Generally you undertake the due
diligence when you’re buying a practice so that you can understand the risks and
not have any surprises further down the track.
Some of the risks that might actually occur is if there were no doctor
contracts in place and you didn’t find that out until after you’d bought the
practice and the doctors left and took patients with them, obviously that would
be a risk. Another one might be there might be some covenants in a lease
agreement that you weren’t aware of which caused issues for you down the
track or employee entitlements if there
weren’t proper agreements in place. So just some of the examples that can occur. The key items in the due diligence
are business operations, financial, compliance and staffing. So, for business
operations this includes things like your lease agreements, contracts with
suppliers, any other agreements basically that you have in place. So, for your
business operations this is your contracts with suppliers and in
particular your associate doctor agreements, these are really important,
and any other agreements that you might have in place such as lease agreements.
So, from a financial point of view this would be looking at the practice
management software and does that align with the financial software of the
business. In particular we’re looking at the fees decline or increasing, are
we correctly recording all that information, as well as, looking at
expenses of the business so you can get a good idea of what that business
entails. From a staffing point of view this is really around looking at
employment contracts making sure they’re in place and in particular leave
entitlements for your staff, because this can have a massive impact on your
business if there’s staff that have been there for a long time and
those entitlements are carrying forward. So, finally compliance and this is
anything from a taxation, government regulation point of view, legal point of
view, anything that hasn’t been lodged making sure that’s all up-to-date and
compliant. So, generally when you conduct a due
diligence review because the information that you’re collecting is quite
sensitive and confidential, the seller will ask you and generally your adviser
to sign a nondisclosure agreement. This basically means that you can’t use the
information you collect for any other purpose other than that due diligence
review. So, how do you do your diligence? You don’t necessarily have to do it
yourself. You can engage an adviser who knows and understands the industry and
is experienced in buying and selling medical practices to help you.