Due Diligence Demystified: How Buyers Vet Your Practice and How to Be Ready

DiligenceSure
Sat, 10 May 2025 10:17:05 +0000
Business

11 Min Read

Think your practice is ready to sell? Think again.

You may have built a thriving, profitable clinic with spotless financials and a loyal patient base. That won’t be enough, not by a long shot.

The reality? Buyers aren’t coming to admire your life’s work. They’re coming with calculators, consultants, and a checklist designed to find every flaw they can use to drop your price.

Due diligence is not a formality, it’s a necessity. If you walk into it unprepared, you won’t just leave money on the table, you’ll lose control of your deal.

According to Bain & Company, almost 60% of executives attributed deal failure to poor due diligence that did not identify critical issues.

Before you hand over even a single report, read this: What you learn in this blog post could protect hundreds of thousands of dollars and years of your effort.

Due Diligence: What Most Doctors Never See Coming?

Let’s debunk the most common myth first:

“If my financials are clean, I’m good.”

Wrong.

Buyers don’t just care about what you earned last year, they care about how you earned it, how repeatable it is, and what risks they’re inheriting with the purchase.

Here’s what they’ll quietly investigate:

HIPAA compliance and patient privacy exposure

Coding accuracy and claims audit risk

Staff behavior, turnover rates, and internal culture

Billing patterns that raise fraud red flags

Operational gaps and reliance on you, the owner

Patient churn and revenue predictability

Miss any of these? You just provided the buyer a vantage point.

If they catch something you didn’t disclose? It won’t just lead to price renegotiation, it could kill the deal entirely.

Embarrassing. Expensive. Preventable.

The Buyer’s Mindset: How They See Your Practice

You love your practice. You built it. You know every wall, patient, and procedure.

The buyer? They see a bundle of risks.

Buyers are not emotional, they’re trained to think like auditors. Their job is to protect their investment, and they do that by digging. Deep.

They’ll go through a checklist that looks something like this:

Are all licenses current and compliant?

Is there any open or pending litigation?

Do staff have contracts? Non-competes?

Are all SOPs documented?

Is the EMR system secure and scalable?

How dependent is revenue on the selling doctor?

They see risk whenever you can’t answer a question with clarity and documentation.

In buyer math, risk = discount.

Silence = leverage.

Gaps = lower valuation.

The 5 Core Areas Buyers Scrutinize—Where Most Deals Fall Apart

If you’re selling your practice, you are not just selling numbers on a spreadsheet. You’re selling confidence, predictability, and a smooth transition. That’s precisely what buyers are hunting for or ruling out during due diligence.

Let’s break down the five areas where deals most often derail through five stories that could easily be yours.

1. Financial Accuracy & Predictability

Dr. Peter ran a highly respected internal medicine clinic in a busy suburb. His books looked “fine” at least to him. He kept everything in a reputed accounting software and handed over basic profit and loss statements to the buyer. But there was a catch.

When the buyer’s diligence team brought in a financial analyst, the red flags began piling up:

Revenue was categorized inconsistently across quarters.

Owner perks like personal travel and spouse’s salary weren’t normalized out.

Expenses were lumped under vague categories like “Miscellaneous.”

After a two-week deep dive, the buyer dropped the offer from $2.2M to $1.9M—a $300,000 reduction, justifying it as “unreliable earnings.”

Worse? The deal slowed, trust eroded, and the buyer began demanding warranties that Dr. Peter wasn’t comfortable signing.

What saved the next deal: Dr. Peter partnered with a pre-sale diligence team who reconstructed his last 3 years of profit and loss statements (P&Ls), normalized EBITDA, and packaged a clean financial story with supporting documentation. His next letter of intent (LOI)? Full price and fast.

Lesson: Your numbers aren’t just numbers. They’re the story the buyer uses to price your future. If your financials are sloppy, disorganized, or unclear, they will assume the worst and charge you for it.

2. Compliance & Risk Exposure

Dr. Lin owned a successful dermatology practice with three providers. Her revenue was strong, patient retention was high, and the buyer seemed eager. However, due diligence revealed something that would scare away the buyers.

According to the HIPAA Journal, between 2009 and 2023, the healthcare industry reported 5,887 data breaches involving 500 or more patient records, exposing over 519 million records in total.

During the compliance review, the buyer’s legal team discovered:

Employee laptops with unencrypted patient records

No signed Business Associate Agreements (BAAs) with third-party vendors

Outdated privacy policies and no documented HIPAA training

Suddenly, what looked like a $3M deal came to a halt.

The buyer’s legal counsel flagged potential future exposure to OCR fines, and the deal went into “indefinite delay.” They wanted every compliance gap closed before revisiting the offer if they ever came back.

What turned it around: Dr. Lin invested in a pre-sale HIPAA compliance audit. Within 30 days, she had encrypted devices, executed BAAs, documented policies, and completed mandatory staff training. The original buyer was gone, but the next one saw a “compliance stronghold,” not a liability minefield.

Lesson: Buyers don’t just buy your business, they inherit your risk. And compliance risk is invisible, but when discovered, it can derail your deal.

3. Operational Integrity

Dr. Alex ran a high-volume orthopedic clinic. Patients loved him, and revenue topped $2.8M annually. When the buyer asked for process documentation and delegation plans, things unraveled.

Turned out:

He handled all surgical scheduling himself.

No staff member knew the EMR workflows end-to-end.

There were no SOPs, no onboarding manual, and no business continuity plan.

In short, without Dr. Alex, the practice was a ghost ship.

The buyer’s response? A devastating value hit: their offer dropped from $2.8M to $1.5M, citing “unsustainable owner reliance.”

Worse, they built in a 24-month earn-out, tying most of the payment to post-sale retention of Dr. Alex, something he had zero interest in.

What saved his second shot: He hired an operational consultant to map out every workflow, build a full SOP library, and delegate 70% of his daily responsibilities within 90 days. His second buyer praised the transition plan and paid cash up front.

Lesson: If your practice can’t survive without you, it’s worthless without you. Due diligence isn’t about judgment, it’s about transferability. Build a business, not a job.

4. Staff & Culture Fit

Dr. Bennett had pristine financials and excellent outcomes. What he didn’t know was that the buyer had sent someone to “mystery shop” his front desk during diligence.

What they saw shocked them:

A receptionist arguing with a patient about co-pays

Staff gossiping about a colleague within earshot of the waiting room

A chaotic back office with zero professionalism.

None of this showed up in spreadsheets, but the impression was clear: toxic culture. High turnover. Liability risk. The buyer rescinded their offer within a week.

How Dr. Bennett course-corrected: He did an internal culture audit, replaced key toxic hires, brought in a customer service coach, and documented HR policies. He also introduced a bonus structure tied to patient satisfaction. The next buyer saw alignment, not dysfunction, and paid accordingly.

Lesson: Your staff may be friendly to you, but the buyer sees them as part of the package. Culture risk is real, and it doesn’t show up on a balance sheet. Diligence gives you a mirror of what buyers really see and the time to fix it.

5. Patient Base & Retention Metrics

On paper, Dr. Gloria’s ENT practice looked great—$1.5M in annual collections, low overhead, and minimal debt. However, during diligence, something concerning emerged:

A 30% drop in active patients over the past 12 months

No CRM or patient engagement tools

Zero follow-up or recall campaigns

The buyers realized: this wasn’t a steady revenue stream. It was a practice in silent decline.

They suspected burnout, declining referrals, or future attrition and revised the offer.

How Dr. Gloria rebounded: She hired a practice marketing consultant to re-engage lapsed patients, introduced automated reminders and surveys, and rebuilt patient retention to above 80% within 6 months. The second valuation exceeded the first.

Lesson: Buyers don’t just look at revenue; they look at what’s driving it. If your patient base is shrinking, you’re waving a red flag. Due diligence exposes the trendlines you’ve been ignoring. Fix them before a buyer spots them.

Diligence Doesn’t Kill Deals—It Saves Them

There’s a dangerous myth that due diligence is a painful process that ruins good deals.

Wrong.

Bad diligence doesn’t kill deals—bad preparation does.

The stories above? They aren’t cautionary tales about buyers being unfair. They’re wake-up calls for sellers who waited too long to see their blind spots.

Every single doctor who turned things around did so because they took control of the process before they were under the buyer’s microscope.

Here’s the takeaway:

Don’t wait to find out what’s broken. Use due diligence as your early warning system. Fix what’s fixable. Package what’s valuable. Walk into the negotiation with leverage, not apologies.

Would you like help creating your own due diligence action plan tailored to your practice?

Let’s talk. One call could protect years of hard work.

You Don’t Get to Re-Sell Your Life’s Work

Here’s the truth no one tells you:

When you sell your practice, you’re not negotiating a number.

You’re negotiating the value of your reputation.

The worth of your decisions.

The final chapter of everything you built with 60-hour weeks, missed vacations, and midnight charting sessions.

The deal? It is your one shot to monetize your life’s work, which can fall apart in days.
Not because you’re a bad doctor, but because you were a naïve seller.

Let’s pause for a moment.

Imagine a buyer sits across from you today. They’re reviewing your files.

Can you confidently answer these questions?

Are your financials normalized and defensible?

Can you prove your coding and billing won’t trigger audits?

Can your staff operate without you for 30 days straight?

Can you quantify patient loyalty with real metrics?

Can you show a clean compliance record, documented and updated?

If your answer is anything short of “absolutely”, you’re walking into that deal with exposure, not leverage.

Here’s something you need to know.

Buyers won’t tell you you’re underprepared. They’ll smile politely, gather what they need, and quietly reduce their offer by hundreds of thousands.

Or worse, walk away.

That’s the danger. Not rejection but ambiguity and silence. And slow-drip losses that feel like “negotiation” but are quiet penalties.

This is why DiligenceSure exists.

We built DiligenceSure for doctors who aren’t just looking to sell but are looking to win their exit.

We are here to prepare your practice from the buyer’s lens, long before they show up.

We audit every area a buyer will scrutinize:

Financial performance and normalization

HIPAA and licensing compliance

Billing practices and exposure to clawbacks

Staff structure, cultural risks, and contractual security

Patient retention, CRM metrics, and operational redundancy

We don’t hand you a report and wish you luck.

We fix, we package, we prepare.

So when the buyer comes with their checklist, you come with answers, not apologies.

When they send their attorney, you send a well-documented compliance log.

When they test your team’s independence, you show them a business, not a dependency on you.

That’s the power of owning the narrative, and that’s what separates doctors who settle from doctors who sell at a premium.

This Is Your Legacy. Defend It.

You don’t get to resell your practice next year. There’s no “learning curve” when it comes to exit.

You either get this right the first time, or you spend the next decade regretting how it ended. So, here’s the question that matters now.

Are you preparing your practice for due diligence, or waiting to be exposed by it?

Let’s make sure you walk into your sale with confidence, clarity, and the upper hand.

DiligenceSure. Because how you prepare is how you profit.