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Financial Due Diligence Can Make the Difference

By: Scott Fisher

So you think you've found your dream practice. Great location, perfectly designed treatment rooms, top-of-the-line equipment. After speaking with the selling doctor, you discover that you both have the same patient-care philosophy. It seems perfect, or is it?

To ensure you're making the right decision, it's critical to perform financial due diligence before you sign on the dotted line. Your CPA is generally the ideal person to perform this procedure. For the best possible outcome, use a CPA who specializes in working with doctors like you and who has reviewed many similar practices.

One of the largest asset you are purchasing when you acquire a practice is the practice goodwill: the sum of all the intangible attributes of the business, such as environment, philosophy, and patient treatment. While this can be a bit more difficult to quantify, there are a few areas where you can get the kind of financial assurance you need to move forward: a bank deposit analysis and a net cash flow analysis.

Bank Deposit Analysis: Review the receipts for at least the last two years. Compare the collections with the amounts shown on the sellers accounting records (usually the general ledger prepared by the sellers CPA or the seller-prepared records). Then, total the bank deposits made to the seller's bank account and compare all of the numbers to the seller's tax returns. If there are discrepancies between any of these sources, investigate further.

Cash Flow Analysis: It is critical to determine how much net income from the practice will remain after paying the loan payment to the bank or lending institution. Your CPA will start with the net income from either the profit and loss statement or tax return and then add back the owner's salary and fringe benefits, such as automobile and pension, as well as depreciation and interest expense. This will determine the practices true net profit. The monthly loan payment is then subtracted from that number to determine the net income. Remember that cash flow is a key indicator of the health of the practice.

Once the bank analysis and cash flow analysis are complete, you can feel confident to move on with further due diligence to include facility, staff, competition in the area, location, and the development of a marketing plan to attract new patients. And don't forget the seller may be doing his or her own due diligence on you!

About the Author

Scott Fisher is the Business Development Manager for Wells Fargo Practice Finance in South Texas. As an experienced consultant and finance expert, he speaks to healthcare professionals advising in practice planning strategies for emerging and established practitioners. His industry background offers practitioners a unique perspective as they approach some of the most important decisions in their professional lives. With more than 25 years of healthcare experience, Wells Fargo Practice Finance specializes in helping healthcare professionals acquire, start and expand their practices with various financing options and a signature Practice Success Program. Contact: Scott.Fisher@wellsfargo.com 855-740-4013

View all articles by Scott Fisher


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All financing is subject to credit approval.

All financing is subject to credit approval.

All financing is subject to credit approval.

All financing is subject to credit approval.

All financing is subject to credit approval.

All financing is subject to credit approval.

All financing is subject to credit approval.

All financing is subject to credit approval.

All financing is subject to credit approval.

All financing is subject to credit approval.

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