When you are buying or selling a healthcare practice, even simple, straightforward transactions can become needlessly complex. Miscommunications and misunderstandings over key terms of the transaction can emerge, requiring the parties to spend unnecessary time, energy, and money on attorneys’ fees to resolve disputes. One of the best ways to avoid, or at least minimize, these misunderstandings is through a letter of intent, also sometimes referred to as a memorandum of understanding or a term sheet.
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.
Most doctors know that, as part of buying a practice, they need to perform due diligence into the practice’s records to ensure they know what they are buying. However, determining what that diligence will entail can vary widely, depending on the circumstances. As a general rule, you should review at least the following:
In our previous post in this series, we looked at the allocation of the purchase price between equipment, goodwill and non-competes. In this post, we examine the treatment of accounts receivable in the sale of a practice.
The importance of accounts receivable to an asset purchase agreement often depends on the type of practice you have. If you have a fee-for-service practice where your patients pay upfront for all of the work you will do, accounts receivable may not be a significant part of the transaction. However, if you accept payment over time, or some or all of your practice is insurance-based, then you will often carry significant receivable balances that must be accounted for in the asset purchase agreement. Although there can be variations, there are two ways general ways in which receivables are treated in asset purchase agreements:
When you are negotiating an asset purchase agreement, either to buy or sell an existing practice, there are provisions that may seem innocuous or appear to be standard boilerplate terms. However, these terms can have considerable financial and legal impacts, regardless of whether you are the buyer or seller. This series of blog posts will identify some of these provisions, and explain their significance, in order to help you make an informed decision.
Usually, the first of these provisions you will see as you read the asset purchase agreement is the provision regarding the allocation of purchase price. This may seem unimportant, since you and the other party have agreed on the overall purchase price. However, the method in which that price is allocated between equipment, goodwill, and possibly the non-compete agreement, can have significant consequences.