Before you sell your practice, make sure you have considered the areas below.
Incorporate your Dental Practice
If you’re selling your dental practice, you should incorporate it first. Why? To save big $$$ on taxes! Look, you have a choice in selling the assets of the dental practice or the shares of a dentistry professional corporation. You definitely (as the seller) want to go the route of selling the shares. Why? Because of the lifetime capital gains exemption that comes from the sale of shares of a small business corporation. With an experienced dental account, you can even multiply the lifetime capital gains exemption by using your family members as non-voting shareholders. Think about it: why use up only YOUR lifetime capital gains exemption when you can use YOURS, YOUR WIFE’S, YOUR CHILDREN’S, etc. The basic idea is that, if you sell shares, you can avoid paying big taxes by using your lifetime capital gains exemption. Make sure to speak with an experienced dental accountant to see if you’re eligible and to get things started towards saving big $$$! You can read more about the Lifetime Capital Gains Exemption here (including how to be eligible).
Transferring Your Existing Practice
You’ll need to work with your accountant and lawyer in order to transfer the assets from your sole proprietorship to your professional corporation. If you plan on selling the shares of your professional corporation, the professional corporation will need to acquire the assets of your dental practice FIRST. Otherwise, the shares of the professional corporation are not worth anything. To fully document this, you’ll need to have an asset purchase agreement between you or your sole proprietorship and your professional corporation.
Transferring the Lease
A lot of times, a transaction is about to close but all is hanging on getting a new lease or the consent of the Landlord in order to assign the existing lease. Things can get somewhat tricky here. You should get a lawyer to review the terms of the existing lease to find out what kinds of issues could plague your deal. For example, what are the conditions or requirements in order to transfer over the lease? How much longer is the term of the lease? Is the Landlord’s consent required? Can consent be withheld (and unreasonably)? Are there any expenses associated with getting consent? Is there a specific way for consent to be requested (in writing, timelines, etc.)? What if there is a transfer of ownership in the professional corporation? Does the Landlord have to give consent for that? If there is a demolition clause, will this need to be removed or rendered inapplicable for some period of time (because this will scare buyers off)? There are a lot of things to think about here and you should definitely have a professional check out the lease agreement.
Dealing with Staff and Associates
Are your staff on contracts? What about associates? Without an agreement in place, for example, your associate may be able to leave and set up shop across the street and take a list of patients they’ve treated exclusively. And you may have little or no legal recourse if that happens! I’ve written about this topic in an upcoming Ontario Dentist magazine article. Why would you want to jeopardize your deal by not having contracts in place with proper restrictive covenants (i.e. non competes, non-solicits), identification of who owns patient records, and termination provisions (among other things)? Having these contracts in place will definitely help you improve the value of your practice when it comes time to sell.
Getting an Appraisal
If the purchaser is getting financing from the bank, they will typically ask for an appraisal. An appraisal should be from a reputable appraisal company. And it will likely be reviewed by a purchaser’s accountant and equipment technician (to gauge if the numbers add up). If there is real estate involved, it too will likely need a separate appraisal (again, especially if the bank is involved in financing the deal).
Assuming you think about and start taking care of the above, you’ll be well on your way to having a smoother sale. And make sure to have a professional and experienced team of individuals on your side during this process!