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Six Tips for Financial Due Diligence

Jun 09, 2016

Increasingly, hospitals are joining together to more competitively meet the ongoing challenges and opportunities of providing quality health care. Yet not all acquisitions or affiliations will create positive outcomes for the combined organizations or bring presumed benefits to each. Even if no money changes hands in a transaction, there can be quite costly consequences. Risks could outweigh the benefits.

Health care organizations must understand the potential future risks and cash flow impacts that merging or affiliating can present. Doing so requires rigorous financial due diligence, a comprehensive effort to eliminate unwelcome and costly surprises. However, due diligence is an act of judicious balance. It should never be entered into with the goal of just doing the minimum. At the same time, there is such a thing as too much due diligence whereby analysis paralysis can prevent an organization from making decisions and moving forward.

Following are specific steps that can help establish a cost-effective financial due diligence process:

  1. Start with a comprehensive due diligence work plan.
  2. Define the service providers to be involved in the due diligence.
  3. Clearly outline which service providers will be performing the specific tasks in the clearly defined work plan.
  4. Organize documents in a data room where parties involved in the process can easily access the data needed for the work plan.
  5. Have service providers summarize the results of their due diligence in a report that can be reviewed by top management, and include information on the steps taken and the results found.
  6. Have the right people involved in the right steps. For example, attorneys should be involved in the regulatory compliance, accountants involved in the financial review, and human resources experts involved in the work force analysis.

In all, the best return on due diligence starts with a comprehensive work plan and objectively working with your service providers to understand key areas of focus. A seasoned due diligence provider will help create understanding about what to ask, what to look for, where to look, and how to verify exposures and will prioritize findings. Therefore, working with the right provider can make a difference in creating a cost-effective and efficient due diligence process. For further information on creating a cost-effective due diligence plan, contact Lisa Cribben, Wipfli’s partner in charge of due diligence for health care clients, at 920.662.2897.


Lisa M. Cribben, CPA/ABV, ASA, CMA
Partner, Business Valuation and Transaction Support Services
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