Buying A Practice – What Do I Need To Do?
Whether you are buying or selling a dental practice, we recommend making a timeline and a checklist to make sure that everything is in place for the transition. You should consult with your legal and financial advisors to help address the specifics of your situation, but transitioning into a new practice involves several steps that have to take place over weeks or months, so you should map out a timeline and set goals for each stage in the process. Each of these steps has many individual components, and the following is simply an overview, but generally speaking, here are some of the steps in the process.
Planning Stage
- Form Your Team of Advisors: You may already have an attorney and accountant, particularly if you already own a dental practice. If not, you should start contacting potential accountants and attorneys before you start shopping for practices, in order to make the process as smooth and efficient as possible. Many attorneys will offer you an initial consultation, either for free or for a nominal amount, so you can explain your goals, discuss the right type of practice, and address any legal concerns you have about the process of purchasing a practice.
- Form an Entity: Once you have your team in place, the next step will be to work with your attorney to form a new entity that will be the actual legal owner of the business. This can be a corporation, limited liability company or professional limited liability company, whichever works best for your particular situation. Consult with your attorney and accountant about which form will work best for you, but keep in mind that Arizona places additional restrictions on professional corporations and professional limited liability companies.
Shopping Stage
- Deciding What Type Of Practice You Want: Not every practice is right for every doctor. Some doctors want a stable, steady income stream and the flexibility that comes with being their own bosses. Other doctors want to own multiple practices, hire teams of doctors and serve more in an administrative role. You should make sure that the practice you are choosing fits your particular goals. For example, if you want to focus your practice on chairside dentistry, rather than building the next Heartland or Aspen Dental, consider looking for a retiring doctor who has built a stable patient base. If you are more entrepreneurial, consider looking for a practice that is financially distressed and that can be bought at an aggressive price.
- Obtaining Financing: Once you have your team in place and a general idea of the type of practice you want to buy, your next step should be to contact potential lenders to get pre-qualified for the purchase. Lenders will need more information about the specific practice you will want to purchase, but you can and should start the ball rolling early.
- Selecting Your Practice: The Arizona Dental Association classified page can be a good place to start. You can also contact practice brokers to help you locate and negotiate specific practices. However, with few exceptions, practice brokers are not attorneys and may not be able to advise you on the legal significance of the purchase agreement. Additionally, the broker often represents the seller in the transaction and may not owe any duties to you or, in the case of dual agency, may have conflicting interests. Therefore, while brokers can help you find the right practice, they should not replace your advisors in the negotiation and documentation of the sale.
Negotiation Stage
- Due Diligence: The due diligence period is your opportunity to verify that the practice you are purchasing matches the practice that has been marketed to you. For a general list of what you want to review during the due diligence process, please see our separate blog post on due diligence. You will want to review the financial information with your accountant, and your lender will also require that certain records be produced so that the bank is comfortable with the loan.
- Purchase Agreement: The purchase agreement sets out the terms by which the assets of the practice are transferred to the entity you have set up to own the practice. The terms of the purchase agreement can have significant and potentially unintended consequences, both from a financial and legal perspective. In addition to making sure that you get all of the assets you bargained for, you need to make sure the terms are as favorable to you as possible in order to protect your investment. Our series of posts on the anatomy of a purchase agreement provides some general tips about asset purchase agreements, but you should consult with your legal and tax advisors.
Closing Stage
Once you have the terms of the sale hammered out and the purchase agreement has been signed, the agreement is ready to close. Much like the purchase of a home, you will have an escrow agent set up to hold the documents legally transferring title to your entity and receive the purchase funds. Once both have been received, the funds are released to the seller and the assets of the practice will legally be transferred to you.
Buying a practice requires multiple steps, each with potential pitfalls that can trap the unwary doctor. You should engage with trusted, experienced advisors as early in the process as possible in order to make the process as smooth and as profitable as possible.