Having bought one or two practices and learned many, many tough lessons, I thought I would share a few of them here. Read this as a checklist of things to examine before, during and even after buying an orthodontic practice. I’m sure you’ll have questions so post them we will see where they lead. I’ll follow up in the coming weeks in The Progressive Orthodontist Magazine a list of things to do once the purchase is competed and you want to start growing! Get your free subscription at TheProOrtho.com.

  • Both buyer and seller sign an NDA so everyone is comfortable!
  • You need to see three years of corporate and personal tax returns.
  • You need to see three years practice management software collection and production data.
  • You need to see three years of bank statements. Bank statements and tax returns and practice management software collections reports should all come reasonably close to matching up.
  • You need to see the P&L and balance sheet for the last three years.
  • If annual production is more than collections then practice is growing. If annual production is less than collections then practice is shrinking and you are essentially buying a smaller practice than you think you are because you will collect less in the next twelve months than the seller did in the last 12.
  • Find out who does payroll and get a copy of the payroll for the last several months if not the last couple years.
  • Run referral reports and figure out where new patients are coming from and then have an honest discussion with the seller to see if the seller thinks you can win over each referral (discuss them in detail individually and take notes).
  • Get a clear understanding of the collections situation. How many patients are behind 30, 60, 90 days. Divide the past due into insurance and patient owed. You can likely collect the insurance money but the patient past due is tougher.
  • Get a clear understanding of how many patients are overtime on treatment (braces on longer than estimated treatment time). A chart audit is the best way to do this – especially if the practice only has a few hundred active patients. You need to know how many active patients there are anyway.
  • Run an “active patients with zero balance” report to find patients who have paid in full but still need work. There is some overlap with overtime patients but they are not necessarily the same.
  • All patient credits (accounts with a positive balance) need to be identified in a chart audit and the selling doctor needs to either pay them out or reduce the sales price by an equal amount to account for the credits.
  • Are there any pro bono patients who don’t have contracts? Has the seller committed to doing pro bono in the future? Do you want to do that?
  • What is the retainer policy and what do patients expect you to do? There can be a big difference between what the policy is and what is done. I’ve bought practices where the de facto retainer policy was “free replacement for life” and that can be an issue.
  • Know the law for your state and keep only the models and charts of active patients – or as few as you legally can – and let the seller take his or her models and charts with him or her. Disposal and storage are both a big pain.
  • See if there are any trade outs for treatment going on. For example the seller may be doing free treatment in exchange for yard work, printing, free goods, etc. That is all well and good assuming that taxes are paid but if you are taking over treatment then you need to take over the other side of the trade as well or the seller needs to make it right.
  • Get a list of employees, their positions, how long they have been there, pay, bonuses and gifts they expect (Birthdays, Valentines, Christmas, etc.) and an evaluation of each employee by seller. Get a list of any other perks like cell phones, uniforms, etc. and also make sure that you know about any office property that is in the possession of employees.
  • Verify that use tax, sales tax, FICA, personal commercial property tax, property tax, etc. are up to date as appropriate or will be brought current at close.
  • Evaluate parking situation.
  • Evaluate the waiting room situation.
  • Check with city hall and the planning committee for the county or community to see if there are any major projects going on or planned near the office.
  • Why is the seller selling – just getting tired of it or is it something more? I’ve seen a situation where the street in front of the office was being widened and imminent domain was used to take most of the office parking. That’s why the seller was selling!! The buyer was totally screwed!
  • Make damn sure you are licensed and have your NPI#, Medicaid provider number and are onboard with any and all insurances you plan to take and especially the ones that the practice you’re buying currently takes. Start as early as possible on this. It takes forever. Having a DEA number often makes it easier to get this done.
  • Check for liens on property and equipment and business – the bank usually runs a UCC report but make sure they do and be absolutely sure it is done if the seller is financing the deal and the bank is not involved.
  • Get a new survey of any real property if purchasing. Do not trust a plat or old survey.
  • Evaluation of current and potential lease terms and meet with owner of the space. Get a term sheet in writing from the owner. Talk details with special emphasis on who pays for what – NNN or other lease type? Repairs? Lawn? Community property fees? Etc. You also want to know the TOTAL AMOUNT you will pay per month because sometimes price per square foot doesn’t include other add ons like CAM (common area maintenance).
  • Make sure there is a termite certificate.
  • If the building is old, make sure there is no lead paint or asbestos.
  • Have a mold inspection done.
  • Have roof, HVAC (heating and AC), windows/doors and insulation inspected by a professional.
  • Have an evaluation of plumbing and especially any med gas done by a professional.
  • Make sure that you KNOW what the seller owns and what the seller leases (some doctors lease their X-ray equipment and other stuff).
  • Evaluate the instruments and sterilization situation. Make sure you keep what is there in the sale, that you have enough and, most importantly, that your sterilization is compliant with state and federal law. Don’t assume the seller’s sterilization system is compliant or sufficient. Know the law and be sure you don’t get nailed for just doing what has always been done.
  • Evaluation of all equipment – working order, appearance warranties etc.
  • Evaluation of cabinetry and other fixed improvements.
  • Evaluate toilets and make sure they flush well. Test them several times. Evaluate toilet to patient and staff numbers. If there is a private office and private bathroom then plan on making that a consult room and community or staff bathroom if you need space.
  • Signage – existing and potential. Get very granular on this with the property owner and the governing body and get in writing what is and what will be. Signage is vital in this day and age.
  • Check the Internet speed and availability. You’d be surprised by how bad it can be in some areas.
  • Have the seller write down any and everything that is NOT INCLUDED in the contract with specifics and descriptions. Include these words or similar ones in your contract – “any and all items in the office space or any space used to conduct office business that is not specifically listed as ‘NOT INCLUDED’ are to be conveyed to the purchaser at close”. Do not let the seller make you list everything you are buying and say the converse because you will get screwed.
  • Make sure practice name, phone number, website, fax number, email, social media pages, and anything else used to promote or contact the practice are conveyed to buyer. Don’t forget about the “emergency phone”.
  • Get a list of any and all contracts that the practice currently has for marketing, radio, TV, billboards, direct mail, phones, credit card machine, printer/copier, laundry, uniforms, cleaning, maintenance, trash removal, lab, equipment, postage machine, yard work, and so on. Identify them all and make it clear that you will not take over any contracts that the seller has in place unless you know about them and choose to do so. Put this in the contract. It is easier to catch them on the front end but you are not obligated to take over any contracts unless you agree to do so. However, you don’t want any contracts cancelled either until you have a chance to evaluate them. Be particularly careful in dealing with Pittney Bowes as they are unscrupulous and will stick it to you if they can. In dealing with them be sure to write on the original contract “only the owner of the company can authorize any extension or change to the contract”.
  • Put a line in the contract that says that the seller is obligated to turn over any and all monies he or she receives after the close by error through the mail or by wire transfer or by any other means. Also put that the seller has to turn over any and all mail, correspondence, packages, equipment, materials or anything else used to conduct business in the office you are buying.
  • State that the owner must turn over any rebates, discounts, refunds, etc. that come to him or her after the close.
  • Put in the contract that the seller will pay any and all accounts payable due through the date of the sale and will prorate and estimate any that will be due after the sale (to be paid on the date of the sale at closing). A final accounting and reconciliation will be done at a later, specified time.
  • Be sure to look at the seller’s Invisalign account and laboratory account to see if there have been any items sent out to the lab that have not been invoiced and have them pay for those.
  • Make sure to get the credit card machine, Care Credit machine, insurance and Medicaid deposits and all direct deposits or bank drafts directed toward your bank account from the time of the sale forward and watch them closely and, as noted, put in the contract that the seller has to return any money deposited in his or her account after close.
  • Locate and lay claim to any and all of the seller’s excess letterhead and envelopes with the seller’s info on them. You want to use them when you tell everyone about the practice transition as described in the ProOrtho Magazine article on what to do after you buy.
  • Evaluate the schedule and see how balanced it is. If possible, observe for a day or two. You need to pay attention to how patients are scheduled and when they show up. What I mean is, are they scheduled evenly throughout the day or only early am and late in the afternoon with dead space in between? If it’s the latter (and it usually is), it will be tough to change that mindset, but you can do it! Also, do patients show up on time or do they come late? Are they seen when they come late? Again, if the culture of the office allows the schedule to control the office rather than the other way around then you have some work to do!
  • Evaluate the levels of supplies. The seller should keep the “normal” amount of supplies. Hard to quantify but should be discussed.
  • Look at the schedule for last year – days per week, hours per day, patients per day, chairs worked per day and, most importantly, appointment interval. If the seller is at 4-6 weeks that gives you massive flexibility to extend appointment interval and expand your capacity or slow down the pace of the practice until you get up to speed (if you need to).
  • Get a “good faith estimate” in writing from your bank before you commit to buy anything.
  • Don’t get too hung up on purchase price as a percentage of gross and what people think is “fair”. Financing terms are much more important than price within reason. You can pay more if you can get a longer time to pay off the note and you need to pay less with shorter terms. It’s all about cash flow. Make yourself a spreadsheet and list all income and all expenses and see what you can afford before you buy!
  • DON’T DO A STOCK PURCHASE. This type of purchase agreement is bad for you for taxes and it makes you liable for what the seller has done. Do an asset purchase instead and work on the asset allocation to make both parties happy (real assets vs. intangibles).
  • Make sure you have professional liability insurance in place before you take over the practice. You may also want to consider overhead insurance. You definitely want disability insurance.
  • If at all possible, get the selling doctor out of the practice from day one or at least very soon after. DO NOT agree to guaranteed days and guaranteed pay for the seller for an extended period of time (i.e. more than a few weeks) unless you have very specific and very good reasons for doing so (and someone with a business background agrees you have good reasons). Two doctors in the practice is a nightmare more often than not and the staff will always defer to the seller over the buyer even though you now own the practice. Rip the Band-Aid off and avoid years of pain is my recommendation. You’ll have to learn sooner or later and sooner is better. Turnkey is far superior to a staged transition in the vast majority of cases.
  • Don’t forget we are currently in a seller’s market so do the best you can to get everything you want but if you get a good deal that cash flows then don’t ruin it by looking for the perfect deal. There is no such thing.
  • Finally, know that a few things will slip through the cracks. Don’t sweat it. You’ll be ok.


** This is not a complete list and should not be taken as legal or accounting advice.

8 thoughts on “Checklist For Ortho Practice Evaluation**

  1. Wow , that is probably the most comprehensive list I have ever read. The last point is probably one we all need to remember that most……

  2. Keeping perspective is tough when we are detail people by training and by nature. Glad you liked the post.

  3. Wish I had this list when I bought my practices. Long list but it will be worth it if you read and do all of it.

  4. Great article! Do you have a topic on how to change the culture of the office when it comes getting patients and staffs to change and accept the scheduling that you desire? Thanks!

  5. That is a big topic. Implementing change and changing office culture takes massive, concerted planning and effort. Many Ortho offices need just that but it’s not something that can be covered in an article! Sorry.

  6. Great and thorough post! Have you bought any practices where there were many accounts financed past treatment time? Any special consideration for these accounts? In this scenario the buyer would wind up collecting money on work that has already been completed when compared to a practice with financing restricted to treatment time.

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