Due Diligence Checklist: The 73-Point Verification System

Updated March 2026 | Due Diligence | 50 min read

Dr. Jennifer Walsh spent $340,000 more than she should have because she skipped one item on this checklist. The practice looked perfect: $1.6 million collections, 3,200 active patients, modern equipment, stable staff. The seller was retiring after 30 years, seemed trustworthy, provided all requested documents. Dr. Walsh completed 90% of her due diligence in 3 weeks. She never checked the insurance credentialing status. Six months after closing, she discovered the practice had lost its Delta Dental participation 8 months prior to sale. The seller knew—he'd received the termination letter—but "forgot" to mention it. Delta represented 42% of the practice's patients. By the time Dr. Walsh was credentialed (6 months later), 35% of those patients had left. Revenue dropped $560,000 in year one. This checklist exists to prevent that disaster. Seventy-three specific verification points organized by category, with timelines, red flags, and the non-negotiable items that separate smart buyers from regretful ones.

The Due Diligence Timeline

Proper due diligence takes 45-60 days. Here's the optimal sequence:

Week	Focus Area	Key Activities	Deliverables
1	Financial Document Collection	Request all financial records	Complete document set
2	Financial Analysis	Analyze trends, ratios, normalize	Financial summary report
3	Legal Verification	License check, litigation search	Legal clearance memo
4	Operational Review	Staff interviews, systems review	Operations assessment
5	Clinical Audit	Chart review, compliance check	Clinical quality report
6	Patient Base Analysis	Verify counts, retention analysis	Patient database report
7-8	Final Verification	Follow-ups, outstanding items	Final due diligence memo

Phase 1: Financial Due Diligence (The Foundation)

Revenue Verification (Critical)

☐ Tax Returns (3 years):
- Request full returns, not just summaries
- Verify against internal financials
- Look for amendments or corrections
- Check for consistency year-over-year

☐ Monthly Production Reports (24 months):
- Graph trends (should be stable or growing)
- Identify seasonal patterns
- Verify production matches collections
- Check for unusual spikes or drops

☐ Monthly Collection Reports (24 months):
- Calculate collection ratio (should be 95%+)
- Identify declining trends
- Verify against bank deposits
- Check for month-end acceleration (red flag)

☐ Fee Schedule Analysis:
- Current fee schedule vs. competitors
- PPO write-off percentages by plan
- Historical fee increases (inflation tracking)
- Coding patterns (upcoding red flags)

☐ Accounts Receivable Aging:
- Current A/R balance
- Percentage over 90 days (should be <15%)
- Collection effectiveness
- Insurance vs. patient A/R breakdown

A/R Red Flag Calculation

Practice A:
Total A/R: $180,000
0-30 days: $95,000 (53%)
31-60 days: $45,000 (25%)
61-90 days: $25,000 (14%)
90+ days: $15,000 (8%)
Assessment: HEALTHY

Practice B:
Total A/R: $220,000
0-30 days: $80,000 (36%)
31-60 days: $50,000 (23%)
61-90 days: $40,000 (18%)
90+ days: $50,000 (23%)
Assessment: RED FLAG - Poor collections, possible write-offs needed

Expense Verification

☐ Overhead Analysis:
- Calculate overhead percentage (target: 55-65%)
- Compare to industry benchmarks
- Identify unusual expense categories
- Verify payroll tax calculations

☐ Rent/Lease Review:
- Current rent per square foot
- Escalation clauses
- Renewal options
- Assignment restrictions
- CAM charges and responsibilities

☐ Payroll Verification:
- Employee roster with salaries
- Benefits costs
- Payroll tax compliance
- 1099 contractor agreements
- Staff turnover history (3 years)

☐ Equipment Leases:
- Monthly payment obligations
- Remaining term
- Buyout provisions
- Transferability
- End-of-lease responsibilities

Profitability Normalization

☐ Owner Discretionary Expenses:
- Personal vehicle through practice
- Family member salaries
- Non-business travel/meals
- Personal insurance
- Home office expenses

☐ Adjusted Net Income Calculation:
- Start with practice net income
- Add back: Owner salary, discretionary expenses, depreciation
- Subtract: Fair market owner compensation
- Result: True practice profitability

Phase 2: Legal Due Diligence (The Protection)

Licensing and Compliance

☐ Dental License Verification:
- Current status (active, no restrictions)
- License type (general vs. specialty)
- Any disciplinary actions
- Continuing education compliance
- Multi-state licenses if applicable

☐ DEA Registration:
- Current and valid
- Schedules authorized
- No restrictions or suspensions
- Address matches practice location

☐ State Board Compliance:
- No pending investigations
- No recent complaints
- Radiation safety certification current
- OSHA compliance documentation
- HIPAA compliance verification

Litigation and Claims

☐ Malpractice Insurance History:
- Current carrier and limits
- Claims history (5 years)
- Premium trends
- Tail coverage availability/cost
- Any coverage denials

☐ NPDB Query:
- National Practitioner Data Bank report
- Malpractice payments
- Adverse actions
- License restrictions

☐ Court Records Search:
- State and federal litigation
- Pending lawsuits
- Judgments or liens
- Bankruptcy history

Contracts and Agreements

☐ Lease Assignment:
- Landlord approval required?
- Assignment fees
- Personal guarantee transfer
- Security deposit transfer

☐ Equipment Financing:
- Outstanding balances
- Transferability
- Payoff requirements
- UCC filings

☐ Employee Contracts:
- Non-compete agreements
- Compensation commitments
- Benefits obligations
- Termination provisions

Phase 3: Operational Due Diligence (The Reality)

Staff Analysis

☐ Employee Interviews:
- Length of employment
- Compensation satisfaction
- Plans after sale
- Perception of practice
- Relationship with seller

☐ Organizational Structure:
- Roles and responsibilities
- Reporting relationships
- Cross-training coverage
- Key person dependencies

☐ Compensation Benchmarking:
- vs. local market rates
- vs. industry standards
- Pay increase history
- Bonus/incentive structures

Systems and Technology

☐ Practice Management Software:
- Software name and version
- License transferability
- Data export capabilities
- Training requirements
- Monthly costs

☐ Technology Infrastructure:
- Computer hardware age
- Network setup
- Backup systems
- Cybersecurity measures
- HIPAA compliance technology

☐ Scheduling System: - Average daily appointment count
- Hygiene prebooking rate
- Recall system effectiveness
- New patient scheduling availability

Phase 4: Clinical Due Diligence (The Quality)

Chart Audit

☐ Random Sample Review (30 charts):
- Treatment plan documentation
- Informed consent records
- Radiograph quality and frequency
- Progress notes completeness
- Periodontal charting

☐ Coding Review:
- Coding accuracy sample
- Upcoding patterns
- Documentation support
- Modifier usage

Compliance Verification

☐ Infection Control:
- Sterilization logs
- Spore test records
- OSHA compliance
- Hazardous waste disposal

☐ Radiation Safety:
- State inspection current
- Calibration records
- Dosimetry badges
- ALARA compliance

☐ Controlled Substances:
- DEA log accuracy
- Inventory reconciliation
- Prescription pad security
- Disposal records

Phase 5: Patient Base Analysis (The Value)

Patient Count Verification

☐ Active Patient Definition:
- Agree on definition (seen in last 18-24 months)
- Get database extract
- Verify count matches seller's claim
- Check for duplicates or inactive records

☐ Patient Demographics:
- Age distribution
- Insurance mix
- Geographic distribution
- Family penetration rate

Retention Analysis

☐ Recall Effectiveness:
- Percentage of due patients who schedule
- Hygiene reappointment rate
- Cancellation/no-show rate
- Patient reactivation success

☐ New Patient Flow:
- Monthly new patient count (24 months)
- Source of new patients
- New patient to active conversion
- Marketing ROI

The Non-Negotiable Red Flags

Deal-Killing Findings

Financial Red Flags:

Declining revenue 2+ consecutive years
Collection ratio under 90%
A/R over 90 days exceeding 20%
Cannot verify tax return income
Excessive owner discretionary expenses (>20% of revenue)

Legal Red Flags:

Current license suspension or restriction
Pending malpractice claim with merit
Recent DEA action
Non-assignable lease with <3 years remaining
Undisclosed litigation

Operational Red Flags:

Key staff departing post-sale
Equipment requiring $100K+ immediate replacement
Obsolete practice management software
Lost major insurance contract (undisclosed)
Seller unwilling to provide access/records

Clinical Red Flags:

Inadequate chart documentation
Upcoding or billing irregularities
Compliance violations
Patient complaints pattern

The $340,000 Lesson

What Dr. Walsh Missed

The checklist item: Insurance credentialing status

What she checked: Current PPO participation list

What she didn't check: Pending terminations, recredentialing status

The discovery (6 months post-close):

Delta Dental terminated participation 8 months before sale
Seller had appeal pending but didn't disclose
Appeal denied 2 months after Dr. Walsh took over
42% of patients were Delta Dental

The cost:

35% patient attrition in year one: $560,000 revenue loss
6-month credentialing gap: $280,000 revenue loss
Marketing to replace patients: $45,000
Lost opportunity cost: Immeasurable

Prevention: One phone call to Delta Dental would have revealed the termination notice.

Due Diligence Cost vs. Value

Due Diligence Element	Cost	Potential Savings	ROI
Financial analysis (CPA)	$3,000-$5,000	$50,000-$200,000	10x-40x
Legal review (attorney)	$5,000-$10,000	$100,000+	10x+
Equipment appraisal	$800-$2,500	$50,000-$150,000	20x-60x
Chart audit	$2,000-$4,000	$25,000-$100,000	6x-25x
Practice valuation	$3,000-$7,000	$100,000+	14x+
Total Investment	$14K-$28K	$325K+	11x+

Bottom Line

Due diligence isn't bureaucracy—it's insurance. The 73 verification points in this checklist exist because each one has saved a buyer from disaster.

Non-negotiables:

Never waive due diligence period
Verify every number independently
Interview staff personally
Check insurance credentialing directly with carriers
Get professional help for financial/legal review
Trust but verify every seller representation

Dr. Walsh's $340,000 mistake wasn't bad luck. It was incomplete due diligence on a $1.6 million purchase. The 15 minutes she didn't spend calling Delta Dental cost her 15 years of practice income.

Need professional due diligence support? Contact DentalBridge for comprehensive verification services.