Law Office of
STUART J. OBERMAN
Success in Buying or Selling Your Practice
By Stuart J. Oberman, Esq.
The purchase and sale of a dental practice are two extremely significant events in a dentist's career. Finding the perfect practice to purchase or the perfect buyer is very important. However, the failure to property draft a purchase and sale agreement has detrimental consequences.
LETTER OF INTENT
In general, just about every dental transaction (with or without a broker) should start with a signed letter of intent. The letter of intent memorializes the agreement between the parties regarding the purchase price, date of the proposed sale of the practice, account receivables, as well as lease issues. The letter of intent should also be nonbinding.
The seller and buyer of a dental practice should keep the letter of intent confidential, regardless of the outcome - whether or not the sale of the dental practice takes place. The seller of a dental practice should also have a potential buyer sign a nondisclosure agreement, which will keep the seller's financial and practice information confidential.
ALLOCATION OF PURCHASE PRICE
As a general rule, most dental practice transactions involve the sale of dental practice assets (equipment, supplies, patients' charts and records, seller's telephone number). It is extremely important that the seller and buyer establish a purchase price allocation for: (1) equipment that is being sold; (2) account receivables that are being purchased; (3) goodwill of the practice; and (4) noncompete stipulations. From a tax standpoint, expensing, depreciating, or amortizing the assets are important to the seller and buyer. Certain tax rules apply regarding what can and cannot be depreciated over time.
CONTINGENCIES
For the protection of the seller and buyer, a contract for the purchase of a dental practice should have an outline of events that must occur before the sale takes place. For example, the buyer must agree to the terms of the seller's lease agreement (which the buyer will probably be assuming), or the buyer's accountant should approve the seller's financial data, and the sale should be contingent upon the buyer's approval of a loan. The buyer should also make sure that any liens (i.e., UCC-1) that are attached to the seller's assets will be paid at closing.
NONCOMPETE CLAUSE
Just about every practice-sale agreement should have a noncompete clause that applies to the seller. The noncompete clause restricts the seller from practicing dentistry for a reasonable period of time and within a reasonable geographic radius of the seller's practice.
Careful consideration should be taken when including a noncompete clause. The noncompete clause should take into account that the seller may become a part-time associate dentist, partner, shareholder, director, officer, consultant, employee or independent contractor of another dental practice.
If the dental practice sale contemplates that the seller will work part time for the buyer, the buyer should require that the seller enter into some sort of host-provider agreement (i.e., independent contractor agreement), which should become effective the date the seller's practice is sold.
The sale of a dental practice can be extremely rewarding for the seller and buyer. However, if the terms and conditions of the practice sale are not clearly outlined, t hen it can be a very frustrating transaction for all parties involved. Before entering into a contract for the sale of a practice, the seller and buyer should seek the assistance of professionals who are experienced in the area of dental transactions.
By Stuart J. Oberman, Esq.
The purchase and sale of a dental practice are two extremely significant events in a dentist's career. Finding the perfect practice to purchase or the perfect buyer is very important. However, the failure to property draft a purchase and sale agreement has detrimental consequences.
LETTER OF INTENT
In general, just about every dental transaction (with or without a broker) should start with a signed letter of intent. The letter of intent memorializes the agreement between the parties regarding the purchase price, date of the proposed sale of the practice, account receivables, as well as lease issues. The letter of intent should also be nonbinding.
The seller and buyer of a dental practice should keep the letter of intent confidential, regardless of the outcome - whether or not the sale of the dental practice takes place. The seller of a dental practice should also have a potential buyer sign a nondisclosure agreement, which will keep the seller's financial and practice information confidential.
ALLOCATION OF PURCHASE PRICE
As a general rule, most dental practice transactions involve the sale of dental practice assets (equipment, supplies, patients' charts and records, seller's telephone number). It is extremely important that the seller and buyer establish a purchase price allocation for: (1) equipment that is being sold; (2) account receivables that are being purchased; (3) goodwill of the practice; and (4) noncompete stipulations. From a tax standpoint, expensing, depreciating, or amortizing the assets are important to the seller and buyer. Certain tax rules apply regarding what can and cannot be depreciated over time.
CONTINGENCIES
For the protection of the seller and buyer, a contract for the purchase of a dental practice should have an outline of events that must occur before the sale takes place. For example, the buyer must agree to the terms of the seller's lease agreement (which the buyer will probably be assuming), or the buyer's accountant should approve the seller's financial data, and the sale should be contingent upon the buyer's approval of a loan. The buyer should also make sure that any liens (i.e., UCC-1) that are attached to the seller's assets will be paid at closing.
NONCOMPETE CLAUSE
Just about every practice-sale agreement should have a noncompete clause that applies to the seller. The noncompete clause restricts the seller from practicing dentistry for a reasonable period of time and within a reasonable geographic radius of the seller's practice.
Careful consideration should be taken when including a noncompete clause. The noncompete clause should take into account that the seller may become a part-time associate dentist, partner, shareholder, director, officer, consultant, employee or independent contractor of another dental practice.
If the dental practice sale contemplates that the seller will work part time for the buyer, the buyer should require that the seller enter into some sort of host-provider agreement (i.e., independent contractor agreement), which should become effective the date the seller's practice is sold.
The sale of a dental practice can be extremely rewarding for the seller and buyer. However, if the terms and conditions of the practice sale are not clearly outlined, t hen it can be a very frustrating transaction for all parties involved. Before entering into a contract for the sale of a practice, the seller and buyer should seek the assistance of professionals who are experienced in the area of dental transactions.
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