The Due Diligence Checklist I Run Before Buying a Dental Practice

Key takeaways

• Request three years of P&L statements and tax returns, not the seller's best year, and read them side by side: the gap between them is the first fact you learn about the seller.
• AR aging tells you more about a practice's financial culture than almost any other document, and financial culture is one of the hardest things to fix after closing.
• "Active patients" and "hygiene recall" are two of the most gamed numbers in a broker's package. Ask exactly how they were counted before you believe them.
• Run the documents in order: financials first, contracts second, people and property last. A beautiful office cannot save bad numbers, but a messy-looking practice can still be a great one underneath.

I have bought seventeen dental practices. Every one of them came with a folder: a broker's summary, a handful of spreadsheets, and a seller who believed the practice was worth exactly what they were asking. My job before I write an offer is to find out whether that folder tells the truth, and if it doesn't, whether the practice underneath it is still worth buying.

This is the list I actually run, in the order I run it. It is not a substitute for your attorney, your CPA, or a broker who has done this before you. It is the filter I use before I spend real money finding out that a deal I liked on paper doesn't survive a second look. Read it alongside the valuation methods piece and run the collections and overhead you pull here through the practice valuation tool, since the numbers on this list are exactly what feeds that math.

Start with the numbers, not the tour#

Before I look at a single operatory, I ask for three full years of P&L statements and the tax returns that go with them. Not the seller's best year. All three, together.

The reason for three years instead of one is simple: one year is a snapshot, three years is a trend. Is production climbing, flat, or sliding? Did a big swing happen because of a new associate, a lost payer contract, or something the seller isn't mentioning? A practice in decline can still be a fair deal, but only at the right price, and you cannot see the decline in a single year.

The tax return matters just as much as the P&L, because it is a different document written for a different audience. The P&L is the story the seller wants you to believe. The tax return is what they told the IRS. When the two don't roughly agree, or when a P&L only exists for the one flattering year, that mismatch is itself the finding. I would rather find that out on day one than discover it during the loan underwriting.

If you want the full method for reading what's in front of you once you have these in hand (the add-backs, the overhead split, the difference between the seller's story and the number the tax return actually supports) I wrote a whole piece on how to read the P&L once you have it in your hands.

Production and collections, by provider and by payer#

A single top-line collections number hides more than it reveals. Ask for production and collections broken out by provider and by payer.

By provider tells you how concentrated the practice is. If one dentist, usually the seller, produces 80% or more of everything, you are buying a practice that walks out the door with them unless there is a real transition plan. That is a different purchase than one where two or three providers already carry meaningful production independent of the owner.

By payer tells you where the margin actually goes. A practice that looks strong on total collections can be quietly propped up by one or two payers with terrible reimbursement, which means the real, sustainable number is lower than the headline. It also tells you which contracts are worth renegotiating and which patients might leave if you drop a plan later.

AR aging: the tell financial culture leaves behind#

If I could only request one report beyond the P&L, it would be the accounts receivable aging. Look specifically at the 60-day and 90-day buckets, not just the total.

A clean AR aging report, mostly current with very little in the older buckets, tells you the front office collects at time of service and follows up on claims. A bloated 60/90-day bucket almost always means the opposite: the practice bills patients after insurance pays, chases balances instead of collecting them up front, or simply doesn't follow up on denied claims.

That habit is a financial-policy problem, and financial-policy problems are some of the hardest things in a practice to fix. Staff are used to it, patients expect it, and changing it always costs you some number of patients who leave rather than pay differently than they're used to. I would personally devalue a practice for a bad AR picture, the same way I would for any of the other red flags that show up before you ever open a chart. A practice with a bloated AR almost never has smooth, predictable cash flow either: the two problems usually travel together, and you inherit both on day one.

Fee schedules and PPO contracts#

Request the practice's full fee schedule and copies of every actual PPO contract, not just a summary of what the practice is "in network with." A broker's list of accepted plans tells you almost nothing about what those plans actually pay.

Compare the fee schedule to the contracted rates plan by plan. A practice that hasn't touched its fees in years, or that is contracted into several plans at steep write-offs, has real upside if you're willing to do the negotiating work, but it also means the collections number you're valuing today is lower than what a well-run version of the same practice could collect. Whether a fee schedule is directly negotiated or leased through a larger network affects how much room you actually have to move it, and that is worth confirming before you assume you can simply raise fees after closing.

Active patients and hygiene recall#

Two numbers in almost every broker's package deserve more scrutiny than they usually get: the active patient count and the hygiene recall statistics.

"Active" is not a standard term. Some sellers count everyone who has ever been seen. Others use an 18-month or 24-month window. A practice claiming 3,000 active patients on an "ever seen" basis and one claiming 3,000 on an 18-month window are not remotely the same business. Ask for the exact definition, then ask for the raw report the number came from, not just the summary slide.

Hygiene recall statistics matter because hygiene is the engine that keeps a general practice healthy. A strong recall percentage means the patient base is actually coming back, which is what protects the revenue you're paying for. A weak one means the collections number you're buying today has a shorter shelf life than it looks like on paper, no matter how good this year's numbers are.

The lease, the equipment, and the team#

Three more items round out the list, and none of them are optional.

The lease deserves its own read, separate from everything else, because it is one of the few costs you are locked into for the length of your ownership. Get the term, the renewal options, whether it's assignable to you as the buyer, and what happens if the landlord doesn't want to deal with a new owner. I've written before about keeping total facility cost at 7% of collections or less; you cannot check that number without the actual lease in hand, not the seller's description of it.

The equipment list and its ages tell you what you're about to spend right after closing that the seller isn't paying for. A practice with a ten-year-old panoramic unit and handpieces that are older than that is going to cost you money in year one, whatever the purchase price says.

The staff roster, with wages and tenure, tells you about the team you're inheriting before you've met them. Long tenure at reasonable pay is a good sign. A roster full of recent hires, or wages well below what you'd need to pay to replace someone, means turnover risk you're buying along with everything else.

Document	What it tells you	The red flag to watch
3 years of P&L + tax returns	The trend, and whether the story matches the return	P&L and tax return disagree, or only one flattering year exists
Production & collections, by provider/payer	Owner dependency, and where margin actually goes	Production heavily concentrated in the seller alone
AR aging	The practice's real financial culture	A large 60/90-day bucket
Fee schedule & PPO contracts	Room to negotiate, and true collectible value	Fees untouched for years across multiple low-paying plans
Active patients & hygiene recall	Whether the revenue you're buying is sticky	An inflated "active" count or weak recall percentage
Lease	A locked-in cost for the length of your ownership	Facility cost creeping toward 10%+ of collections
Equipment list & ages	What you'll spend right after closing	Aging major equipment with no service history
Staff roster, wages & tenure	The team you're inheriting	High recent turnover or below-market wages

The order I run it in#

The order I run it in. Numbers first, contracts second, people and property last.

Numbers before optics, every time. I run these in the same sequence every time, because the order protects you from falling in love with a practice before you've seen the numbers.

1. Financials first. Three years of P&L and tax returns, then production and collections by provider and payer, then AR aging. If these don't hold up, nothing else on this list matters yet.
2. Contracts second. Fee schedules and PPO agreements, once you know the collections number is real.
3. People and property last. Active patients, hygiene recall, the lease, the equipment list, and the staff roster. These shape the price and the transition plan, but they rarely change whether the deal is worth doing at all.

None of this replaces your own attorney and CPA reading the actual agreements: asset allocation, non-competes, and the purchase agreement itself are exactly where they earn their fee. But if you run this list, in this order, before you fall for a listing photo, you'll know within a week whether a practice deserves the money it costs to find out for certain. From here, the acquisitions and transitions hub has the rest of the sequence: reading what these documents mean, valuing the practice, and putting a letter of intent in writing.