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What Could Go Wrong When Selling Your Dental Practice? EVERYTHING! But Don’t Worry

By September 9, 2023September 29th, 2023Michael's Operatory

We sell dental practices. That’s pretty much all I do all day long, 365. Even when I’m not helping to organize and run various dental outreach programs in the Caribbean along with our partners (the Sandals Foundation and Great Shape! Inc.). But yes, DMC helps prepare, market and sell dental practices. And we’re a team of typically 2 lawyers and 1 law clerk that get involved in the overall sale. That includes doing things like lease review, tax planning, employee situation review, and giving you an idea of what your practice could sell for on the open market.

So given all of our many years of experience selling practices, here’s what I can tell you:

  1. There’s no such thing as a smooth transaction. Every single transaction comes with at least one hiccup, sometimes two or more.
  2. Banks take forever to fund deals nowadays (worse than ever before) because of their risk department needing to look over everything, cross their T’s and dot their I’s.
  3. Landlords also take forever nowadays, want everyone’s personal guarantee, and they’re insisting on ever-higher rents and demolition/relocation clauses in their lease. PS: banks generally won’t fund a dental practice purchase if there’s a demolition or relocation clause in the lease unless they’re properly addressed (and we lawyers know how, and try our best, to get around these nasty clauses).
  4. Employee issues seem to pop up in the context of a sale. Laughably and quite sadly, it’s almost like your employees intuitively know you’re about to sell and then do things like: ask for a raise, leave/resign, cause internal drama, etc. What’s the solution to staff issues? Tread carefully, follow the legalities of the Employment Standards Act, 2000 and the common law (i.e. judge-made law) and move quickly!
  5. Confidentiality is super important. We sell practices as quickly and as discretely as we can. When we market the practice, we don’t use the actual practice address or real photos. We market the practice for sale using REAL metrics but it’s only until the dentist buyer has signed a confidentiality agreement with us do we actually disclose the appraisal with the correct address and photos (so they can review and ultimately attend the open house).
  6. Interest rates, inflation and labour shortages: all have a significant impact on dental practice valuations. If the market is good (a seller’s market), then you need to move quickly to sell! If the market isn’t so good but you’re still needing to sell (because of health issues, divorce, relocation, retirement), then you get what you get and you don’t get upset. It’s just the nature of the beast.

So how do lawyers differ from everyone else when it comes to fixing all the bad things that can go wrong?

  1. Education. We want our selling dentists to be well-informed as to the sale process. We need to manage expectations that things can AND DO go wrong and that’s normal. If it didn’t go wrong, it would not be normal. So we totally expect that you don’t have your team members on contract (which we’ll likely need to fix) or that you have a bad lease/landlord situation (which we’ll likely need to fix) or that the macro-economic environment isn’t great (higher interest rates, higher inflation, etc.). So step one is to educate our dentists on the process of selling and the potholes along the way and how we try to fix them.
  2. We Are Fast. We have a saying at DMC: the longer the sale process takes, the worse for the seller. Why? Because if it can go wrong, it usually does go wrong! That’s why we try to keep things very organized. We pride ourselves on gathering information and documentation and drafting legal paperwork and keeping the sale organized from day 1. Why? So we can move QUICKLY and STEALTHILY! We draft the legal paperwork so the other side isn’t wasting weeks or months into the sale process trying to figure everything out. We gather the due diligence items from day 1 (e.g. HARP reports, production reports, financial statements, minute book, employment agreements, etc.). Since we’re lawyers and this is all we do, we draft the legal paperwork, review it with you, and then send it over to the other side’s lawyer right after you’ve selected a buyer. This way we keep things moving quickly.
  3. We Promote Relationship Management. We’re strong believers that the legal paperwork is only relevant if /when the relationship between the buyer and seller turns sour. So we try to introduce the buyer and the seller before an offer is even accepted. We do this at interviews that are conducted after the open house. We often encourage the buyer and seller to have direct communication (which isn’t normal because most real estate salespeople who sell dental practices would prefer to keep buyer and seller in the dark so as to avoid issues coming up which they’re not equipped to handle). But we’re more transparent and our reputation is built on that (how else can we get buyers and sellers to come down with us on one of our dental outreach programs?) We know that many sellers are selling their legacy/relationships with team and patients and that it’s an important decision in their lives.
  4. We Ask You To Control What You Can. We tell our dentists to focus on what they themselves can control: their schedule, their treatment planning, their collections, their marketing plans, managing their team members, etc. Don’t try to outsmart the market or the professionals who will be up against us on the sale (e.g. the buyer’s lawyer, accountant and banker). Remember: those professionals get paid to pick apart your appraisal to try to get the best deal for the buyer. So all we can do is be prepared for those issues to come up, be open about issues that may arise, and have our own set of defensible arguments AND SOLUTIONS!
  5. We Are Solutions-Oriented. Oftentimes, lawyers make hypothetical mountains out of molehills and there’s no semblance of reality around the issue. So we need to be solutions-oriented to get past anything that may come up. We don’t want to get stuck on a ‘problem’ with your landlord or your team members. We want to prepare in advance for issues and reach out to your landlord, for example, immediately so that we can get the ball rolling. We want to sell practices quickly before things – micro or macro – change.
The Content of this post is provided for informational purposes only. It is not intended to be legal, financial, tax, or other professional advice of any kind. You are advised to contact DMC (or other counsel) to seek specific legal advice concerning your individual situation.