Ophthalmology Practice Due Diligence Checklist
Buying an ophthalmology practice is a major commitment. Before completing the transaction, buyers should take the time to understand exactly what they are purchasing.
Due diligence can uncover financial, operational, staffing, equipment, or contractual issues that may not be obvious from the initial listing or asking price.
For physicians considering ophthalmology practice financing, completing due diligence can also provide important information for evaluating the overall transaction.
Financial Records
Start with the numbers.
Review the practice’s financial information over multiple years, including:
* Profit and loss statements
* Tax returns
* Revenue and collections
* Operating expenses
* Payroll
* Accounts receivable
* Existing debt
* Major recurring expenses
Look for significant changes in revenue or expenses and ask questions about anything that appears unusual.
Patient Base
An established patient base is often one of the most valuable parts of a medical practice.
Review patient volume, retention, new-patient activity, referral sources, and trends in appointments.
The goal is to determine whether the practice’s current patient activity is likely to be sustainable after the ownership transition.
Equipment
Create an inventory of major equipment and determine its condition.
Important questions include:
* How old is the equipment?
* Is it owned or leased?
* Is any equipment financed?
* Is it under warranty?
* What maintenance is required?
* Will anything need to be replaced soon?
A practice with aging equipment may require additional capital after closing.
Employees
Understand who actually keeps the practice running.
Review staffing levels, compensation, benefits, tenure, responsibilities, and employment arrangements.
It is also worth identifying employees who perform particularly important functions and determining whether they plan to remain after the sale.
Real Estate and Lease
If the practice leases its facility, carefully review the lease.
Look at the remaining term, renewal options, rent increases, responsibilities for repairs, and any restrictions that could affect the practice.
If commercial real estate is being purchased, the property should also be evaluated separately from the operating business.
Contracts and Obligations
Review contracts with vendors, equipment providers, software companies, employees, landlords, and other parties.
The buyer should understand which obligations will continue after closing and whether any contracts require consent or renegotiation.
Licensing and Compliance
Make sure the practice has the appropriate licenses and registrations required for its operations.
Any outstanding regulatory or compliance issues should be identified before the transaction is completed.
Insurance
Review the practice’s existing insurance coverage.
This may include professional liability, general liability, property coverage, workers’ compensation, cyber insurance, and other applicable policies.
The buyer should understand what coverage will be needed after the ownership change.
Technology and Records
Technology can be easy to overlook during an acquisition.
Review the practice’s electronic health records, practice-management software, billing systems, website, phone systems, cybersecurity measures, and other technology.
Make sure the buyer will have appropriate access and that important systems can transition smoothly.
Revenue Sources
Not all revenue necessarily comes from the same source.
Review the practice’s payer mix, insurance relationships, self-pay revenue, referral sources, and other major sources of income.
Understanding where revenue comes from can help a buyer evaluate the stability of the business.
Accounts Receivable
Outstanding receivables deserve particular attention.
Determine how much money is owed to the practice, how old those balances are, and how collections are handled.
A large accounts-receivable balance does not automatically mean the practice will collect all of it.
Seller’s Reason for Selling
Ask why the owner is selling.
Retirement is a common reason for an ophthalmologist to transition out of practice ownership, but buyers should understand the specific circumstances surrounding the sale.
Future Capital Needs
Consider what the practice will need after closing.
Potential future expenses could include equipment replacement, renovations, additional staff, technology upgrades, or expanded services.
These costs should be considered when determining whether the purchase price makes financial sense.
Questions to Ask Before Closing
Before completing the acquisition, a buyer should have clear answers to questions such as:
* Are the financial statements consistent with the asking price?
* Is patient volume stable?
* Will key employees remain?
* Is the equipment in good condition?
* Are there outstanding liabilities?
* Are important contracts transferable?
* Does the facility meet the practice’s future needs?
* Will additional capital be required shortly after closing?
Don’t Do Due Diligence Alone
A practice acquisition involves legal, financial, tax, and operational considerations.
An attorney, accountant, valuation professional, and financing specialist can each provide expertise in different areas of the transaction.
Final Thought
Due diligence gives an ophthalmologist the opportunity to understand the practice before becoming responsible for it.
Reviewing financial records, patients, employees, equipment, contracts, real estate, technology, liabilities, and future capital requirements can help a buyer make a more informed decision and identify potential problems before closing.
