Early in the process of buying a practice, whether it's a dental, medical, optometric, veterinary practice, and before you formally purchase the practice, you'll start with a letter of intent. Your letter of intent is the first piece of legal paperwork in the practice-buying process, as it details your interest in buying the practice and sets out some of the basic business/economic terms. As you create this important document, make sure that you take it seriously! The terms in your letter of intent can help shape your purchase agreement and other important aspects of your purchase.

The Advantages of a Letter of Intent

A letter of intent is traditionally finalized before you jump in and buy a new practice and it offers you a number of benefits. Your letter of intent:

• Increases the odds that you'll be able to reach an agreement with the current owner of the practice since it sets out preliminary terms and gives you a chance to negotiate before making an offer

• Saves money and time that might be spent drafting a full purchase agreement if you're unable to come to terms

• Gives the initial information about your practice purchase and what you can expect from the purchase

• Establishes your intent to purchase the practice

Typically, your letter of intent will cause the selling dentist or doctor to take their practice off the market during your negotiations--though it may require earnest money, or a small deposit on the amount of the practice, in order to do so. This is a critical step since it establishes you as the new soon-to-be owner of the practice and means that you're not competing with others who may also want to buy the practice. Once the letter of intent is written and signed by both parties, it indicates that you and the selling dentist are working toward an agreement. The practice isn't yours yet, but this is certainly the first step in the process!

Note that a letter of intent is not legally binding. At this stage of the process, your purchase is not guaranteed. Rather, the letter of intent establishes your intent to buy the practice and the selling dentist's intent to let you.

What Goes in Your Letter of Intent?

Your letter of intent can vary in length based on the information you want to include. Some agreements are simple, with just a single page of information. Others are more complicated, with many of the terms of the agreement already written out. As you write the letter of intent to purchase a new dental practice, make sure you include these key details.

What is the purchase price for the practice? It's important that you and the selling dentist or doctor come to an agreement about the price you'll pay for the practice. A well-drafted letter of intent with the full purchase price and sometimes the tax allocation of that amount--can help avoid significant conflict in the buying process further down the road.

What assets are included in the price of the practice? Typically, your purchase price will include equipment, the patient list, and other key assets of the practice. Make sure to consider:

• Dental or medical instruments

• Furniture and equipment

• Any technology used by the practice including the computers

• The website, phone number, and social media sites

• Goodwill

Note that it's not necessarily the specific list that's important when you're drafting your letter of intent. Rather, it's important that you and the seller are in agreement about the terms of the sale. You don't want to be surprised later in the selling process by items that aren't included as part of the sale!

Are accounts receivable included in the purchase of the practice? Sometimes, the selling dentist or doctor will want to continue to collect their own accounts receivable. In a usual agreement where the selling dentist keeps their accounts receivable, the selling dentist will continue to collect on them for around 3 to 6 months following the purchase of the practice. In some cases, you may offer to help collect for a percentage of the collections. In other cases, the selling dentist is ready to walk away from the practice altogether, leaving you free to purchase the accounts receivable along with the rest of the practice.

Do you want to buy the property itself, or will you be renting it? If the selling dentist or doctor owns the property that the practice sits on, they may want to either sell the property or rent it to you for a period of time. If you have the option to buy this property, do you want to do so? Do you want first right of refusal when the property is put up for sale? Spelling this out in the letter of intent will help ensure that you know all the important details about the property itself.

How will you handle the transition process? Do you want the seller to help work for the practice for a period of time in order to help with the transition? How long will this last? Laying out the details of the transition will make it easier for both you and the selling dentist.

How will you deal with patients returning for retreatment? Suppose a patient comes back with concerns about the work the doctor did on a filling. Who is responsible for taking care of those issues? Will you fix them as part of your ownership of the practice, or will the selling doctor return to take care of them? You may want to include terms for using equipment and staff as part of those repairs.

Are there any important details concerning the practice staff that needs to be covered? Chances are, you're planning to keep the practice staff when you purchase the practice. It can be important, however, to spell out any details, including whether or not any of those staff members will be retiring or changing jobs.

What restrictive covenants go along with the sale of the practice? Be sure to include information like how far away the dentist must be in order to open another practice and how many years the restrictive covenant will last. Make sure you check with your state laws to determine if the restrictive covenant is enforceable in your state.

Creating a solid letter of intent is one of the most effective ways to establish your plan to buy a practice and to start reaching an agreement with the seller. While these terms aren't binding, they can help ensure that you're on the same page and ready to make your purchase. By working with legal counsel, you'll get a fair agreement that works for both you and the seller while making sure that you've laid out the most important details of your purchase plans.

Contact Dental & Medical Counsel for Help Buying a Dental or Medical Practice

At Dental & Medical Counsel, we have unparalleled experience helping professionals navigate the process of purchasing their dream dental or medical practice. Whether you’re drafting a letter of intent or finalizing your purchase agreement, our team is here to ensure that your purchase terms are clear, your risks are mitigated, and your new practice is set up for success. Contact us today to speak with a team member about buying your practice.

Frequently Asked Questions

Q: What is a letter of intent (LOI) in the practice-buying process?
A: A letter of intent is a document that outlines your interest in buying a practice. It sets out preliminary business terms and is a crucial first step in the practice-buying process. It helps shape the subsequent purchase agreement and other related aspects.

Q: Is a letter of intent legally binding?
A: No, a letter of intent is not legally binding. It indicates your intent to purchase and the seller's intent to sell, but it does not guarantee the sale of the practice.

Q: What are the key advantages of a letter of intent?
A: A letter of intent increases the likelihood of reaching an agreement with the seller, saves time and money in negotiations, and establishes the initial framework for the purchase.

Q: What should be included in a letter of intent?
A: Your letter of intent should include details like the purchase price, assets being included in the sale (such as equipment, patient lists, and goodwill), terms regarding accounts receivable, property details, transition plans, and any restrictive covenants.

Q: How does a letter of intent help with property transactions?
A: A letter of intent can specify whether you will purchase or lease the practice's property. It can also include terms for first right of refusal if the property goes up for sale in the future.

Q: What are accounts receivable, and how are they handled in a letter of intent?
A: Accounts receivable are the outstanding payments owed to the practice. The seller may continue to collect these after the sale, or you may agree to purchase them as part of the transaction.

Q: What details should be covered in a transition plan within the letter of intent?
A: The letter of intent should outline the transition process, such as how long the seller will assist with the transition and whether they will stay on for a period to help integrate the new owner.

Q: What happens if a patient needs retreatment after the purchase?
A: The letter of intent should specify who will be responsible for retreatment, whether it’s the seller or the new owner. It may also address the use of equipment and staff for such procedures.

Q: Do I need to address staff changes in a letter of intent?
A: Yes, if you plan to keep the practice staff, you should include any necessary details in the letter, such as whether staff will be retiring or changing roles.

Q: What is a restrictive covenant, and why is it important?
A: A restrictive covenant prevents the seller from opening a competing practice within a certain distance and time frame. It’s important to include in the letter of intent and should comply with state laws to be enforceable.

About the Author

At Dental & Medical Counsel, we've been instrumental in realizing the practice goals of countless dentists. Whether you're looking to purchase, launch, or sell a dental practice, our expertise is your guide. Beyond the initial stages, we're committed to ensuring your dental practice remains legally compliant.

We provide comprehensive support, including employment law protections, dental contract reviews, and assistance with dental employment agreements. Additionally, we specialize in incorporating dental practices and securing trademarks. And for long-term planning, our services extend to helping dentists with succession and estate planning. Trust us to be your partner in every step of your dental practice journey.

About Ali Oromchian, Esq.

Your Dental Lawyer

Ali Oromchian, JD, LL.M. is the founding attorney of the Dental & Medical Counsel, PC law firm and is renowned for his expertise in legal matters

Ali Oromchian, JD, LL.M., is a leading legal authority in dental law and the founding attorney of Dental & Medical Counsel, PC, with over two decades of experience. His deep connection to dentistry comes from his wife's nearly two-decade-long career as a pediatric dentist.

This personal insight fuels his dedication to empowering dentists to navigate their legal challenges and achieve their practice goals. In doing so, Ali has helped thousands of doctors open their practices while maintaining legal compliance.

Ali is frequently quoted and contributes articles to dental publications, including the California Dental Society, Progressive Dentist, Progressive Orthodontists, Dentistry Today, Dentaltown, and The New Dentist magazines, further showcasing his commitment to the dental community.