It can't be that complicated!
One of the first things to accomplish after site visits and due diligence by the purchaser is to execute a Letter of Intent, which spells out the terms of the purchase and an approximate closing date.
By Bill Avery, DDS, PhD
I once overheard a dentist say to one of his colleagues that selling a practice couldn't be all that complicated. Obviously he had never been involved in the process. Basically, it's like anything we do -- the more we do it, the easier and less complicated it becomes. If it's someone's first and only time to sell a dental practice, they can become overwhelmed, and for some it can become a total nightmare.
One of the main reasons for engaging a broker in the sale of a practice is to tap into the years of experience the broker brings to the process, thereby offering guidance and direction through the maze of issues, deadlines, transfers, and arrangements. The majority of dentists selling or purchasing a dental practice have minimal knowledge of the myriad of issues that need to be addressed before a sale can be closed. In order to make the preclosing process as smooth as possible, I give both the seller and purchaser a detailed checklist that outlines all of the things each side needs to do prior to closing.
The purchaser checklist contains some 40 different items that need to be accomplished before closing, and the seller checklist contains about 25 items. If both the seller and purchaser methodically follow their checklists in a timely manner, I find that the closing can usually take place at the anticipated time and with minimal conflict and confusion. As a broker, this preclosing process is my greatest time commitment, where I help both sides work through the checklist, as well as spend many hours on the phone and email with attorneys and accountants for both sides to make sure lenders have all the information they need.
Let's look at a few of the important issues on the checklists that perhaps sellers or purchasers don't realize are important in terms of timing. One of the first things to accomplish after site visits and due diligence by the purchaser is to execute a Letter of Intent, which spells out the terms of the purchase and an approximate closing date. At this stage, a loan application is made, and following loan approval, work begins on putting together the Asset Purchase Agreement with attorneys and accountants. In the event the office space is leased, the landlord should be notified and negotiations started on a new lease for the purchaser.
Should the lender require it, the purchaser will need to make application for life and disability insurance and all the other necessary business insurances, i.e., general liability, professional liability, workers' compensation, etc. The underwriting process for life and disability insurance can take as long as six to eight weeks. The purchaser will need to have a federal tax I.D. number and a DEA registration number, and depending on the state, may possibly be required to register with the state pharmacy board and the state department of labor.
The seller will need to prepare a statement of benefits that is due to employees at the time of closing. Those benefits should be settled and employees should be paid for any unused vacation or sick leave prior to closing. The seller will need to pay off all credit balances to patients before closing.
There are several transfers from seller to purchaser that need to be accomplished just before closing, including transfer of utilities, telephone listings (including Yellow Pages), any contracts relating to the practice or the credit card authorization machine, and any software licensing agreement(s).
Indeed, the process of selling a dental practice can be complicated, but with both seller and purchaser following a detailed plan that is put in place early in the transaction by a professional broker, selling a practice can be relatively painless.
Bill Avery, DDS, PhD, spent 20 years practicing periodontics. For the last 21 years, he has been helping colleagues transition their dental practices, mainly in New Mexico and portions of west Texas. Dr. Avery is a member of ADS Transitions and can be reached at (505) 821-0015 or (888) 419-5590, ext. 505 or through the ADS website at ADStransitions.com.
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