Start with where the production actually comes from
The first diligence question is not how much the practice bills, but who bills it. Pull production by provider from the practice management software and split it three ways: the selling dentist, any associates, and hygiene. A practice where the vendor personally produces most of the dentistry is really a job with goodwill attached, and its revenue walks out the door with them unless your own clinical profile can replace it; a practice carried by associates and a strong hygiene program transfers far more reliably.
Then read the procedure mix. A vendor who refers out molar endo, surgery, implants or ortho leaves upside for a buyer who does that work, while a vendor who does everything in-house leaves you a gap if you do not. Check how the fee schedule relates to the current Ontario fee guide, because billing well below guide flatters patient loyalty and understates what honest fees would do to retention. Confirm whether the practice takes assignment, insurers paying the practice directly, or collects from patients, since that changes both the receivables you are buying and the patient behaviour you inherit.
Finally, weigh revenue concentration. A practice fed by one referral relationship, one employer's insurance plan or one demographic wave carries a risk the appraisal rarely prices. None of this appears on a profit-and-loss statement, which is precisely why diligence starts in the operational reports rather than the financials.
What to request, and what each item tells you
Diligence runs on documents, so send the request list early and treat reluctance to produce any item as information. This is the core list we work from on the financial side:
| What to request | What it tells you |
|---|---|
| Three years of financial statements and corporate tax returns | The earnings trend, and whether the books agree with what was filed |
| Production reports by provider and by procedure code | Vendor-dependence, hygiene strength and the procedure mix you are buying |
| Active patient count, with the definition used | The real size of the asset; definitions stretch from 12 to 24 months |
| New patient numbers by month, with source | Whether the practice is growing, flat or quietly shrinking |
| Accounts receivable aging, split patient and insurance | Collection discipline, and how much of the receivable is really money |
| The premises lease and every amendment | Whether the location survives as long as your financing does |
| Staff list with roles, tenure, pay and contracts | The obligations that transfer with the team, and who might leave |
| Equipment list with ages, plus service records | The capital spending hiding behind the purchase price |
| The appraisal with its assumptions | What the price is built on, so each assumption can be tested |
Reconcile the production reports to the financial statements before relying on either. The gap between chairside production and banked revenue is where write-offs, adjustments and collection problems live, and a practice whose clinic reporting will not tie to its statements has told you something important about how it is run.
Count the patients who are actually active
An active patient is one the practice has seen recently, and the definition does more work than any other number in the appraisal. A chart counted as active after twelve months of attendance is a real asset; a count that sweeps in anyone seen in the last twenty-four months can overstate the practice substantially. Ask which definition the appraisal used, then pull the count yourself, or have your accountant pull it, directly from the practice management software, whether that is Dentrix, ABELDent, Tracker, ClearDent or another system.
Recall is the machinery that keeps the count honest. Look at hygiene rebooking rates, how far the hygiene schedule is booked out, and how many recall patients actually show, because a strong recall program is the difference between a patient list and a patient base. Set that against new patient flow by month, with sources: a practice adding steady new patients from its neighbourhood is compounding, while one whose new patients arrived mostly through the vendor's personal reputation is a retention bet.
Demographics deserve ten minutes. An aging patient base in an aging plaza is a different purchase from a young family practice beside a growing subdivision, at the same price and the same production. You are buying the next ten years of appointments, not the last three years of statements.
Normalize the earnings to your ownership
The number that matters is what the practice earns under you, which is never the number on the vendor's statements. Rebuild the earnings line by line. Replace the vendor's compensation, however it was drawn, with the real cost of the clinical role: your own production profile if you are taking over the chair, or market associate compensation if someone else is. Remove family members on payroll who will not stay, personal vehicles, travel, insurance and whatever else was run through the practice, and price back in anything the vendor did free that you will pay for.
Check the ratios against the practice's own history as much as any benchmark: lab fees, supplies and staff costs as shares of production, trending over the three years. A sudden improvement in the year before sale is a flag, not a gift; costs deferred to dress the statements, hygiene days cut, or fee increases pushed through just before listing all borrow from the buyer's first year. The normalized figure you land on is the one that must carry the financing, your income and tax, which is why this work and the lender package are one exercise, covered from the financing side in how do you finance the purchase of a dental practice.
Your own compensation planning belongs in the same model, since debt repayment inside a professional corporation changes how you should pay yourself; the mechanics live at salary vs dividends for incorporated dentists. Run the model at your numbers, not the appraisal's, before you waive conditions.
Premises, people and equipment
The lease can kill a deal that the numbers approve, so read it early. Lenders want the term plus renewal options to run at least as long as the loan amortization, and a demolition or relocation clause can end a practice mid-financing regardless of how well it performs. Confirm the rent, the escalations, who consents to the assignment, and any exclusivity or use clauses, then have your lawyer confirm what you think you read.
Staff are an asset and an accrued obligation at once. Long-tenured teams hold the patient relationships that make the practice transferable, and Ontario employment standards treat service as continuous when a business is sold and the buyer keeps the employees, so those years of service, and the entitlements they carry, come with the team even in an asset deal. Get tenure, pay and any contracts in writing, compare compensation to market, and plan the retention conversation for the hygienists and coordinators the patients actually know.
Equipment and technology set the first capital budget. Age the chairs, compressors, imaging and sterilization, read the service records, and price what the next thirty-six months realistically require, because a tired operatory or an end-of-life pano is a purchase-price adjustment wearing overalls. Confirm the practice management software transfers with its data, and what converting to your preferred system would cost in money and disruption.
A share deal means auditing the corporation's history
Buying shares means buying every year the corporation has already lived, so diligence widens beyond the practice to the entity. The vendor's professional corporation comes with its filed tax returns and any positions the CRA has not yet examined, its payroll account and remittance history, and any HST account it holds, along with every liability that has not surfaced yet. Your accountant reviews the open years and account balances; your lawyer converts what cannot be verified into indemnities and holdbacks. Vendors push share deals because the lifetime capital gains exemption rewards them, which is fine, provided the price and the indemnities pay you for the history you are absorbing.
Structure diligence also means mapping the entities. Ontario's professional corporation rules mean the shares must land in your hands personally rather than in a holding company, and some practices run a separate technical or hygiene services corporation whose contracts, payroll and intercompany charges need their own review. Ask directly whether any related company touches the practice; a multi-entity setup discovered after closing is diligence that got skipped.
Five facts decide how deep to dig: how much of production is the vendor's own hands, the active-patient definition behind the price, the lease term against your financing, asset deal or share deal, and the size of the capital spend the equipment list implies. When those five are known, the rest of diligence is confirmation. We run this as defined-scope work through Strategic Projects, a CPA team that works with incorporated healthcare professionals across Ontario every week, and the ownership years that follow are mapped at accounting and tax planning for dental practices. After a free 15-minute discovery call, scope and fee arrive in writing.
