Purchasing a dental practice is a career goal for many practicing dentists. It can be a daunting task, especially if you try to do it alone. Because the process of purchasing an existing practice is an intricate one, it is best that you seek a team of advisors to help you along the way. We’ve put together the most common pitfalls you should avoid when purchasing an existing dental practice.
Importance of an Advisory Team
It is imperative that you do your due diligence when purchasing a dental practice. You should have an experienced advisory team to help you during the due diligence period. You should be combing through every detail about the practice you want to practice including why the seller is selling, clinical records, tax returns, the practice’s reputation in the community, and client and staff retention rates.
A team of advisors is your greatest asset during the practice purchase process and can help during the due diligence process.
Confidentiality
It is important to keep the purchase of a dental practice confidential. Confidentiality is essential for maintaining positive relationships with the practice’s existing patients and employees. Patients can easily become hesitant about continuing their relationship with the practice after new ownership. It's important that you don’t do anything that can potentially negatively impact the practice.
Always keep the future in mind. How can you not only take advantage of the value that's already there but add value to the practice after you buy it? The potential to grow should be a large factor you consider.
Negotiation
Both you and the seller want the best deal possible and it’s important not to over-negotiate. Being so aggressive that your negotiation tactics lack fairness is a surefire way to get the seller to abandon the negotiation completely.
Fairness influences the success of a negotiation. That doesn’t mean both parties meet halfway, but each party is open to making concessions according to their ability to do so. You should ask for a “fair” market value justified by things like current market value and industry standards.
Setting deadlines during negotiations can improve organization and inspire action. This leads to accountability and limits the amount of stalling tactics sellers may use as leverage. However, unreasonable deadlines might force a party to walk away.
Knowing the Right Seller for you
Building a practice is a hard endeavor and it is something to be proud of. Sometimes sellers have a hard time letting go of something they put so much time and effort into. It is in your best interest to avoid any seller who seems reluctant or possessive over their practice.
One red flag in this area is if the seller wants an employment contract to stay involved in the practice many years after the sale or if the seller has a list of demands they want you to meet regarding the management of the practice after it belongs to you.
A comprehensive purchase agreement details everything you and the seller agreed upon in writing. It's a legally binding contract that facilitates the sale of the practice. It is imperative that this document lists everything that the seller and the buyer discussed and reached an agreement on.
Conclusion
After your purchase, it is a good idea to incorporate your dental practice. Many benefits include tax flexibility and asset protection. If you purchase a practice as the sole proprietor and your practice is sued your personal assets could be at risk. A corporation or LLC has additional protection and ensures that your personal assets are separated from all business assets.
Frequently Asked Questions
Q: Why is it important to have an advisory team when purchasing a dental practice?
A: Having an experienced advisory team is crucial during the process of purchasing a dental practice. They can provide guidance, and expertise, and help navigate the intricate details involved in the transaction. From due diligence to negotiation, their support ensures a smoother and more successful acquisition.
Q: What aspects should I consider during the due diligence period?
A: During due diligence, you should thoroughly examine various aspects of the practice, including the reason for the seller's decision, clinical records, tax returns, the practice's reputation in the community, and client and staff retention rates. This comprehensive evaluation helps you make an informed decision and identify any potential red flags or areas of improvement.
Q: Why is confidentiality important when purchasing a dental practice?
A: Maintaining confidentiality during the purchase process is vital to preserve positive relationships with existing patients and employees. Patients may become hesitant if they perceive uncertainty or changes in ownership. Respecting confidentiality helps ensure a smooth transition and fosters trust among stakeholders.
Q: How should I approach negotiations with the seller?
A: When negotiating the purchase of a dental practice, it's important to strike a balance between being assertive and fair. Overly aggressive tactics can lead to a breakdown in negotiations. Aim for fairness, considering market value and industry standards. Setting reasonable deadlines can also help improve organization and accountability during the negotiation process.
Q: What red flags should I be aware of when dealing with a reluctant seller?
A: If a seller shows reluctance or tries to exert control over the practice even after the sale, it may raise concerns. Watch out for signs such as demands for long-term involvement through employment contracts or excessive requests regarding post-sale management. A smooth transition requires the seller's willingness to let go and allow you to take charge.
Q: Why is a comprehensive purchase agreement important?
A: A comprehensive purchase agreement is a legally binding contract that outlines all agreed-upon terms and conditions of the practice sale. It serves as a vital document that protects both the buyer and the seller. Ensure that all aspects discussed and agreed upon are clearly documented to avoid potential misunderstandings or disputes in the future.
Q: What are the benefits of incorporating a dental practice after purchase?
A: Incorporating a dental practice, such as establishing a corporation or LLC, offers advantages such as tax flexibility and asset protection. By separating personal and business assets, incorporation can safeguard your personal assets in the event of lawsuits or other liabilities related to the practice.
Please note that specific legal and financial advice may be necessary when considering the incorporation process. Consulting with professionals is recommended to determine the best course of action based on your individual circumstances.
At Dental & Medical Counsel, PC, we understand navigating the legal process can be tricky. We believe every doctor deserves the best advice and service so doctors can do what they do best, treat their patients. We make their lives easier by providing expert guidance, so they can focus on their personal and professional aspirations.
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About Ali Oromchian, Esq.
In addition to practicing law for almost 20 years, Ali is also a renowned speaker, throughout North America, on topics such as practice transitions, employment law, negotiation strategies, estate planning, and more! Ali has helped hundreds of optometrists realize their professional goals and looks forward to aiding you in navigating the legal landscape.
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