Wes Read (CPA, CFP®) explains the CPA's role in analyzing a dental practice prior to an LOI, emphasizing a cash-flow analysis for prospective buyers. He breaks cash flow into incoming revenue, overhead expenses, taxes, debt service, and transaction costs; the core decision is whether the buyer's expected take‑home (after those items) justifies the purchase price.
Ideally, prior to the loi, the dental CPA is going to do an analysis on the cash flows of the seller's practice. And when I say cash flows, that's kind of an accounting or finance lingo, which means essentially, how much money is coming in? How much money is going to pay overhead, how much money is going to have to pay taxes and debt? And after the transaction costs of buying this business, what are you going to take home after all of that, as a buyer? And at the end of the day, the question is, is that it's very simple. If you buy a practice at a given price, what are you going to home after overhead, debt, and taxes? Then you can ask yourself, okay, does this make sense?
