Attorney Robert Sanders helps California dentists successfully purchase, sell, or partner on dental practices.
A typical practice transition will typically proceed in the following stages:
Stage 1: Practice Evaluation
At this stage, the Seller (or their broker) will release information on the practice. This may include financial information such as profit and loss statements and tax returns, practice management software reports on key aspects of the practice like new patients, treatment information on the practice, accepted insurance, and asset lists.
The Buyer will normally sign a confidentiality agreement to ensure that the Seller’s information is used only by advisers who need to know the information.
Stage 2: Letter of Intent
Once the Buyer gets comfortable with the practice information disclosed by the Seller, the Buyer will typically make an offer to purchase the practice by submitting a Letter of Intent. This Letter of Intent (LOI) will normally cover key aspects of the transaction such as the purchase price, the closing date, length and radius of the restrictive covenants, and other aspects of the transaction that should be addressed at an early stage.
Stage 3: Purchase and Sale Contract
After the parties have agreed in principle on the key aspects of the transaction, one of the parties (normally the seller) will draft a purchase and sale contract for the transaction. The other party will then review this agreement with their counsel and a negotiation will ensue to help the parties come to an agreement on the terms of the deal.
Stage 4: Financing, Inspections, and Real Estate Lease or Purchase
The buyer then needs to procure their financing for the transaction. Most buyers will use a dental specific lender in order to get financing, although some buyers have enough cash to move forward without bank financing.
Buyers will want their advisors to review the practice information, including financial information and the quality and condition of the assets. Accountants, bankers, practice management consultants, and equipment specialists can assist with these reviews.
Every practice transition will include a discussion about the real estate for the practice. The buyer will need to engage with the landlord for the practice location to negotiate either a takeover of the existing lease (i.e. a lease assumption) or a new lease. The landlord is generally a third-party landlord or the seller.
Stage 5: Escrow Management and the Closing
Once the Buyer has satisfied themselves concerning the state of the practice and the loan and the real estate parts of the transaction have been successfully worked out, the transaction is ready to close. At this stage, finalizing the loan documents, seller financing, and other related documents will be completed.
Most parties will use an escrow agent to help facilitate the transaction.