This week we have a guest post from Chase Howard, ESQ. He is a partner with Bochner PLLC and has been a valuable resource for our clients as they navigate the negotiation of an associate contract or a practice purchase. From our perspective, we can’t stress enough the willingness on your behalf to build a team when purchasing a practice. Chase highlights this below and we would also include a Dental Specific CPA in this list. Don’t be afraid to pay a few dollars up front to save you a lot in the long run knowing you did your due diligence.
Preparing to Buy a Practice
Buying a practice can be one of the highlights of your professional career. At the same time, for some, it’s their biggest investment while for others it’s the key to their retirement after a lifetime of achievements and success. It’s not all roses, however, throughout the transaction and while ideally a transaction runs smoothly from start to finish there are a number of issues that could arise and derail a deal.
Loans and Liens
Its hugely important to ask the right questions to uncover any lingering practice or real estate loans well prior to closing of the practice sale. A late discovered loan can create a delay until the parties determine who holds the loan, the payoff amount, and if there are any liens attached to the practice.
Legal Issues
Does the practice have any outstanding or pending legal claims? This could be malpractice, employment, or even business to business. As an example, a seller might have a business name or logo that potentially infringes on another trademark. If this hasn’t been uncovered, or disclosed, it can seriously impact the deal and the transaction.
Corporate Matters
Has the seller kept their corporations active? If the seller’s corporation is not in active status, this creates a hurdle to selling assets or the practice real estate. In fact, it becomes a roadblock until that entity becomes active again. As a seller, you want to ensure well in advance that your entity is in good standing and has the ability to transact business, otherwise you will spend additional time and money to bring it to order.
Lending
Many buyers seek third party financing to purchase the practice or real estate. What many buyers and sellers don’t realize is the impact and influence a lender might have on the terms of the deal and transition of providers. If there are terms that conflict with the lender requirements, this can create another hurdle for the parties to resolve prior to closing.
While these issues don’t affect every practice transition, they can certainly create a headache if uncovered towards the end of the deal (or after closing!). The key is to prepare early, plan, and do your due diligence whether you’re a buyer or seller in order to optimize your opportunities.
Timeline
An average timeline for a practice acquisition is 60-90 days, largely due to the financing and real estate contingencies involved, as well as performing thorough due diligence. Typically, the legal fees involved (legal representation and real estate fees) can range from $7,500-$12,500, assuming no major concerns with the due diligence process. When selling to a DSO, you can expect significantly more documentation and a more complex deal structure, which would increase the fees and timeline typically.
What Role Does a Lawyer Play in a Transaction?
A lawyer’s primary role in a dental practice transition is to protect their client’s interest, whether as the buyer or seller. Most importantly, it’s important for a lawyer to ensure that the language in purchase documents actually match the spirit and intention of the deal. No one ever expects that a transition will lead to litigation, but if one party misrepresents key facts, or fails to fulfill a responsibility, it can create problems post-closing.
A lawyer should also be the leader of the transaction to ensure that it moves efficiently and without interruption. A typical transaction involves at least 5 parties – the buyer, the seller, a practice broker, a lender, a practice consultant. Sometimes, it involves more than that. Each of these parties have multiple things occurring at once and while deadlines are flexible in general, lending puts the most pressure on a deal closing due to interest rate locks.
A lawyer should also be a mediator. At times, hard conversations have to occur. Whether it be about the structure of the deal, the transition period, post-closing obligations, or otherwise. A lawyer can step in to help find middle ground or the lawyer can be the “bad guy” that the client needs to use to explain a position or proposal to the other party.
When Should I Renegotiate My Contract?
As an associate dentist, it’s easy to get lulled into the continuous cycle of contract auto-renewals. You sign a contract, put your head down and start working hard to build a schedule, continue to educate yourself, and produce in order to justify your position. Before you know it, you’re 2 or 3 years in and still getting compensated under the same terms you signed while in school or residency.
So, when is the right time to renegotiate? The answer is it depends. It depends on your goals with the renegotiation. It depends on how well your first few years have gone in terms of production and development. It depends on the employer. More important than timing is preparation. Are you prepared to support your proposals with information that demonstrates good reason for those changes?
While timing is not the key factor, when it comes to the terms in your agreement, timing is key. For example, if the contract specifically requires you to renegotiate during specific time frames, you must abide by those time frames. This means preparation in advance and ensuring you’ve had access to production reports and additional documentation that demonstrates your success thus far. In any case, don’t be afraid to broach the subject. If you don’t ask for it, you won’t get it.
Virtus Financial Partners is an investment advisor registered with the U.S. Securities and Exchange Commission. Any statement of past performance is not indicative of future returns. Virtus does not provide legal or tax advice. You should consult with your attorney or tax professional for any advice pertaining to legal and/or tax questions you have.
