Depending on initial assessment, I ask for some very basic financial information to start due diligence for office on Buyer’s behalf. The procedures will/might be expanded to include additional tests of details in case areas are discovered that need further analysis.
I actually assed a low risk after reviewing the initial information provided, and asked for a very limited and basic information.
We recommend our clients to perform different kinds of reviews before deciding to remove the financial contingency and move forward with the transaction.
1. Financial Review : Performed by a Dental CPA
2. Operational Review : Performed by a Practice Consultant
3. Contract and Lease Review: Performed by an Attorney
4. Charts Audit: Performed primarily by DDS
5. Underwriting/Loan : By a Reputable Bank/Lender Familiar with Dental Practices
6. Field Examination: performed by all to review any source document as deemed necessary like:
- Open Day Sheets and trace to individual accounts, payments
- Review Invoices
- Review Schedule and compare to Day Sheets
- Walk through the office
- Test equipment
7. Also I always recommend to engage a reputable escrow company.
A sample of initial information requested for a financial audit was emailed previously. These are very basic source documents to verify details and compile a report to Buyer. The Practice Consultant will perform additional reviews of Seller’s computer system and Practice Software to compile and verify operations.
1. Bank statements for all Business Checking, Credit Card and Line of Credit if any.
2. Payroll: Forms W-3, W-2s and DE9s from current and prior year and employees’ seniority, wage, benefits. When did they get last raise? Why employee is cost increasing?
3. 1099s from insurance companies
4. Financial statements including balance sheet and profit & loss and general ledger.
5. Disclosure of current lawsuit or punitive actions pursued by local, state, federal or private parties.
6. review of any big cases in the last 3 years.
7. Does Seller work at any other places in the last three years?
8. A production and collections report and a breakdown by each dentist and hygienist.
9. A breakdown of retirement benefits, employee benefits, medical reimbursement,
10. All deposit slips
11. All merchant services statements
I also provide information on behalf of selling clients on a regular basis. It would take me less than one hour to pull the data for my selling DDS and assist Buyer and Seller have an orderly and smooth transition. That’s why Seller’s Brokers objection to providing any of the above data should not be acceptable.
I understand that there are many transitions going on where there is none of the above procedures are performed. Some do not even involve a broker. Many times only a Broker that represents the seller is involved. Many other times none of the above in performed. I meet many Buyers and Seller that are totally unhappy after selling/buying a practice. The main reason is that they did not perform simplest review and were advised insufficiently.
There is a minimum of standard that must be satisfied so that I can advise my client best. Based on my professional training and industry experience, the requested information is nothing but backups, substantiation and sources for tax returns, practice profile and brochures that will assist Buyer make an informed decision.