Quality of earnings

A quality of earnings review goes further than a standard financial due diligence pass, testing not just whether a practice's reported earnings are accurate, but whether they are genuinely sustainable and likely to continue under new ownership. It asks harder questions than a simple P&L review: is a large share of production concentrated in the selling doctor's own personal relationships and unlikely to transfer, was there a one-time spike in a particular procedure that inflated a recent year, is the add-back list padded with items that don't hold up to scrutiny.

This level of review is more common in larger practice acquisitions and DSO-backed deals than in a straightforward single-practice purchase between individual dentists, largely because of the added cost, but the underlying discipline is worth applying at any deal size where the buyer has real doubts about whether the numbers presented tell the whole story.

A quality of earnings review is typically performed by a specialized accounting firm rather than the buyer's regular CPA, and for a larger or more complex acquisition, the cost is generally small relative to the risk of overpaying for earnings that don't actually survive the transition.