Selling a dental practice involves many moving pieces, and the paperwork is an important part of the process. Before a buyer can fully evaluate your practice or a transaction can move toward closing, you will need to provide information about the business, including finances, employees, facilities, and other aspects of its operations.
Having those records organized early can make the transition process easier for everyone involved. It gives your broker the information needed to value and market the practice, helps potential buyers complete their due diligence, and gives your attorney and other advisors the information they need to review the transaction.
Before selling a dental practice, gather three years of tax returns, recent profit and loss
statements, accounts receivable and payable reports, loan details, entity and ownership records,
equipment records, the office lease, vendor contracts, insurance and payer information, and
employee details.
Some documents will be needed at the beginning of the process, while others become important later as you move toward an offer, purchase agreement, and closing. Knowing what to expect can help you prepare without feeling like you need to gather everything at once.
An experienced dental practice broker can help you identify the records that will be needed throughout the sale and keep the process moving as information is requested. Your attorney, accountant, and other advisors can then help you review the legal and financial implications of the transaction.
One of the easiest ways for a practice sale to become stressful is to wait until a buyer asks for information before beginning to gather it.
A dental practice sale can involve several stages, including valuation, marketing, buyer due diligence, financing, contract negotiations, and closing. Each stage may require different information. Having your records organized before the process begins gives you a much better starting point.
Financial records are particularly important because they help establish the practice’s value. ADS typically reviews information such as three years of tax returns, the most recent income statement, depreciation schedules, equipment information, and other financial details when evaluating a practice.
Getting these records together can also reveal potential issues that deserve attention before the practice goes on the market. Perhaps an old equipment loan still appears on the books, a contract has an upcoming renewal, or financial statements have not been updated recently. Finding those issues early gives you time to address them.
Financial information is a major part of both the valuation and the buyer’s due diligence process. A buyer needs to understand how the practice has performed historically and what the financial picture looks like today.
Start by gathering the practice’s tax returns for at least the past three years. Depending on the transaction and the buyer’s lender, additional tax documentation may be requested.
Tax returns help establish a record of the practice’s financial performance and may also help advisors understand how the practice is structured. If the practice operates through a corporation, partnership, LLC, or another entity, make sure the appropriate entity documentation is available as well.
Your CPA or tax advisor can also help you understand whether there are tax considerations you should address before agreeing to the terms of the sale.
Current and historical profit and loss statements give buyers a more detailed picture of the practice’s income and expenses.
Have your most recent year-to-date financial statements available, along with historical statements. Buyers and their advisors may look at production, collections, overhead, profitability, and changes in expenses over time.
Current information matters. If the most recent tax return is several months old, it may not reflect what is happening in the practice today.
An up-to-date accounts receivable report can help a buyer understand how much money is outstanding and how effectively the practice collects it.
You should also have information about accounts payable, patient credits, outstanding balances, and any unusual collection issues.
These details may become particularly important during due diligence because the buyer is evaluating the financial condition of the practice as it exists at the time of the sale.
Make a list of outstanding financial obligations, including:
Knowing exactly what remains outstanding can help your advisors determine how those obligations should be handled as part of the transaction.
Financial records are only one part of the picture. Buyers also need to understand what they are purchasing and who has the legal authority to sell the practice.
Depending on your practice structure, gather documents such as:
This becomes especially important when more than one dentist owns the practice. All owners may need to participate in decisions regarding the sale, and the governing documents may contain requirements that need to be addressed before a transaction can proceed.
An equipment inventory and depreciation schedule can also be useful during the sale.
Your records should identify major equipment, furniture, and other assets associated with the practice. Include purchase information, maintenance agreements, warranties, or financing arrangements where appropriate.
This helps establish what is included in the transaction and gives the buyer a clearer understanding of the physical assets they are acquiring.
A buyer is purchasing a business with existing relationships and obligations. Reviewing your contracts before listing the practice can help you identify anything that could affect the transition.
If you lease your office, have a copy of your current lease, including amendments, renewal terms, and any related agreements.
The lease can become an important part of the transaction because the buyer will need a place to operate the practice. Depending on the terms, the buyer may need to assume the existing lease or negotiate a new one with the landlord.
If you own the building, you will also need to decide whether you want to sell the real estate or retain it and lease the space to the buyer. Those decisions should be considered early because they can affect how the overall transaction is structured.
Review ongoing contracts for services such as:
Some agreements can be transferred to the buyer, while others may require the vendor’s approval or need to be terminated.
Identifying these requirements early can prevent an unexpected contract issue from delaying the closing.
Keep current information about your malpractice insurance, business insurance, insurance participation, and payer relationships.
Depending on the practice, buyers may also want to review fee schedules and insurance agreements. This can be particularly important when a buyer needs to become credentialed or establish their own relationship with a payer after the transition.
Your employees are an important part of the practice, and a buyer will want to understand the staffing structure they are stepping into.
Gather relevant information about employee compensation, benefits, tenure, and employment agreements. Associate agreements and other contracts should also be reviewed.
The goal is not to provide every piece of sensitive employee information to every prospective buyer. Confidential information should be handled appropriately and shared at the appropriate stage of the process. Your broker can help manage what information is provided, when it is provided, and who receives it.
Once you have a prospective buyer, the process moves into a more formal stage. Several legal documents may be prepared or reviewed before the transaction closes.
Letter of Intent (LOI): a document that outlines the major terms of a proposed dental practice sale,
such as price, payment structure, timing, and restrictive covenants, before the full purchase
agreement. Some provisions, like confidentiality, may be binding.
A Letter of Intent, or LOI, generally outlines the major terms of the proposed transaction before the parties move into the full purchase agreement.
An LOI may address the proposed purchase price, payment structure, timing, seller’s continued employment, restrictive covenants, and other significant terms.
While many provisions of an LOI are generally non-binding, some provisions, such as confidentiality, may be binding. Since the LOI can establish the framework for the rest of the negotiations, sellers should have their attorney review it before signing.
The purchase agreement is the primary legal document governing the sale. It can address a wide range of issues, including:
Your dental practice broker can help you understand the business terms being discussed, but the legal agreement itself should be reviewed by an attorney licensed in the state where the practice is located.
The purchase agreement is often only one part of the closing paperwork.
Depending on the transaction, you may also encounter documents such as a bill of sale, assignment documents, lien releases, escrow documents, lease agreements, real estate documents, and other schedules or exhibits.
If the seller will continue working after the sale, an employment or consulting agreement may also be part of the transaction.
Selling a dental practice can involve a lot of paperwork, but that does not mean the dentist has to become an expert in every document.
Each advisor has a different role:
Having the right people involved early can make it easier to understand what needs your attention and what can be handled by someone else.
Organized records support an accurate valuation, give buyers the information they need during
due diligence, and reduce the chance that an avoidable paperwork issue will delay closing. Starting
early also gives you time to address issues.
Preparing the legal and financial documents for a dental practice sale may feel like a lot of work, particularly when you are still running the practice and seeing patients every day. Starting early can make the process much more manageable.
Organized records help support an accurate valuation, give buyers the information they need during due diligence, and reduce the chance that an avoidable paperwork issue will delay closing.
If you are thinking about selling your practice in the next few years, you do not have to wait until you are ready to list. An experienced dental transition broker can help you understand what information you will eventually need and identify areas that may deserve attention before you begin the formal sales process.
At ADS Dental Transitions, our brokers work with practice owners throughout the transition process, helping them prepare their practice, understand their options, and coordinate the many moving pieces involved in the sale.
The earlier you prepare, the more time you have to address questions and make informed decisions about your transition.
