Key Professional Advisors when Buying or Selling a Dental Practice
Let’s discuss a few of the key professionals that buyers and sellers should consider hiring when purchasing or selling a practice.
There is number of professionals one could use to receive advise when buying or selling a practice. For sellers, these might include attorneys, escrow agents, accountants, and tax planners. For buyers, the list would include those of the seller’s but also lenders, due diligence coordinators, equipment inspectors and buyer advocate consultants. Let’s detail the basics of what each of these professionals do to help a practice sale. By understanding their roles, buyers and sellers can know how to best accomplish the dental practice sale and make the process as smooth as possible.
Attorneys – As mentioned in previous posts, attorneys play a key roll in preparing the purchase contract of the practice as well as finalizing the lease documents with the landlord. If the real estate is not leased but will be purchased with the practice, the attorneys will help with that contract as well. I’m not aware of any dental practice sale that has been done without an attorney—though I have seen some where buyer and seller opted to share an attorney to reduce costs. Whether buyer or seller, plan on hiring an attorney and plan on spending $5,000 - $8,000. Having a dental attorney who is familiar with dental sales is highly recommended.
Escrow Agent – Similar to selling a home, an escrow agent will facilitate the practice sale by ensuring all liens and debts are paid off, all documents are properly executed, and all money is property prorated and distributed at closing. Using an escrow agent isn’t absolutely necessary. The lender can perform the duties of an escrow agent for the sale. However, I’ve found that escrow agents can greatly facility the speed and accuracy of the transaction. If an escrow agent is retained, they are motived to get the deal closed and earn their fee, which usually ranges between $3,000 - $4,000 for each party based on the purchase price. Escrow agents are great at quarterbacking transactions and keeping them moving.
Accountants and Tax Planners – Most dentists who are buying and selling will already be working with a dental CPA. Among their roles, one of them is to negotiate the allocation of the purchase price. The allocation (allocating certain percentages of the purchase price to things like goodwill, assets, and supplies) has tax implications for both parties, so having these professionals involved in the process is highly recommended.
Lenders – Did you know that there are dental lenders who specialize solely on dental practices? There are also divisions in big banks who focus solely on dental practice lending. Chances are that if a buyer calls their banker regarding a dental practice acquisition, the buyer will be referred to the group within the bank who understands the ins and outs of dental practice finance. For buyers, having a relationship with a bank prior to shopping for practices is very much recommended. A seller will have a hard time picking a buyer who has not gone through a preapproval process and has a lender engaged, so buyers get in touch with a lender and then go shopping.
Due Diligence Coordinators, Equipment Inspectors and Practice Analytics Specialists – If you’re a buyer and the seller selects you to buy the practice, you might be then faced with the question of, “Now what?” As a dental practice buyer, you will not only need to arrange financing, get the lease assigned, and sign the contract you will also have to make sure you are buying what you think you are buying. Are you sure all the equipment is in working order? Can you rely on the production reports? Do the bank statements support the information shown on the Profit & Loss statements? How will Delta Premier affect the collections? Are you taking on long-term obligations like equipment leases, IT contracts or supply contracts? There is a long list of questions that must be answered to satisfy not only yourself but also the bank who is making the loan. Not to worry though, there are professionals who can help if you feel lost. The last thing you will want to do is buy a dental practice with outstanding questions or concerns. Smooth transitions are a result of solid and thorough due diligence—understanding as much as you can before you take over.
We’ve covered most of the key professionals who can assist when buying or selling a dental practice. Do they all cost money? Yes. Are they worth it? Most likely! These professionals are trained in very specific aspects of the practice sale just like you are trained in a very specific aspect of health care. As a dentist, going at a practice purchase or sale attempting to do some of this work by yourself might end up being very humbling and very costly. Please consider carefully how you might leverage these key practitioners to help you achieve your goals while reducing your exposure to risk.