Preparing to buy a dental practice may seem like a daunting task. There are many considerations, many of which usually require an expert opinion and guidance. Buying a dental practice involves legal, financing, real estate, and accounting expertise, at the very least, to ensure a smooth deal with the buyer being protected. Here’s what to consider:
Buying a practice usually means buying the assets of the practice, rather than the corporation itself. In any event, the buyer is taking a significant financial and legal risk and just like any other purchase, you want to make sure that you are getting what you paid for and not any (or at least as little as possible) of the baggage. Every dental transaction should include a well-drafted and thorough purchase agreement which includes substantial representations and warranties by the seller, thorough lists of included and excluded assets, terms addressing restrictive covenants, and disclosures about any potential liabilities affecting the practice. In addition, some transactions might require a portion of the purchase price to be seller financed. In that case, there will be a need for a promissory note and security agreement. As the deal progresses, there might be a need for additional documents to cover an assignment of rights for certain licenses, contracts, and other. Among other things, the final document signed includes a bill a sale, which is like a receipt for the buyer evidencing the sale of the assets.
If you’re not self-financing, most people utilize banks, family, or practice specific lenders. When buying a regular business, a bank might suffice but when buying a dental practice, its imperative that you work with a lender that knows the industry in and out. Working with a practice industry specific lender will not only ensure you get the right financing, but will provide you with an expert in dental practices who knows exactly what you need.
When buying the assets of a practice, the buyer usually is moving into the same space the seller occupied. This requires an approval of an assignment of the lease by the landlord, or at least a new lease with the landlord. In same cases, it could involve the purchase of property. A seasoned and industry specific real estate broker will represent the buyer and find ways to get the most value possible out of the deal and line up the buyer for a favorable renewal. If necessary, the broker will be able to help the buyer find a new location. Industry specific brokers not only understand these deals better than a traditional broker, but in some cases they only work with dental buyers and tenants.
Having an accountant review financial documents with you and help you as your buy a new practice is an advantage not to overlook. Both during a due diligence and once the practice is running, a dental focused accountant will bring great value to the new practice owner.