Financial Due Diligence

• Discussion and understanding of the business activities;
• Commentary on the registration with CQC;
• Summary of the premises from which the business operates.

• An understanding of the history of the business and the vendors;
• Identification of key aspects of the development of the business;
• A review of the historical accounts and explanation of the key changes in financial performance.

• An analysis of income by:
• Location/Site
• Type (to include, Fee per item (with a breakdown of specialist), Plan, NHS, Sundry)
• Principal/Associate/Hygienist
• Details of any fee/rate increases applied during the last financial year and the period to date.
• Details of the method of allocating fee income within the profit and loss account and the appropriateness of the method adopted;
• An overview of the NHS contract(s);
• Analysis of UDA/UOA performance and rate (for the last five years), together with a review of the recognition of under performance and monies clawed back;
• Verification of income to DPB Statements, including review of patients’ charges, remissions and superannuation deductions;
• Analysis of the number of “live” patients over recent years (where available);
• Summary of treatment charges.

• Material costs and benchmarking;
• Review of suppliers and key terms and rebates;
• Laboratory costs and terms;
• Provision of sufficient data for you to be able to determine synergistic benefits.

• Details of current number of staff/associates, type of “employment”, job title/description, qualifications, hourly rate/salary, associate rates, overtime rates, holiday entitlement and arrangements, sick pay, long service awards, length of service and any other benefits;

• Consideration of the timing and impact of pay reviews;
• Consideration of locum usage;
• Details of all ancillary and administrative staff functions, and details of anticipated recurring cost for this;
• Details of the roles that the current owners (and family) fulfil in the Company, and the potential cost of filling these roles where required;
• Comparison of actual payroll costs to expected costs calculated by reference to the above analysis.

• A review of the detail within the profit and loss account of the business for the last two financial years, together with latest management accounts, commenting upon changes and trends within these accounts;

• Comparison of actual fixed and variable costs to expected levels and consideration of costs included in the historical nominal ledgers;
• Identification of: professional fees; audit and accountancy; repairs and renewals; equipment hire; finance costs; and other possible non-recurring costs incurred by the current business;
• Identification of costs relating to the vendors that might not be on-going and analysis of costs required on an on-going basis, to include amongst other things rent and other property costs.

• A review of the balance sheet of the Target at the dates of the last statutory accounts and the latest management accounts;

• Comment on any unusual or non-trading items; any significant off balance sheet items and intangibles;
• Fixed assets:
  • Analysis by type and location;
  • Basis of valuation;
  • Depreciation rates;
  • Detailed fixed asset register including values.
• A review of the debtor balances (trade and other) included within the historical accounts, commenting upon ageing provisions against receivable, policies in relation to invoicing and

agreement of client funding, etc.;

• A review of the stock balances included within the historical accounts commenting upon the ageing of stock and the appropriateness of the figures included within the accounts;
• Summary of creditors (trade and other) and its constituent parts, together with an analysis and commentary thereon;
• A review of assets held under finance leases and other financing arrangements;
• A summary of other assets and liabilities, including a review of unusual items and significant fluctuations;
• Analysis of provisions and an assessment of liabilities, litigation and claims;
• Comment on any balances owed by or to the vendors or associated entities that will require consideration as part of the deal structure.

A detailed analysis of working capital movements and trends, and reasons for cash movements in historical accounts.

• Review PAYE/NI liabilities, enquiry/inspection visits and most recent correspondence;
• Consideration of whether the business is or has been registered for VAT, together with Enquiries/inspection visits and recent correspondence;
• Analyse the corporation tax computations since the date of incorporation (or the last six years, whichever is the shorter) and comment on the corporation tax status of the company, including a review of any investigations by HMRC (if applicable);
• Consideration of elections and tax planning exercises carried out by the target;
• A review of “tax sensitive” categories of expenditure within the company, to highlight any potential liabilities;
• Review of incorporation documentation (if applicable) to include GDC approval of Company Name.

• Summary of the policies held by the business;
• A summary of the levels of cover held in order that the acquirer and their broker may assess their likely on-going cost and actions required post completion.

• Identification of key reports prepared by management and operational staff;
• Discuss accounting and practice management system with management. Key areas include:
  • New patient procedures
  • Income recording and recognition process
  • Expenditure recording and recognition process
  • Wages and salaries (including self employed individuals)
  • Cashbook
  • Petty Cash
  • Nominal Ledger
  • Computing system and software packages