A significant number of dental careers begin with the purchase of a practice. This purchase is one of the most important financial decisions a dentist will make in his or her professional career. If you are entering into an arrangement to purchase a practice, whether now or in the future, you are entitled to the information you need to make an informed decision.
Most practice sales are immediate sales. The owner transfers complete ownership to a purchaser and, after a short transition, leaves the practice. There is also a growing trend toward structured or delayed sales leading to complete or fractional ownership (partnership) after a period of association. Delayed sales add a layer of complexity, and accordingly, require a greater amount of preparation and exchange of information.
More than one prospective purchaser has entered a practice as an associate without a clear understanding of the terms of the future buy-out/buy-in. Unfortunately, negotiating purchase terms after the period of association often ends in failure. After investing significant time in the practice and likely signing a restrictive covenant not to compete, the associate’s future is suddenly in jeopardy. This can be avoided by sharing information early in the process.
Regardless of whether it is an immediate or a delayed sale, a prospective buyer should expect to be furnished with preliminary practice information including the applicable business points for the intended association, purchase, and partnership.
The preliminary information should include, but is not limited to, the following:
Association business points
The following points should be addressed if considering an association:
Purchase business points
The following points should be addressed if considering a future purchase:
Partnership business points
The following major areas should be addressed if considering a future partnership:
As you can see, the scope of critical planning that precedes a purchase is linked to how complex the path to ownership is. Choosing the best path depends on each set of circumstances, but the ultimate success of a purchase rests on the ability of those involved to make well-informed decisions early in the process and progress to legal documentation.
This information is not intended to be comprehensive — it is a greatly condensed overview. As always, the devil is in the details. It is wise to seek professional advice from an experienced practice transition expert who can help with the acquisition and analysis of the information.
Terry D. Watson, DDS, and Frank Brown, JD, LL.M