Dental Practice Due Diligence Checklist (2026)

The Five Diligence Streams

Dental practice due diligence has five distinct workstreams. Each requires different expertise; each can independently kill or modify the deal.

Stream 1: Financial Due Diligence

Goal: Verify that the practice's financial performance is what the listing claims.

Cost: $3,000–$8,000 (dental CPA)

Time: 1–2 weeks

Your dental CPA reviews:

• 3 years of practice tax returns (1120, 1120S, or Schedule C depending on entity)
• 3 years of P&L statements and balance sheets
• Year-to-date P&L and balance sheet
• 12 months of bank statements
• Production and collections reports from practice management software
• Insurance write-off reports by payer
• Adjustment reports (insurance, courtesy, write-offs)
• Accounts receivable aging report
• Equipment depreciation schedule
• All vendor contracts and lease obligations

What they'll find: normalization adjustments (owner expenses run through practice, one-time costs, fair-market owner compensation), revenue trend analysis, profit margin trajectory, and the "real" cash flow available to a new owner.

Stream 2: Clinical Due Diligence (Chart Audit)

Goal: Verify clinical quality, billing accuracy, and patient base health.

Cost: $1,500–$5,000 (dental consultant or clinical reviewer)

Time: 1–2 weeks

A clinical reviewer samples 20–40 patient charts and evaluates:

• Treatment plan completion rates (started but unfinished work is a hidden liability)
• Hygiene recall compliance
• Periodontal diagnosis and treatment standards
• Radiographic frequency and quality
• Documentation quality (medical history updates, informed consent, treatment notes)
• Billing accuracy (procedures billed vs. procedures documented)
• Insurance code usage patterns
• Charting consistency across providers

What they'll find: If the practice has 60% recall rate while the seller claims 80%, that's a material misrepresentation. If 30% of charts show unfinished crowns that have been billed as completed, that's a billing problem the new owner inherits. Chart audit catches problems financial review cannot.

Stream 3: Legal Due Diligence

Goal: Verify contracts, leases, and regulatory compliance.

Cost: $3,000–$6,000 (dental attorney)

Time: 1 week (parallel with other streams)

Your dental attorney reviews:

• Office lease (term remaining, renewal options, assignment clause, operating expense escalations)
• Equipment leases and finance agreements
• Employment agreements with associates and staff
• Insurance carrier contracts (PPO contracts and their assignment provisions)
• Vendor and service agreements (lab, supplies, IT, billing service)
• Patient warranty and remake obligations
• Active or pending litigation (malpractice, employment, vendor disputes)
• State dental board records (any complaints, investigations, or discipline)
• DEA registration and controlled substance compliance
• HIPAA compliance and breach history
• OSHA compliance and recent inspection history

What they'll find: Lease assignment clauses that require landlord approval (and may give the landlord leverage to raise rent). Restrictive insurance contracts. Pending malpractice claims that weren't disclosed. The legal review is the highest-stakes diligence stream — single findings can kill deals or require six-figure escrow holdbacks.

Stream 4: Practice Valuation

Goal: Independent professional valuation for purchase decision support and lender requirement.

Cost: $3,000–$6,000 (qualified dental practice appraiser)

Time: 2–4 weeks

The valuation typically arrives 2–4 weeks after engagement and includes:

• Multi-method valuation (EBITDA multiple, collections multiple, asset-based)
• Normalized financial analysis
• Comparable transaction analysis
• Specific risk factor adjustments
• Real estate valuation if applicable
• Goodwill vs. tangible asset breakdown

Practice lenders almost always require an independent valuation regardless of your decision-making preference. Choose an appraiser before lender selection so the valuation can be used by whichever lender you ultimately select.

Stream 5: Equipment & Technology Inspection

Goal: Verify operational condition of major equipment and assess upgrade requirements.

Cost: $500–$1,500 (equipment technician)

Time: 1 week

The equipment inspector evaluates:

• Operatory equipment age, condition, and remaining useful life
• Imaging equipment (X-ray, panoramic, CBCT) — calibration, software updates needed
• Sterilization equipment and compliance status
• HVAC and infrastructure (often overlooked but expensive when failed)
• Practice management software version and license transferability
• IT infrastructure and cybersecurity posture
• Patient experience equipment (TV, music, comfort items) condition

Diligence Timeline (Typical 45-Day Process)

Document Request List for Seller

The complete document list to request immediately after LOI signing:

1. 3 years of business tax returns (full returns with all schedules)
2. 3 years of personal tax returns (Schedule C if sole proprietorship)
3. 3 years of P&L and balance sheet
4. Year-to-date P&L and balance sheet
5. 12 months of business bank statements
6. Production report by procedure code (last 12 months)
7. Collections report (last 12 months)
8. Adjustment report by category (last 12 months)
9. Patient count report — active patients in last 18 months
10. New patient count by month (last 24 months)
11. Insurance payer mix (revenue by carrier)
12. PPO contracts (all carriers)
13. Office lease (with all amendments)
14. Equipment leases and finance agreements
15. Employment agreements (all staff)
16. Vendor and service contracts
17. Equipment inventory list with year/model
18. Practice management software access for read-only review
19. State dental board verification (good standing)
20. Malpractice insurance certificates and claims history
21. Lab fee summary (last 12 months)
22. Supply spend summary (last 12 months)
23. Hygiene production report
24. Recall report with date ranges

The 8 Biggest Red Flags

1. Declining collections trend (12+ months) — Anything other than flat-to-growing requires investigation. Find the cause before buying.
2. Aging patient base (avg patient age 55+) — Revenue cliff approaching as patients age out of regular dental care.
3. Insurance concentration (40%+ from one payer) — Carrier contract changes can collapse practice revenue overnight.
4. Owner produces 80%+ of revenue — Massive transition risk. Seller exit destroys the practice without retention strategy.
5. Lease ending within 24 months — Forced relocation or unfavorable renewal during your transition year.
6. Active malpractice claim or board investigation — Liability transfer is complex and may require escrow holdback or deal restructuring.
7. Recall rate below 60% — Hygiene revenue is dangerously thin. Patient retention is at risk.
8. Staff turnover above 30% (last 12 months) — Culture problem the new owner inherits. Risk of mass departure during transition.

What Diligence Findings Should Trigger

• Minor findings (under 5% of price impact): Document; address in transition planning; proceed at agreed price.
• Moderate findings (5–15% impact): Renegotiate price down or restructure deal (longer seller transition, seller carryback, escrow).
• Major findings (15%+ impact): Major renegotiation or walk away. Common triggers: declining revenue not disclosed, undisclosed litigation, lease issues, significant unfinished clinical work liability.

Related Resources

• How to Buy a Dental Practice (Step-by-Step)
• Practice Valuation Methods
• Finding a Dental CPA
• Working with Practice Brokers