Are you considering acquiring a veterinary practice? Engaging in the due diligence process is not just a step to check off but a crucial reassurance before you do so. The due diligence process involves carefully evaluating the financial stability and performance of the veterinary practice you’re considering acquiring. It’s a process that will give you confidence in your decision.
The due diligence process will help you identify any red flags before you commit to acquiring the practice. Completing a due diligence checklist before you acquire a veterinary clinic can help ensure the practice is a profitable investment. It’s a process that will make you feel knowledgeable about your potential investment.
A Financial Due Diligence Checklist
Financial due diligence helps potential buyers ensure the veterinary practice’s financial status is as favorable as the practice has claimed. It also ensures adequate cash flow to cover the practice’s expenses, including the loan you will likely take out to purchase the practice and any overhead.
Additionally, financial due diligence will help you ensure the practice can generate enough income to cover your salary, living expenses, and staff members. You’ll need to acquire and investigate the following financial documents during the due diligence process:
- At least three years of the practice’s tax return
- Profit and loss statements
- Bank statements and any other financial statements
- Collections, as indicated on the general ledger
- Staff salaries and benefit plans for retirement accounts
- Documents showing how employees accrue vacation time
- Commercial lease agreements
- Leasing contracts for equipment
- Overhead costs, including costs for utilities, office management, payroll, advertising, equipment maintenance, laboratory fees, and other expenses
- Agreements between the practice and third-party vendors
- Any other contracts you’ll be assuming if you acquire the practice
- A thorough list of all assets and liabilities
Legal Due Diligence Checklist
Legal due diligence involves a careful review of all legal documents. State and federal licensing requirements documents, lease agreements, and any lean agreements on the practice should be carefully considered. You should also carefully read current employment contracts to determine how an acquisition should be handled and which employees will stay after the purchase. A legal due diligence checklist for acquiring a veterinary practice includes checking the following documents:
- Carefully reviewing the employee handbook
- Consider the salaries and benefits for each employee according to their employment contracts
- Discover whether any employees do not have current employment contracts and why
- Review all leases including those for equipment and real estate to make sure the terms are fair and understand your responsibilities if you acquire the practice
- Review all vendor contracts
- Find out the status of intellectual property ownership
Practice Management Due Diligence Checklist
The due diligence process for practice management involves carefully considering how the practice is managed on a day-to-day basis. This process will usually require you to visit the veterinary practice so you can ask questions and see how the practice operates in person. Practice management due diligence checklists include evaluating:
- Whether the seller wants to remain in the practice after the acquisition
- Whether the space needs remodeling
- Weather equipment needs to be replaced
- Whether there is a balance between current and new patients
- The type of care patients receive
- The patient management software
- The fee schedule
- Ongoing, routine practice expenses
Contact an Experienced Veterinary Practice Attorney
Although it is possible to conduct due diligence on your own, you could be putting yourself at risk by doing so. The team of professionals at Mahan Law has the experience and legal skills needed to handle every aspect of the due diligence process. If you’re considering acquiring a Veterinary practice, don’t hesitate to contact Mahan Law to schedule a free consultation.