Imagine you’re about to purchase a charming home. The hardwood floors gleam, the kitchen boasts modern appliances, and the backyard is perfect for summer barbecues. Enamored by the aesthetics, you finalize the purchase without a second thought. Months later, you notice cracks in the walls and doors that won’t close properly. A structural engineer delivers the dreaded news—the foundation is compromised, requiring extensive repairs that drain your savings.
Just like buying a home with unseen structural problems, purchasing a dental practice without a thorough evaluation can lead to costly surprises. To avoid potential pitfalls, it’s essential to recognize warning signs before committing to a purchase.
Here are some of the most common red flags to watch for when evaluating a practice.
- Inaccurate Representation of Active Patient Numbers
An inflated count of active patients is a common concern when purchasing a dental practice. For example, if a broker claims the practice has 2,400 active patients but only operates three hygiene days per week, the numbers likely don’t add up. To verify the actual patient count, request detailed reports from the practice management software and conduct a thorough chart audit to confirm accuracy. - Limited Access to Staff and Records Before Purchase
If a seller refuses to let you meet the staff or review important records before purchasing the practice, it may be a sign of underlying issues. Without access to this information, you risk walking into a situation with operational problems or staff conflicts. Always insist on meeting the team and reviewing key documents to ensure a smooth transition. almost every case, the Seller will not want to let team members know about the sale until legal documents are signed. Work diligently toward signing the legal documents early (with contingencies to close!), so that you can meet with the key team members ahead of the closing date and they can be better suited to assist you in the transition. - High Employee Turnover
Frequent staff changes can disrupt practice operations, impact patient satisfaction, and indicate deeper management issues. If employees are constantly leaving, there could be problems with leadership, workplace culture, or job expectations. Before finalizing the purchase, review employment records and speak with current staff to understand the work environment and reasons behind any turnover. - Overstated Financial Health
It’s important to closely examine financial statements to catch any inflated revenue claims or hidden expenses. Some practice owners may use business accounts to cover personal expenses, making the financials appear stronger than they actually are. A detailed review by a dental-specific CPA can help uncover any discrepancies and ensure the financials accurately reflect the practice’s true performance. - Seller’s Unwillingness to Disclose Information
A seller who is secretive or avoids answering key questions during the due diligence process can create major risks. In some cases, sellers may even withhold information from their own staff or referral partners about an impending sale. Transparency is critical—if a seller isn’t forthcoming with essential details, it may be a sign to reconsider the purchase.
Purchasing a dental practice is a major investment, and overlooking hidden issues like inflated patient numbers or financial discrepancies can lead to costly mistakes. Engage Advisors’ Buyer’s Advisory Services helps dentists navigate the process with expert financial due diligence, tax and cash flow analysis, and negotiation support. Their team ensures you don’t overpay, uncover hidden risks, and secure financing that maximizes profitability.