How to Buy and Sell a Dental Practice

If you’re thinking about retiring, you’re probably considering selling your dental practice either to an existing associate or to a third-party. If you have the entrepreneurial bug, you’re probably considering starting your own dental practice or buying an existing dental practice. But the problem is, where do you start?

Unlike buying a house, there is not a publically available listing of dental practices for sale. While that can skew the economics of buying and selling a dental practice, the majority of Sellers do not want to broadcast that they are selling their practice for fear of losing patients and, therefore, revenue.

In the current market, the most common ways that Buyers and Sellers find each other are through (i) dental practice brokers; (ii) an associate buying-out their employer; (iii) a referral from a friend; or (iv) a cold call. When my wife and I bought her practice, I literally made an excel sheet of every dentist, broken down by specialty, that was in her target market—there were over 200!

Regardless of how the practice is found, the first step in the process is agreeing to a non-binding Letter of Intent, or LOI. The LOI should be non-binding on both parties so that neither the buyer nor the seller is obligated to pursue the transaction if the parties cannot agree on purchase documents. The most common terms in the LOI are (i) the sales price; (ii) the parties involved; (iii) the type of transaction; (iv) the sales price allocation; (v) inclusions and exceptions to the sale; (vi) future employment; and (vii) what real estate is included in the sale.

Whether buying or selling a practice, you should consult with your CPA and your attorney regarding the LOI before you sign it. Even though the LOI should be non-binding, the LOI serves as an outline of key terms that will be used in the actual purchase agreement. Accordingly, while each party is free to change LOI terms in the actual purchase documents, doing so sets a negative precedent in the negotiation of the purchase documents when a party backs-up on their previously agreed-to LOI terms.

Once the non-binding LOI is agreed to, the purchase documents vary depending on the type of transaction. In a 100% asset purchase, there will generally be (i) an asset purchase agreement; (ii) a loan from a bank or from the seller; (iii) a bill of sale; (iv) an employment agreement; (v) a non-competition agreement; and (vi) a lease or contract to purchase the real estate.

Because the purchase documents, once signed, will legally bind all of the parties to the agreement, it is imperative that your attorney and CPA review these documents before you sign them. But the most important person to read the documents is you. While you might need further explanation of concepts from your CPA or your attorney, once you've read the documents, you'll be able to tell your advisers what you like and don't like about the documents.

If a bank is lending money for the transaction, assuming that all parties involved are moving quickly, the average dental practice sale takes around 1-2 months. Once the transaction closes, there is still more work to be done in transitioning the office to the new dentist-owner. I will discuss that transition in my next article.