The Due Diligence Process: What Should a Seller Expect?
Does the buyer of a veterinary practice have the right to know everything there is to know about your practice if you are selling it? The answer is “mostly, yes.”
It is best to be prepared for a full disclosure process. If there are any skeletons in the practice’s closet, you should deal with those before putting the practice on the market if at all possible.
The process will likely be broken down into 3 areas of investigation:
Operations – The buyer will want to investigate the day to day operations of the practice. This may include:
- Your record keeping
- Client appointments and surgeries done each day
- How the practice is staffed, what hours they work, what qualifications they have, and if they are aware of the impending sale
- Are Associates, if any, under contract with a non-compete
- What Practice Management Software is used, whether it is the current version, and whether the practice is paperless
- The buyer will want specific reports from the software such as price list, travel sheet, production reports, # of active clients & patients, # of new clients in the last 12 months, inventory reports, and more
Financial – The buyer will want the investigation of the financials of the practice to include:
- The last 3 years of business tax returns
- The last 3 years of Balance Sheets and Profit and Loss Statements
- Leases on equipment and/or Real Estate -Payroll Reports
- The last 3 years of W-2’s and 1099’s for veterinarians in the practice
- Proof of any owner benefit or personal expenses.
- Some may want to see bank statements or general ledger reports from Quickbooks or a similar software
Legal – Buyers will want to know the following:
- What are the legal entities and principal owners of the practice and/or Real Estate?
- Are there any liens on any of the assets being sold?
- Are there any judgements against the practice or the owner?
- Are there any active or pending lawsuits against the practice or any license action against any of the Associates that may be staying on after the sale?
Hopefully this will serve as guideline of what you might expect as a seller of a veterinary practice.
It is important to note that none of this information should be provided to a buyer without an agreed upon Letter of Intent and the buyer signing a Confidentiality Agreement.
The bottom line is that when you put your practice on the market, full disclosure is the order of the day. If you fail to reveal certain pertinent information, you could find yourself in a breach of contract action if the buyer deems the undisclosed information would have affected the price or terms of the transaction.
Dr. Richard Alker
Total Practice Solutions Group, Florida Representative