Due diligence on a professional practice

There is no stockroom to walk through in a practice acquisition, and that is exactly what makes the diligence harder, not easier. The asset you are buying — client relationships, professional reputation, regulatory standing — is intangible, and intangible things hide risk more easily than a shelf of inventory does. Practice diligence has to dig for what a quick tour would never reveal.

Break down billings by client

Ask for a detailed breakdown of revenue or billings by client over several years, not just a total. This is how you identify concentration — a small number of clients responsible for an outsized share of revenue — and how you spot whether the client base is growing, shrinking or simply aging alongside the owner. A practice that looks healthy in aggregate can be carrying real risk in its top few relationships.

Review engagement letters and client contracts

Ask for a sample of the practice’s standard engagement letters and any longer-term client contracts, and check whether they name the individual professional, the practice as an entity, or both. A contract that is personal to the seller may not survive a change in ownership the way a contract with the firm does, and this affects both how much revenue is genuinely secure through the transition and what needs to be renegotiated with clients directly after closing. This is a detail sellers rarely flag on their own, because from the inside it never looked like a problem.

Confirm regulatory standing directly with the regulator

Do not rely on the seller’s word that the practice and its professionals are in good standing. Confirm directly with the relevant provincial regulator or licensing body whether there are any active complaints, disciplinary history, outstanding continuing-education requirements, or restrictions attached to the licence. This check is inexpensive relative to what it can save you, and most regulators offer some form of public register or verification process.

Work out what happens to client files

Many regulated professions have specific rules about transferring client files to a new owner, sometimes requiring client consent and sometimes requiring particular notice or record-keeping steps. These rules differ by profession and by province, and they interact with Canadian privacy law governing how personal information already collected from clients can be used and disclosed going forward. Get clarity from the regulator and, where personal information is involved, understand your obligations before you assume files transfer automatically.

• Billings by client, over several years, to assess concentration
• Confirmation of regulatory standing directly from the regulator
• Which client files can transfer, and what consent is required
• Key-person and associate dependency — who clients actually deal with
• Employment records and continuity plan for existing staff

Assess key-person dependency beyond the owner

In a larger practice, the owner is not necessarily the only person clients depend on — a senior associate with their own loyal following can represent as much retention risk as the founder. Map out who clients actually deal with day to day, and confirm whether key staff and associates are expected to stay through and after the transition, since their departure can take clients with them regardless of what the purchase agreement says about the founder.

Confirm trust account and client-fund obligations

Some regulated practices — law firms and real estate or insurance brokerages among them — hold client funds in trust accounts subject to strict regulatory record-keeping and reconciliation rules. Before you buy, confirm the trust accounts reconcile properly, that there is no shortfall, and that responsibility for the trust account transfers cleanly under your regulator’s rules, since irregularities here are treated seriously by regulators and can follow the practice, not just the individual who caused them. Where a practice does not hold client funds this does not apply, but confirm that with certainty rather than assuming it.

Check professional liability and insurance history

Request the practice’s professional liability insurance history, including any past claims, denied coverage, or unusually high premiums that might signal a pattern the seller has not disclosed. Confirm how run-off coverage for work performed before your purchase will be arranged and who is responsible for its cost, since claims can surface years after the underlying work was actually done. A practice with a clean claims history and straightforward coverage is a materially lower-risk purchase than one with a complicated insurance past.

Employer obligations transfer too

If the practice has staff — administrative, paralegal, bookkeeping or other support roles — review employment records, wages and any outstanding grievances, and confirm there is no unresolved workplace-insurance liability where the practice operates in a province that administers it through a clearance-certificate system. These employer obligations follow the business in an asset purchase in ways that are easy to overlook when the focus is on client relationships.