Due Diligence

Due Diligence

Starting a new practice or purchasing an existing practice offer both unique advantages and disadvantages, and each requires due diligence on the part of the dentist.

For both paths, consider the following actions to ensure you have complete information and have adequately planned for your situation.

  • Your business plan will be the cornerstone of your due-diligence process. Not only will the business plan help you develop a comfort level with lenders, it will provide you with a road map and reality check as you work through the process of starting the practice. Just because a practice was successful in the past does not guarantee future success.
  • The business plan should be written and revisited frequently and revised as you learn more about the reality of your situation. As actual cost information becomes available, the budgets and projections should be revised to provide an accurate picture of the practice operations.
  • The demographic research you conduct will help you understand your location and your potential patients. By obtaining a thorough understanding of the demographics, you will be better prepared to make sound decisions regarding your location, your practice focus, and your marketing efforts.
  • Understand your credit situation. Pull a credit report and understand your credit score. If there are issues with your credit, begin taking steps to repair your score. If there are errors, begin the process to have corrections made to your credit report. You do not want any surprises when a lender pulls your credit report at the time of your credit application.
  • If you have a low credit score, remember time heals all wounds. But it takes time. Lenders are going to be much less likely to finance your venture if your credit score is low. If you do find a lender willing to back you, the cost of the credit will likely be higher than for a borrower with a strong credit score.
  • Before you sign anything (leases, purchase contracts, partnership agreements, etc.) have an attorney review the documents. Never sign anything you do not thoroughly understand. Your professional advisors are essential to your due-diligence process, helping you understand your legal obligations and your potential risks. The costs involved are an investment in your business and although may seem costly when incurred, will potentially save you many times the amount paid in the future.
  • If the other party with whom you are negotiating suggests you use his/her attorney for the transaction, be very cautious. Throughout the process of starting or purchasing a practice you need your own legal representation. If the attorney is representing both parties, your best interests may not be the priority. It also raises serious ethical questions about an attorney willing to represent both parties to a transaction.
  • Research your options on your equipment and financing, shopping for your best deals. In many cases, used/refurbished equipment may be available and may save you some money. Remember, the more your monthly expenses, such as payments on equipment, the more patients you need to see on a monthly basis. At start-up, higher overhead makes it more difficult to get through the early months of the practice and may prolong your break-even point.
  • If purchasing a practice, conduct a thorough inventory of equipment, furnishings and supplies in place and determine the condition and life-expectancy. If upgrades are needed, plan for them and build the expense into your budget and business plan.
  • Develop your office policies and procedures. Have processes in place to train new staff and retrain existing staff if necessary. It is best if your employees know exactly what is expected of them, and an office policy and procedure manual is the best way to communicate your expectations and document your employees’ awareness of the policies.
  • Begin networking as soon as possible to develop relationships with professional advisors (attorneys, accountants, lenders, etc.) in your community and spread the word about your practice. It is never too soon to begin marketing yourself through community activities and involvement.
  • Develop your practice materials, including your logo, letterhead and business cards.These items will help you network within your community. If purchasing a practice, consider continuing use of what is in place during the transition.
  • Research the insurance networks prominent in your area and begin the process of being added as a provider.

While starting or purchasing a practice is challenging, recognizing the risks and benefits and performing the due diligence required will help ensure your success.

 

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