When you are considering purchasing a dental practice, there are many things to consider. This article will review some of the nuances that dentists need to be aware of when buying a dental practice.
1. Know the Market and Act Accordingly
It’s a seller’s market out there. Knowing that there is a scarcity of good dental practices out there, you as the buyer need to act accordingly if you want to get that particular practice. What does this mean?
Well, first, get your dental team (dental lawyer, dental accountant, dental banker) together quick and have them ready to go when you need them to be. Keep in mind these professionals are very busy, so give them plenty of advance notice.
Second, if you’re thinking about price, try to figure out if multiple bids are coming in and judge accordingly. You can justify your price any which way you want, but if the vendor doesn’t agree or decides to sell to someone else, you just talked your way into having no practice. We’ve seen some dentists do this and, afterwards, they’re shaking their heads trying to figure out why the seller didn’t accept their offer.
Third, think about the conditions that you want to put in. The more conditions, the less attractive your offer looks to the Vendor. Suppose you require environmental assessments, equipment inspections, chart audits, no employee liabilities, the vendor staying on afterwards and lots of time to do your diligence and exclusivity on top of it. In that case, you’ll indeed feel protected by having as much information as possible. But if there’s another offer without these conditions and everything else is the same (e.g. price), you might lose the deal!
2. Use Your Team of Experts
If someone offers to put together a Letter of Intent or Agreement of Purchase and Sale for you to save you money on legal fees – my advice is DON’T TAKE IT! We’ve seen the types of agreements that get produced. They are typically, and sadly, one-sided in favour of the seller and littered with deficiencies. You wouldn’t want your gardener cutting your hair, would you? So why would you want anyone other than your own lawyer preparing your agreements? It’s Buyer Beware – and when it comes to such a significant investment as buying a dental practice, you want to BEWARE BIG TIME!
3. Look for Opportunities
If you’re a buyer and come across an old-looking dental practice that may be underperforming, you need to assess the future possibilities.
- What types of dentistry does the dentist perform?
- Are they referring out cases to specialists?
- Is the practice open at ideal times?
- Are new residential/corporate developments happening nearby?
- Is the dentist conservative in their treatment? Is there a lot of competition nearby (typically not so much outside of the major cities)?
4. Letter of Intent or Agreement of Purchase and Sale?
A Letter of Intent is a non-binding legal document that sets out the fundamental terms for purchasing the dental practice of another dentist. At DMC, we routinely assist dentists in putting these things together in a way that gets our clients the best deal. And we strongly advocate in favour of using a Letter of Intent to get the agreement on the right track. It sets out the key terms that don’t have to be negotiated later on.
Now, I know there are some people out there (e.g. real estate brokers) who don’t care for a letter of intent. I’m sure they feel that it promotes tire-kicking from non-serious buyers. They prefer an entire Agreement of Purchase and Sale – which are generally made conditional ANYWAYS. For those who need an explanation, an Agreement of Purchase and Sale is the agreement with all the bells and whistles in it (and which is typically 40+ pages) and incorporates the terms of a Letter of Intent. But, buyers can walk away from a full agreement of purchase and sale, with all the conditions in it just as easily as from a Letter of Intent. In other words, it could be just as non-binding upon the parties as a Letter of Intent.
The real difference, I believe, is the cost involved in preparing these documents. A Letter of Intent costs much less because it contains far fewer terms and conditions. On the other hand, an agreement of purchase and sale could potentially cost THOUSANDS of dollars in time spent by lawyers negotiating every term and condition. So why would a prospective purchaser spend thousands of dollars to have a generally non-binding agreement of purchase and sale put together when they could take a much less expensive and just as effective step towards owning a practice by getting a Letter of Intent? Just my opinion, but I think the Letter of Intent approach makes sense.
5. Be Patient
It takes a long time to find the right practice for you. Some of our clients have been looking for two (2) years. Some dentists get lucky. The best thing to do is to look around and talk to people. Go to the tradeshows and talk to dental lawyers, accountants, realtors, insurance brokers and others in the industry to find out if someone is planning on selling. Look at ads in the dental marketplace. Subscribe to realtor websites, etc.
