligns with your vision for success.

2. Review Financial Records and Patient Data

My number one tip for someone buying a dental practice is to thoroughly review the financial records and patient data. Understand the practice’s income trends, expenses, and patient retention rates. During my own due diligence process, I discovered how important it is to look beyond surface-level metrics. For example, I didn’t just ask how many patients were on the books; I dug deeper to see how many were actively visiting and how often. It’s these details that help you truly understand the health of the practice you’re purchasing.

Another key lesson I learned is the importance of assessing the practice’s reputation in the community. Talk to the staff, observe the workflow, and even chat with a few long-term patients if possible. These steps help you gauge how smoothly the transition will go. The due diligence process is your chance to uncover any hidden risks and to ensure the practice aligns with your goals. Take your time, ask questions, and seek advice from experienced dental consultants or brokers to avoid surprises later.

Nagesh Chakka, Dentist, Positive Dental Health

When evaluating a dental practice, a thorough review of financial records and patient data is critical to understanding its overall health and stability. As Dr. Nagesh Chakka emphasizes, it’s essential to dig deeper than surface-level metrics.

Start by analyzing the practice’s income trends, including seasonal fluctuations and the profitability of different services. Next, examine expenses, such as overhead costs, staff salaries, and equipment maintenance, to ensure they align with industry benchmarks.

Equally important is the examination of patient activity metrics. Simply knowing the number of patients listed isn’t enough. Determine how many are active patients, how often they visit, and whether there are patterns in cancellations or missed appointments. These insights will help you assess the reliability of the revenue streams and the potential for sustained growth.

Beyond the numbers, a practice’s reputation in the community plays a significant role in its success. During your due diligence, consider meeting with staff to understand the workflow and office culture. Observing interactions with patients and even speaking with loyal, long-term patients can provide invaluable insights into the practice’s standing and the smoothness of a potential transition.

Dental Due Diligence Action Step:

Work with a dental CPA or consultant to scrutinize all contracts, records, and expenses. Their expertise will help you identify hidden liabilities, such as outdated vendor contracts or unresolved legal issues, and ensure that the practice aligns with your financial and professional goals.

3. Analyze Patient Retention Rate

When I was involved in expanding UNO DENTAL SAN FRANCISCO, one of the most crucial aspects of due diligence was understanding the patient retention rate. Initially, I achieved an 80% patient retention rate by analyzing patient satisfaction and implementing personalized treatment plans. This demonstrated the importance of evaluating the existing patient base and developing strategies to maintain and grow it.

Another key lesson was the transition to a paperless system. This move not only streamlined operations but also significantly reduced costs. When considering a dental practice, assess their current administrative processes and the potential for integrating digital solutions. This can improve efficiency and improve patient experience, which is crucial for long-term success.

Additionally, I focused on enhancing practice efficiency by fostering collaboration among the dental team. Ensuring that the existing staff is motivated and aligned with your vision can be a game-changer. Meet with the team, understand their dynamics, and see if they fit with your practice goals. A cohesive team is integral to a smooth transition and sustained success. When buying a dental office, one crucial due diligence tip is to examine the patient retention rate. 

Aghiad Kandar DDS, Chief Executive Officer, UNO DENTAL SAN FRANCISCO

Patient retention rate is a critical metric when purchasing a dental practice, as it directly impacts revenue stability and long-term growth potential. A high retention rate signifies patient loyalty, satisfaction, and a practice’s ability to maintain steady revenue streams. Conversely, a low retention rate may indicate underlying issues, such as dissatisfaction with services or inefficiencies in operations.

To fully evaluate the retention rate, start by reviewing metrics like the frequency of visits and the consistency of returning patients over the past few years. Personalized treatment plans, as emphasized by Dr. Aghiad Kandar, are a proven method to enhance retention by addressing patients’ unique needs and expectations.

Operational efficiency also plays a significant role in patient retention. Practices that leverage digital solutions, such as transitioning to paperless systems, often enjoy increased efficiency, reduced costs, and improved patient experiences. Evaluate whether the practice you’re considering has already adopted these technologies or if there’s room for improvement.

Finally, assess the dynamics of the existing team and their alignment with your vision. A cohesive, motivated team not only ensures smooth operations but also creates a welcoming environment that encourages patients to stay loyal during the transition.

Dental Due Diligence Action Step: Develop a patient retention improvement strategy if needed. This could include implementing patient satisfaction surveys, enhancing communication, and investing in new technologies or team training to improve patient experience and operational efficiency.

4. Legal and Operational Dental Due Diligence

Legal and operational due diligence is one of the most critical steps in purchasing a dental practice. It ensures that the assets and operations you’re acquiring are free of legal, financial, or regulatory risks. Partnering with an experienced dental attorney is essential to navigate this process effectively.

Check for Liens or Encumbrances

• Outstanding Liens: Verify that there are no liens on the practice’s assets, such as equipment, accounts receivable, or inventory, which could transfer to you post-sale.
• Encumbrances: Confirm that all assets included in the sale are free of encumbrances and can be transferred without restrictions.

Identify Pending Litigation or Claims

• Active Legal Issues: Investigate any ongoing litigation, regulatory actions, or disputes involving the practice. These could include malpractice claims, employee disputes, or insurance issues.
• Historical Claims: Review records of past claims to identify any patterns that may indicate operational or reputational risks.

Ensure Compliance with State and Federal Regulations

• HIPAA Compliance: Confirm that the practice adheres to HIPAA requirements for safeguarding patient data and privacy.
• OSHA Standards: Verify compliance with OSHA safety standards, including infection control and hazardous material handling protocols.
• State Licensing: Ensure the practice has all necessary state licenses and permits to operate legally. Noncompliance could result in costly fines or even practice closure.

Review Contracts Assumed by the Buyer

• Vendor Agreements: Examine contracts with suppliers, labs, and equipment leasing companies to determine their terms and transferability.
• Employment Agreements: Evaluate employee contracts, especially those with key personnel, to ensure alignment with your plans for the practice.
• Service Agreements: Assess agreements with third-party service providers, such as billing or IT services, to identify any risks or unfavorable terms.

Analyze and Negotiate the Purchase Agreement as part of your Dental Due Diligence

• Detailed Review: Your attorney should review the purchase agreement to confirm it reflects all agreed-upon terms, including purchase price, payment structure, included assets, and contingencies.
• Protective Clauses: Ensure the agreement includes indemnification provisions, warranties, and representations from the seller to protect against undisclosed liabilities or misrepresentations.

Examine and Negotiate the Lease Agreement

• Lease Review: Analyze the lease terms, focusing on rent, duration, renewal options, and restrictions on property use or modifications.
• Negotiation: Work with the landlord to address any unfavorable terms, such as liability for repairs or restrictions on subleasing. If the lease includes a personal guarantee from the seller, negotiate to replace it with your own.

Dental Due Diligence Action Step

Engage a dental attorney to thoroughly review all legal, operational, and regulatory aspects of the practice. This includes checking for liens, evaluating contracts, and ensuring compliance with state and federal regulations. Your attorney should also negotiate favorable terms in the purchase and lease agreements to mitigate risks and secure a smooth transition.

Addressing these legal and operational considerations not only safeguards your investment but also ensures the practice is well-positioned for long-term success without the risk of unexpected liabilities or compliance issues.

5. Clinical Evaluation: A Critical Component of Due Diligence

The clinical evaluation of a dental practice is a crucial step in the due diligence process, as it ensures the compatibility of the practice’s procedures, patient care standards, and operational tools with your professional philosophy and goals. Here’s how to approach this vital aspect:

Assess Compatibility of Clinical Procedures and Patient Care Standards

Begin by reviewing the clinical procedures offered by the practice. Do they align with your expertise and the type of services you plan to provide? For example:

• If the practice specializes in cosmetic dentistry but your background is in general family dentistry, consider whether expanding your skill set or adjusting the service mix will be necessary.
• Evaluate the standard of care provided to patients. Consistent, high-quality care is essential for maintaining the practice’s reputation and patient retention.

Examine Accepted Insurance Plans and Credentialing Feasibility

Review the insurance plans accepted by the practice to understand their contribution to the practice’s revenue. If the practice heavily relies on specific insurance providers, determine whether you can be credentialed with those providers in a timely manner. Delays in credentialing could disrupt revenue flow after the transition.

Inspect Patient Records and Practice Software as Part of Dental Due Diligence

Access the practice’s patient records and evaluate the organization and completeness of the data. Look for:

• Accurate patient histories, treatment plans, and billing information.
• Indicators of patient engagement, such as frequency of visits and completed treatment plans.

Next, assess the software and systems used for managing patient records and daily operations. Modern, user-friendly software can significantly improve efficiency and reduce administrative burdens. If the practice is using outdated or inefficient systems, plan for potential upgrades and training.

Review Patient Warranties Provided by the Seller

Some practices offer warranties on specific procedures, such as crowns or implants. Review these warranties carefully to understand:

• The terms and conditions of the warranties.
• Potential liabilities you may inherit as the new owner.

If warranties are offered, ensure that the practice has a clear policy in place for honoring them. Be prepared to continue providing this level of service or transition to your own warranty standards.

Dental Due Diligence Action Step

Conduct a thorough clinical evaluation with the help of dental consultants or attorneys who specialize in practice transitions. Their expertise can help identify areas that need attention and ensure the practice’s clinical operations align with your vision for success.

This step not only ensures operational compatibility but also lays the groundwork for maintaining patient trust and satisfaction post-acquisition.

6. Evaluating Practice Employees

The employees of a dental practice are integral to its day-to-day operations and long-term success. As part of your due diligence, thoroughly reviewing the existing staff and their roles can ensure a smooth transition and continuity in patient care. Here’s how to evaluate the team:

Review Compensation and Benefits

• Understand Compensation Structure: Evaluate each employee’s salary, hourly rate, or other compensation arrangements. Compare these to industry standards to determine whether adjustments might be necessary post-acquisition.
• Analyze Benefits: Review benefits such as health insurance, retirement plans, vacation policies, and bonuses. Ensure you understand the costs and whether the benefits align with your financial and operational goals.

Assess Job Roles, Duties, and Schedules

• Clarify Roles: Review the job descriptions and duties of each employee. Ensure their responsibilities align with the practice’s needs and your vision for its operation.
• Evaluate Scheduling: Look at staff schedules and determine if they are efficient or if changes might enhance productivity.

Rehiring Employees on Closing Day

While it is not legally required, most buyers choose to rehire all employees on the closing date. This ensures the practice can continue operating seamlessly, with familiar faces for patients and minimal disruption to daily workflows. Make sure you:

• Communicate your intention to retain staff early in the process to reduce uncertainty.
• Prepare offer letters that outline any changes in compensation, benefits, or job roles.

Investigate Past Employee Disputes as a part of your dental due diligence.

• Request information on any employee disputes, grievances, or claims, such as wrongful termination, discrimination, or wage issues.
• Work with a dental attorney to review these records and assess any risks you might inherit with the purchase.

Review the Employee Handbook and Office Policies as a part of your dental due diligence.

• Employee Handbook: Analyze the existing employee handbook for clarity and compliance with labor laws. Look for outdated or ambiguous policies that might require revision post-sale.
• Office Policies and Procedures: Review standard operating procedures for day-to-day functions, such as patient scheduling, billing, and infection control. Ensure these align with your standards and identify any areas for improvement.

Dental Due Diligence Action Step

Conduct a thorough review of all employee-related documents and practices. Meet with key staff members during the due diligence period to understand their roles and discuss any concerns or changes. Partner with a dental attorney to address potential legal risks and help draft rehiring agreements or policy updates as needed.

By carefully evaluating the practice’s employees, you can maintain continuity, minimize disruption, and ensure a smooth transition for both patients and staff. A motivated and aligned team is essential to the long-term success of your new practice.

7. Reviewing the Seller’s Web Presence and Digital Assets

In today’s digital-first world, a dental practice’s online presence is a critical part of its value and operational success. As part of your due diligence, thoroughly evaluate the seller’s web presence and digital assets to ensure they align with your vision and can support your future growth.

Website and Domain Name Dental Due Diligence

• Assess Website Quality: Examine the practice’s website for usability, design, and functionality. Is it modern, mobile-friendly, and easy to navigate? A poorly designed website may require immediate updates to reflect your brand and attract new patients.
• Check SEO and Content: Review the website’s search engine rankings and content quality. Is the site optimized for local search terms, such as “family dentist in [location]”?
• Ownership of the Domain Name: Confirm that the practice owns its domain name and that it will be transferred to you during the sale. Losing the domain could disrupt patient access and marketing efforts.

Intellectual Property

• Logos and Branding: Evaluate whether the practice’s logos, taglines, or other branding elements are proprietary and included in the sale. If these assets are integral to the practice’s identity, ensure you secure the rights to them.
• Digital Content: Assess the ownership of digital content, such as blogs, videos, or social media posts. Determine whether these assets can be transferred to you and whether they align with your future marketing strategy.

Review Sites and Online Reputation

• Reputation Analysis: Review the practice’s presence on platforms like Google Reviews, Yelp, and Healthgrades. Look for patterns in patient feedback, such as recurring complaints or standout strengths.
• Managing Negative Reviews: If there are negative reviews, determine whether they reflect systemic issues or isolated incidents. Develop a strategy to address and improve the practice’s online reputation post-acquisition.

Phone Numbers and Emails Dental Due Diligence

• Phone Number: Ensure the practice’s primary phone number is included in the sale and that you will have access to any forwarding or voicemail systems. Losing the established phone number could result in missed opportunities and patient confusion.
• Email Accounts: Review the practice’s email accounts and associated domains. Confirm that all relevant email addresses will be transferred to you, and consider implementing secure and professional email systems under your ownership.

Dental Due Diligence Action Step

Work with a digital marketing expert and a dental attorney to assess the seller’s web presence and digital assets. Ensure all necessary rights, accounts, and content are included in the sale agreement. Plan for any updates or rebranding efforts to align the practice’s online identity with your goals.

A well-managed online presence is not just a marketing tool—it’s a cornerstone of patient communication and trust. Reviewing and securing these assets will help ensure a smooth transition and continued success for the practice.

8. Equipment and Facility Inspection

A thorough inspection of the practice’s equipment and facilities is a critical step in due diligence. Dental assets are typically sold “as is,” meaning you inherit the equipment in its current state, along with any issues. Identifying and addressing defects before signing the purchase agreement can save you significant time and expense down the road.

Dental Due Diligence: Equipment Inspection by a Dental Representative

• Engage an Equipment Specialist: Hire an equipment representative familiar with dental tools and technology to inspect all major equipment, including dental chairs, X-ray machines, autoclaves, and handpieces.
• Assess Condition and Operational Life: The specialist should provide a detailed evaluation of each item’s condition and estimated operational lifespan. This can help you anticipate potential repair or replacement costs.
• Identify Defects: If defects or maintenance issues are discovered, address them with the seller before finalizing the purchase. You may negotiate repairs or a reduction in the purchase price to account for these deficiencies.

Dental Due Diligence: Facility Infrastructure Inspection

• HVAC System: Have a licensed professional inspect the heating, ventilation, and air conditioning (HVAC) system to ensure it is functioning efficiently and complies with health regulations. HVAC systems are critical for maintaining patient and staff comfort, as well as infection control standards.
• Plumbing: Inspect the plumbing system for leaks, water pressure issues, or outdated fixtures. Proper water flow and reliable drainage are essential for a dental office’s daily operations.
• Electrical System: Engage an electrician to evaluate the office’s electrical infrastructure. Confirm that it can handle the electrical load required for dental equipment without causing power disruptions. Faulty or insufficient electrical systems can disrupt patient care and pose safety risks.

Action if Deficiencies Are Found during Dental Due Diligence

• Negotiate with the Seller: If the inspection reveals significant defects, discuss options with the seller, such as repairing the issues or adjusting the purchase price to cover anticipated expenses.
• Incorporate Findings into the Purchase Agreement: Ensure that any agreements regarding repairs, replacements, or cost adjustments are documented in the purchase agreement to protect your interests.

Dental Due Diligence Action Step

Work with equipment representatives and licensed contractors to conduct a comprehensive inspection of the practice’s equipment and facilities. Use their reports to negotiate with the seller, address any critical issues, and plan for future upgrades or maintenance.

A properly functioning office, with reliable equipment and infrastructure, ensures uninterrupted patient care and operational efficiency from day one. This step is essential for safeguarding your investment and setting your new practice up for long-term success.

9. Dental Due Diligence Checklist

Conducting a comprehensive dental practice due diligence checklist is the key to navigating the complex process of purchasing a dental office with confidence. From evaluating financial records and clinical procedures to inspecting equipment, facilities, and the seller’s web presence, each step plays a crucial role in ensuring a successful transition. Reviewing legal contracts, assessing staff dynamics, and planning for a seamless transition are equally vital in protecting your investment and setting your practice up for long-term success.

To help you streamline this process, we’ve compiled a Dental Practice Due Diligence Checklist that you can download. This detailed guide brings together all the elements discussed in this blog post, providing you with an actionable roadmap to make informed decisions and avoid costly pitfalls during your acquisition. Download your checklist today and take the first step toward owning a thriving dental practice.

Dental Due Diligence Conclusion

Due diligence is the cornerstone of a successful dental practice acquisition. By thoroughly analyzing financial records, patient data, team dynamics, and operational logistics, you can ensure a smooth transition and set the foundation for long-term success.

Preparation is key, and expert guidance makes all the difference. Partnering with experienced professionals, such as dental attorneys and consultants, can help you navigate the complexities of due diligence, uncover potential risks, and make informed decisions with confidence.

At Odgers Law Group, we specialize in assisting dental professionals with every aspect of practice transitions. Whether you’re evaluating contracts, negotiating lease agreements, or assessing compliance, our team has the expertise to guide you every step of the way.

Contact Odgers Law Group today to ensure your dental practice acquisition is seamless and successful. Let us help you take the next step in your professional journey with confidence.