Financial Due Diligence Can Make the Difference
You have found your dream practice with a great location, perfect treatment rooms, state-of-the-art equipment. You speak with the doctor who is selling the practice and discover that you both have the same philosophy for patient care. Everything seems perfect, or is it?
Before signing any paperwork, it is critical to perform financial due diligence first to make sure you are making the right decision. Consult with your CPA or financial consultant to perform this task. For the best possible outcome, use an expert like LenDRgroup Consulting who specializes in working with healthcare professionals and has reviewed many similar practices.
The practice’s goodwill is one of the largest and most important assets when you purchase a practice. This includes all of the intangible attributes of the business such as the environment, philosophy, and patient treatment. While it can be difficult to quantify goodwill, a bank deposit analysis and a net cash flow analysis can provide the financial assurance you need to move forward.
Bank Deposit Analysis
Examine the receipts for a minimum of the last two years. Compare the collected amount with the amounts shown in the accounting records. This may be in a general ledger from the seller’s CPA or in seller-prepared records. Then, look at the total bank deposits in the seller’s bank account to compare all of the numbers with the tax returns. If any discrepancies exist between the numbers, investigate the numbers further.
Cash Flow Analysis
Income is important. You must determine how much net income the practice will still have after paying the monthly loan payment. To check this, your CPA will review the net income from either the profit and loss statement or the tax return. Then, the owner’s salary and fringe benefits, such as car and pension, will be added back in along with depreciation and interest expense.
All of this is necessary to determine the practice’s actual net profit. The monthly loan payment can then be subtracted from the net profit number to determine the net income.
Remember, cash flow is a key indicator of the practice’s health.
After completing the bank analysis and cash flow analysis, you will be confident with your decision and may complete further due diligence to include the practice facility, staff, competition in the area, location, and the development of a marketing plan to attract new patients.
Remember, the seller may be doing his or her own due diligence on you!
The team at LenDRgroup Consulting cares about the long-term success of your healthcare practice. Whether you need practice financing or business consulting, we can create a customized plan that fits the unique needs of not only your practice, but also your career.
We bring a lending platform of 300+ dental and healthcare-specific lenders. We built this network with the purpose of helping dentists, veterinarians, and physicians. We want you to achieve your practice ownership dreams while eliminating the usual obstacles associated with practice financing.
To date, we have helped hundreds of healthcare professionals like you expand and grow their practice. LenDRgroup Consulting recognizes and understands the needs of your business and can provide guidance to help avoid costly mistakes. So, let’s get started. Contact us to schedule a consultation.