By: Amanda Howard, Esq.
Preparing to purchase a dental practice can feel overwhelming. Having the right team around you protects your interests and having an idea of what you can expect during the process, ensures a smooth transaction.
Legal: Depending on the state and the players involved, a buyer can purchase the stock or assets of a dental practice. However, acquiring a dental practice typically involves purchasing its assets rather than the corporation itself. Either way, the buyer assumes significant financial and legal risks. Well-drafted legal documents, including the letter of intent (LOI) and purchase agreement are essential. A purchase agreement should include the purchase price, including rollover equity and holdback funds, robust representations and warranties by the seller, a detailed lists of included and excluded assets, restrictive covenants to prevent the seller from competing with you in the future, and disclosure of known and potential liabilities. Some transactions may necessitate seller financing, requiring documents like promissory notes and security agreements. Additional documents might be required as the deal progresses, such as assignments of rights for licenses and payor contracts. The final document, the bill of sale, serves as a receipt for the buyer, confirming the asset sale.
Financing: While self-financing is an option, many buyers rely on banks, family, or lenders specializing in dental practices. When securing financing, it’s crucial to partner with a lender well-versed in the dental industry. Specialized lenders often provide favorable terms that you could not find elsewhere in the marketplace. In addition, they offer expertise tailored to dental practice acquisitions.
Real Estate: In asset acquisitions, the buyer often assumes the seller’s space, necessitating drafting and approval of lease assignment or negotiation of a new lease with the landlord. In some cases, the seller may own the property involved. It’s generally always a good idea to require that the property be part of the transaction.
Due Diligence: During the due diligence process, the buyer needs to meticulously examine the dental practice’s financial, operational and legal aspects to ensure they fully understand what they’re acquiring. This involves reviewing financial statements, patient records, lease agreements, equipment inventories, and any outstanding liabilities. A buyer will also want to assess the practice’s reputation, market position and growth potential. Due diligence is crucial as it helps the buyer identify any potential risks or issues that could impact the transaction or the future success of the practice. By conducting thorough due diligence, buyers can make informed decisions and mitigate potential risks, ensuring a smoother transition into practice ownership.
Purchasing a dental practice requires meticulous planning and expertise across various domains. By enlisting the support of professionals experienced in dental practice acquisitions, buyers can navigate the complexities of the process confidently and ensure a successful transition into practice ownership.
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