Red flags to watch for when buying a dental practice

Most practices for sale are what they appear to be. The ones that are not usually show it in a few predictable places. None of these is automatically a deal breaker, but each one deserves a clear answer before you sign.

Red flags in the numbers

Red flag	What it can mean	What to do
Collections fell in the last year or two	New competition, an owner slowing down, or lost patients	Ask why, and look at monthly numbers, not just annual
Tax returns and profit and loss statements don't match	Unreported income or expenses, or sloppy books	Have your CPA reconcile them
New patients per month are falling	The practice is living on its history	Find out why before you pay for growth
Large accounts receivable, old balances	Collections problems	Ask what share is over 90 days old and whether it transfers
Heavy personal expenses run through the practice	Profit may be higher or lower than it looks	Have your CPA normalize the numbers

Red flags in the patient base

A vague definition of "active patients." Ask for counts by last visit date: 12, 18 and 24 months.
A large share of patients not seen in over a year. They may already be gone.
Heavy dependence on one insurance plan. If that plan cuts fees or drops the practice, revenue drops with it.
Patients tied to a dentist who is leaving. An associate who sees many patients and will not stay is a risk.

See how to evaluate a dental practice's patient base.

Red flags in the lease and the space

A lease that cannot be assigned, or a landlord who will not commit.
A short remaining term with no renewal option. Lenders often want the lease to cover the loan term.
No exclusivity clause, so the landlord could rent the next unit to another dentist.
Equipment near the end of its life, which becomes your expense soon after you buy.
No room to add operatories if you plan to grow.

Red flags in the people

Key staff planning to leave with the seller.
A seller unwilling to stay for a transition period to introduce you to patients.
A seller unwilling to sign a reasonable non-compete, or planning to practice nearby.
Pressure to skip steps, such as a short due diligence period or no access to records.

Red flags in the market

These are the easiest to miss, because they are not in the practice's files.

New offices opened nearby recently. Past collections may not reflect the newest competition yet.
Many offices for the population. Check residents per general practice within a short drive. The US average is about 3,850, and a common guideline is no fewer than 2,000.
A shrinking population nearby. Fewer people means fewer new patients over time.
Falling household income in an area where the practice relies on fee-for-service work.

Count competitors from a list a person has verified. Online maps include closed offices and duplicates, which can hide or exaggerate the real competition.

What to do when you find one

Ask the seller to explain it, in writing.
Have the right professional verify the answer: CPA for numbers, attorney for the lease and contracts, market analysis for the area.
Decide whether it changes the price, the terms or the decision.

A red flag you understand and negotiate around can be fine. A red flag you discover after closing is the expensive kind.

Frequently asked questions

What is the biggest red flag when buying a dental practice? Falling new-patient flow without a clear explanation. It often points to something else: new competition, an owner winding down, or a market that is shrinking.

Should I walk away if I find a red flag? Not automatically. Many can be addressed through price, terms or a longer transition. The ones to take most seriously are the ones the seller cannot or will not explain.

Can Dentagraphics spot market red flags? Yes. Dentagraphics shows verified competition, residents per practice, income and population growth around any address, which covers the market red flags. It does not review financials or legal documents.

How Dentagraphics helps

Single-Site Study ($695): handwritten analysis by a demographer of the market around the practice, including nearby competition.
Start/Buy membership ($149 per month): unlimited address and area searches, plus listings from many brokers.

Our competition data covers 118,330 US dental practices verified by hand. We do not broker practices and hold no stake in any location.

Keep reading: Due diligence checklist and questions to ask a seller.

Checking a practice for red flags now? See a free sample report, or create a free account to look up the county around the practice today.