By Dave Kasper and Sarah Lynch
In the realm of practice transitions, there are always a few last-minute details. This is normal, but they may seem disruptive to the buyers and sellers who want to close. It is important to communicate all issues as they arise. Parties to the sale -- including lenders, appraisers, accountants, lawyers, insurers, landlords, and buyers -- will frequently request various documents and walk-through inspections prior to closing. Proof of insurance certificates, certificates of good standing, and leases must be in place.
Early planning and taking action steps for transitioning in or out of practice is essential. Many states have experienced budget and staff cuts, curtailing their operating hours and thus limiting the time they have available to issue licenses, business certificates, and regulatory filings.
Lien searches are another source of last-minute panic for buyers and sellers. The most common irritants are UCC filings that were never terminated, even though the loan or lease was paid off long ago by the seller.
A proactive step dentists who are anticipating transitioning their practices in the future can take is making sure their liens are terminated and the UCC filings are released. They should make it a habit to request proof of termination once their debt is paid.
Funding timing sometimes creates angst for the parties, where all the documentation has been signed at the closing and keys to the kingdom have passed, but the parties have a "dry closing" -- no money arrives at the closing table. Many closings are completely funded by wire transfer after all the documents have been signed, and the practice lender is satisfied that all the regulatory paperwork is properly executed and returned to him or her. This is normal and no cause for alarm, especially if the practice lender is well established in the industry.
A frequently asked question is -- what happens if the seller has loans on the practice? A payoff figure is procured and the loan is paid off at the time of closing with the proceeds of the sale. Lenders for the buyer will frequently insist that they, the lender, initiate the payoff directly to ensure funds were properly distributed and the practice is free and clear of the previous owner's debt.
From a seller's perspective, will a buyer assume any of my practice debt? Generally no, unless it is a partnership and transfer of responsible parties is conveyed with properly drafted legal documents, and is acceptable to the lien holder.
If the real estate that houses the practice is also being purchased, it is important for the buyer and seller and their respective attorneys to be fully aware of the lending requirements of the real estate lender for timely funding. Given that the dynamics of the practice sale are more complicated than the real estate sale, the real estate transaction sometimes takes a back seat to the practice transaction. Timely ordering of the real estate appraisal by the bank, which requires a loan commitment to the bank by the buyer, is critical to keeping things on track. New banking regulations no longer allow banks to use preferred appraisers, who often fast tracked appraisals for their clients. Banks must now take the next available appraiser from a pool of appraisers who are approved for the practice's geographic region. If the practice and real estate are going to close concurrently, they must have equal attention for a timely closing.
Seasoned practice brokers, lenders, and lawyers routinely involved in dental practice transitions anticipate these types of issues and know how to navigate them successfully. Many details need to be carefully orchestrated to organize a successful closing.
Dave Kasper and Sarah Lynch, members of ADS Transitions, are the principal partners of Jim Kasper Associates, LLC, a regional practice brokerage and transition firm serving dentists in New England and New York State since 1981, and specializing in valuations and sales of dental practices. They can be reached at 603-355-2260, [email protected], or 888-419-5590 ext. 603.
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