Healthcare businesses are a hot commodity in the market today. A buyer may even be interested in your healthcare practice right now. Whether or not you’ve gone down the road of selling your practice before, the process can be stressful and time consuming. A lot of the time and stress centers around one aspect of a transaction—due diligence. Due diligence can certainly feel like a roadblock to both sides of a transaction, but it doesn’t have to be.
What Is Due Diligence?
Due diligence is a prospective buyer’s opportunity to look under the hood of the business they are interested in purchasing. Once a letter of intent is signed, the buyer will ask for a detailed list of documents and information to evaluate before finalizing the deal. Due diligence can encompass a wide range of information, including financial statements, copies of licenses or permits, corporate formation documents, employee information, policies, procedures, lists of services provided, leases, vendor and payer contracts, asset lists, litigation information and anything else a buyer may need to evaluate the business.
Buyers want to know that the target business is in good working order. As a seller, you want to put your best foot forward to ensure a smooth process. The best time to get your business into shape is well before you go to market, but it can be a real challenge to prepare for questions that have not yet been asked.
A Word of Warning
By not preparing for future due diligence, a seller puts a potential deal at risk. This may be acceptable for some sellers who will go on to find another buyer, but imagine if you need to sell the practice. Transactions can be time-sensitive affairs. Buyers will walk away from a deal if they feel a practice’s due diligence materials reveal too many issues.
If the buyer in front of you is your best option, you cannot risk the transaction because of a lack of preparation. By turning in inadequate, inscrutable or incorrect records for due diligence requests, you could scare a buyer away—perhaps your best, or only, buyer.
With an almost endless number of documents a buyer could request during due diligence, it is difficult to know where to start on preparing your business for an eventual transaction. If you do not have a due diligence request list in front of you, look to other parties that are also evaluating you. If you are being accredited, inspected, audited or surveyed by a third party, use their evaluation process as an opportunity to stress test your practice to see where the gaps are.