The process of buying a dental practice can be stressful, to say the least. There are many details to negotiate and if not handled correctly, they can be very costly. That’s why it’s so important to get your advisory team “in the loop” before the basic terms of the deal are discussed. Although issues can be resolved before closing, it’s much better to know about concerns in advance and resolve them early. Here are some of the main areas that should be addressed early in the negotiation process:
Sale structure: In most cases, the price of the practice is the first topic of discussion. But other issues, such as the structure of the transaction, can invariably affect the pricing decision. In terms of tax considerations, the seller would benefit substantially from the transaction because it allows all proceeds from the sale to be taxed at much lower capital gains rates. In contrast, the buyer loses out in a stock sale because he does not get tax deductions for the purchase price. Therefore, the buyer must insist that it be an asset sale. The tax deductions in this scenario can be substantial, especially if a large amount of the purchase price is allocated to equipment.
In a stock sale, the buyer assumes the liabilities of the selling company. It should be understood that this includes not only recorded liabilities, but may also include malpractice claims that have not yet been filed, contingent liabilities and other charges that have not been disclosed to the buyer. Needless to say, this can be very precarious for the group of buyers, which is one of the main reasons why most practical purchases are asset sales.
Negotiate the lease with the landlord early in the game:
Most leases require the landlord’s permission to assign or sublet the lease. If the market for leased space is up, the buyer may not be able to take over the old lease. Therefore, it will be necessary to negotiate a new lease. The buyer should do this early to avoid a situation where the landlord knows you are ready to close with the seller and tries to force you to sign a lease with unreasonable terms. The negotiation of the terms of the lease must be done before the final terms are negotiated with the seller.
Make sure the seller’s representations are valid: Sales agreements always contain a section called “Seller’s Representations and Warranties.” This is a list of elements that give guarantees to the buyer, such as the good condition of the equipment, all taxes are paid, the property title of the assets is good and other representations. Since many financing arrangements in sales practice result in 100% cash delivered to the seller, it may be prudent for the buyer to insist that part of the purchase price be deposited in an escrow account until it is determined. that all representations and warranties of the seller are covered. valid.
When negotiating the price, know exactly what is being sold: Many times the parties will negotiate a price for the “dental practice” but will not discuss exactly what is being sold. There should be a clear understanding of what assets will accompany the sale, such as:
- Deposits on lease of equipment, utilities and telephone
- accounts receivable
- Inventory of dental supplies.
- Computers and other office equipment
When the attorneys for both parties meet to draft the agreement, they will ask these questions. To avoid conflicts and delays in financing the transaction, the buyer and seller must be clear about what assets accompany the deal.
Seller employment after purchase: In some circumstances, it may be advantageous to retain the seller’s services for a period of time. If the buyer has not been involved in the practice, existing patients may be wary of the future direction of the practice. if the seller leaves immediately. Keeping the seller on board for at least a few months can result in a smooth transition. On the other hand, if the buyer has been employed by the selling company, long-term employees may find it difficult to switch their allegiance to the seller until he or she is gone. If the seller is financing all or part of the transaction, he may insist on an extended period of post-sale employment until he is comfortable that the practice is sound and that he will be paid in full.