Performing your due diligence on buying into a practice can bring up many things that make you excited about the opportunity. Once you get beyond acknowledging the challenges, you may see some red flags.
What would be considered a “red flag” in a buy-in scenario?
Your first red flag is if the senior doctor hasn’t performed their due diligence.
- Ensure the senior doctor has met with his/her CPA to discuss the tax implications of the potential buy-in.
- Is the senior doctor aware of future compensation changes that may occur?
- Do they have the support of their spouse?
- Are they prepared for the timing of the buy-in?
- What do they want for the practice portion you will be buying?
You want to know this all upfront before you spend money with a team of advisors because they may back out of the deal if they are not fully prepared for the outcome.
If the practice cannot support 2 (or more) doctors from a production, profit and compensation standpoint, then that is another major red flag.
Not allowing you to see certain clinical, financial or operational information on the practice is red flag #3. If you have a list of items you would like to see as you are performing your due diligence and the senior doctor will not share those items with you, then that is a red flag.
If the structure of the current entity is NOT favorable to you as the buyer and they are not willing to discuss other options, then you may contemplate not buying into the practice and that will trigger another red flag. The entity structure can definitely have major tax consequences to you if it is not properly structured.
Red flag #5 — feeling rushed!
You do not want to be rushed into making a decision. You want to be respectful of the timing the senior dentist wants to accomplish, but you do not want to be pressured or rushed into making a decision if it means you will not have the proper time to perform your due diligence.
The practice buy-in is one of the most complex and critical decisions you will make. Take your time and perform your due diligence to ensure this is the right decision for you ALL the way around. Be cautious of any of these red flags and don’t be afraid to ask questions and dig further into the details, if needed.