Due Diligence Guide · Dental Practice

Due Diligence Guide for Buying a Dental Practice

Verify active patients, payer mix quality, equipment condition, and key-person risk before committing to a dental practice acquisition.

Find Dental Practice Acquisition Targets

Acquiring a dental practice requires validating recurring revenue through active patient metrics, reconciling production against collections, and assessing how dependent the practice is on the selling dentist. With collections typically ranging $500K–$3M and EBITDA multiples of 3.5–6.5x, disciplined due diligence protects your investment and financing.

Dental Practice Due Diligence Phases

01

Financial & Revenue Verification

Validate that reported collections are real, recurring, and sustainable without the selling dentist.

Production vs. Collections Reconciliationcritical

Pull 36 months of production and collections reports from the practice management software. Identify write-offs, adjustments, and collection gaps exceeding 5% of gross production.

Payer Mix & Reimbursement Rate Analysiscritical

Break down revenue by PPO, fee-for-service, Medicaid, and HMO. Flag practices where Medicaid exceeds 30% of collections due to reimbursement risk and patient churn exposure.

Accounts Receivable Aging Reviewimportant

Analyze AR aging buckets. Receivables beyond 90 days exceeding 15% of monthly collections signal billing problems or insurance credentialing issues requiring immediate resolution.

02

Patient Base & Clinical Operations

Confirm the practice has a loyal, active patient base and functioning recall systems that survive ownership transition.

Active Patient Count Verificationcritical

Request a report of patients seen within the trailing 18 months from Dentrix, Eaglesoft, or equivalent. Confirm minimum 800–1,200 active patients and review 24-month trend for attrition signals.

Hygiene Recall Compliance Ratecritical

Calculate the percentage of active patients completing scheduled hygiene visits. Recall rates below 65% indicate weak systems and future revenue risk post-transition.

Key-Person Dependency Assessmentimportant

Determine what percentage of collections the selling dentist personally produces. Sole-producer practices above 85% require a structured 12–24 month transition employment agreement minimum.

03

Equipment, Compliance & Staff

Assess capital expenditure requirements, regulatory standing, and workforce stability before finalizing deal terms.

Equipment Inventory & Condition Auditimportant

Document age and condition of chairs, digital X-ray systems, CBCT units, and sterilization equipment. Flag deferred capex exceeding $50K as a purchase price reduction or seller-funded credit.

Licensing, Credentialing & Regulatory Reviewcritical

Confirm DEA registration, state dental board licenses, and all insurance provider credentialing are current and transferable. Lapses can delay revenue post-close by 60–120 days.

Staff Roster & Retention Risk Reviewimportant

Review employment agreements, tenure, compensation, and non-compete status for hygienists, assistants, and front-office staff. Hygienist turnover post-close is the leading cause of near-term revenue disruption.

04

Phase 4: SBA Financing and Deal Structure Validation

Verify the Dental Practice acquisition qualifies for SBA financing, the purchase price is supportable by the verified cash flow, and the deal structure protects the buyer's downside.

SBA Eligibility Confirmationcritical

Confirm the Dental Practice meets SBA 7(a) eligibility requirements: the business is for-profit, U.S.-based, within SBA size standards, and the buyer meets personal financial requirements. Some industries have specific SBA restrictions — verify before LOI.

Normalized EBITDA vs. SBA Debt Service Coveragecritical

Model verified normalized EBITDA against projected SBA loan payments at current rates. A $1M SBA 7(a) loan at 10.5% over 10 years costs approximately $13,000/month. The Dental Practice must generate at least 1.25x debt service coverage after a market-rate manager salary to pass underwriting.

Seller Note and Earnout Structure Reviewimportant

Confirm the seller note is properly subordinated to the SBA loan and goes on 24-month standby as required by SBA rules. If an earnout is included, define exact measurement metrics, time period, and dispute resolution process before signing the purchase agreement.

Dental Practice-Specific Due Diligence Items

  • Verify the practice lease has at least 5 years remaining or renewal options, and confirm landlord consent to assignment is obtainable before signing a letter of intent.
  • Request the last 24 months of new patient numbers monthly — declining new patient flow below 15 per month signals weakening referral sources or community reputation issues.
  • Confirm all specialty referral relationships (oral surgery, orthodontics, endodontics) are practice-based, not personal to the selling dentist, to protect referral revenue post-transition.
  • Review any pending or historical HIPAA compliance issues, OSHA inspection records, and malpractice claims to identify regulatory or liability exposure not reflected in financials.
  • Assess whether the practice management software, digital imaging systems, and patient communication platforms are modern and transferable without costly re-licensing or data migration fees.
  • Verify that the purchase price divided by verified normalized EBITDA produces a multiple consistent with current market comparables for Dental Practice transactions — overpaying by 0.5x–1.0x EBITDA is the most common buyer error in this sector.
  • Confirm the lease terms are assignable to the buyer with the landlord's written consent, and that the remaining lease term extends at least through the SBA loan term — lenders require this before funding.
  • Request copies of all material vendor contracts, supplier agreements, and service relationships — confirm which are transferable, which require novation, and which may terminate on change of ownership.

Standard Document Request List

Before signing a Letter of Intent, request these documents from the seller. Missing or incomplete items are a red flag — not a reason to proceed without them.

  • 3 years of business tax returns (Schedule C or Form 1120)
  • Last 3 years profit & loss statements (monthly detail)
  • Current balance sheet and accounts receivable aging
  • Customer/client list with revenue by account (anonymized)
  • All active contracts, subscriptions, and recurring agreements
  • Equipment list with condition and estimated replacement cost
  • Employee roster with tenure, title, and compensation
  • Any pending or threatened litigation or regulatory complaints
  • Owner compensation and discretionary expense add-backs
  • Year-to-date financials vs. prior year same period

Frequently Asked Questions

How do I verify a dental practice's active patient count is accurate?

Request a timestamped active patient report directly from the practice management software showing patients seen within 18 months. Cross-reference against hygiene appointment records and new patient logs to validate the number independently.

What payer mix should I avoid when buying a dental practice?

Avoid practices where Medicaid or HMO plans exceed 30% of collections. These payers reimburse at 40–60% of fee-schedule rates, compress margins, and create patient churn risk that threatens post-acquisition revenue stability.

How does key-person dependency affect dental practice valuation?

When the selling dentist produces 85%+ of collections, buyers apply valuation discounts of 0.5–1.0x EBITDA multiple and require 12–24 month transition agreements. Associate presence meaningfully reduces this risk and supports higher multiples.

Can I use an SBA loan to buy a dental practice?

Yes. Dental practices are among the strongest SBA 7(a) eligible businesses. Most buyers finance 70–90% via SBA loan with 10% equity injection, often combined with 10–20% seller carry over 3–5 years to bridge any valuation gap.

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