Key Takeaways
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A dental practice LOI is a hybrid document where economic terms are usually non-binding, while exclusivity, confidentiality, and earnest-money provisions often become legally enforceable once both parties sign.
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Sellers can protect value by insisting on a specific purchase price, a defined asset allocation, a 2–3% earnest-money deposit with clear forfeiture rules, and a 45–60 day exclusivity period with milestone-based termination rights.
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Key seller protections can include naming specific lenders for financing contingencies, defining MAC carve-outs, and stating non-compete radius and duration in miles and years instead of vague phrases.
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Sellers can reduce re-trading risk by completing a diligence-grade valuation before signing, setting a firm due-diligence deadline, and maintaining competitive tension among multiple buyers.
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McLerran & Associates provides sell-side-only representation and has guided approximately 2,000 successful dental practice transitions; schedule a free, confidential discovery call to discuss how to protect your practice value before any LOI arrives.
How a Dental Practice Letter of Intent Works
A dental practice LOI is a hybrid document. Most economic terms, such as purchase price, deal structure, and working-capital targets, are non-binding statements of intent. Certain procedural provisions can become legally enforceable the moment both parties sign. Binding carve-outs often include exclusivity, confidentiality, and expense allocation, which means the seller may be legally committed to taking the practice off the market even though the price is not final.
The checklist below outlines the main clauses a seller can review and negotiate before signing:
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Purchase Price & Structure, including a specific dollar amount, asset sale vs. equity sale, and the cash, equity, and earnout mix
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Asset Allocation, which divides the purchase price among goodwill, equipment, and covenants not to compete
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Earnest Money, including deposit amount, escrow holder, and forfeiture conditions
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Due Diligence Period, including scope, document list, and a firm completion deadline
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Transition & Consulting Terms, including post-closing employment duration, compensation basis, and clinical vs. management duties
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Restrictive Covenants, including non-compete radius, duration, and geographic definition
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Binding vs. Non-Binding, including an explicit list of which provisions are enforceable upon signature
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Exclusivity Period, including duration, milestone triggers, and automatic termination rights
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Conditions to Closing, including financing contingencies, regulatory approvals, and material adverse change (MAC) carve-outs
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Termination Rights, including walk-away triggers, break-up fees, and earnest-money refund conditions
Negotiating Purchase Price & Deal Structure
The purchase price clause sets the economic anchor for every later negotiation. Vague price language, such as ranges instead of specific numbers, can give buyers room to re-trade price during diligence. That window can represent hundreds of thousands of dollars for a strong practice. The structure of consideration, meaning how much is cash at closing versus rollover equity (ownership retained in the acquiring entity) versus earnout (payments tied to future performance), can be just as significant as the headline number.
Seller negotiation points: State a single, specific dollar amount instead of a range. Spell out the cash-at-close percentage. If rollover equity is part of the deal, specify whether it sits at the joint-venture level, which usually pays distributions, or at the holding-company level, which may have more upside but no guaranteed distributions. Red-flag language includes “purchase price subject to adjustment,” open-ended working-capital definitions, and price ranges, because these terms can turn the LOI price into a ceiling instead of a floor.
Seller-Protection Call-Out: If the LOI uses the word “approximately” before any dollar figure, request a specific number before signing. Approximate language often shifts later disputes onto the buyer’s terrain.
Setting Tax-Smart Asset Allocation
Most dental practice sales use an asset-sale structure. In that structure, the buyer acquires specific assets such as equipment, patient records, goodwill, and restrictive covenants instead of the legal entity itself. Purchase price allocation can affect the seller’s net proceeds because different asset categories can be taxed at different rates, with sellers often preferring higher allocations to goodwill and patient records, which are usually taxed at capital gains rates instead of ordinary income rates.
Seller negotiation points: Address the allocation schedule in the LOI, not later in the purchase agreement. Each category, including tangible assets such as equipment and supplies, intangible assets such as goodwill and patient relationships, and covenants not to compete, can carry different tax treatment for buyer and seller. Red-flag language appears when the LOI defers allocation entirely to the purchase agreement, because that approach can give the buyer a second chance to push for a buyer-favorable split after exclusivity begins.
Using Earnest Money to Signal Commitment
Earnest money is a deposit, usually held in escrow, that signals the buyer’s commitment and can compensate the seller if the buyer walks away without cause. Typical earnest-money deposits in dental practice LOIs fall in the 1–3% range, with smaller deposits more common when the seller accepts longer exclusivity and larger deposits used when the buyer wants shorter exclusivity.
Seller negotiation points: Aim for a deposit near the higher end of the range, often 2–3%, to create real financial consequence if a buyer re-trades or exits without cause. Spell out forfeiture conditions clearly. The deposit can be non-refundable if the buyer terminates for reasons other than a material failure of a defined closing condition. Red-flag language such as “deposit refundable at buyer’s sole discretion” can turn earnest money into a free option for the buyer.
Seller-Protection Call-Out: A deposit without defined forfeiture conditions functions more like a reservation than a true deposit. Require specific language that explains when the deposit is forfeited and when it is returned.
Defining the Due Diligence Period
The due diligence period is the time window when the buyer reviews financial records, tax returns, accounts receivable aging, payroll, the lease, equipment, and compliance documentation. Standard due-diligence periods in dental practice LOIs often run 30–60 days from the LOI signing date. An open-ended diligence period without a firm deadline can allow buyers to extend exclusivity and increase re-trade pressure.
Seller negotiation points: Describe the diligence scope in the LOI and list the main document categories the buyer may request. Set a firm completion deadline, with 45 days serving as a reasonable seller-friendly benchmark for a straightforward single-doctor practice. Open-ended diligence without an endpoint is a drafting pattern that often shifts later disagreements onto the buyer’s terrain. Red-flag language appears when the LOI states that “buyer shall have a reasonable period to complete diligence” without a defined endpoint.
Clarifying Transition & Consulting Terms
Post-closing employment or consulting terms describe how long the selling dentist continues working after closing, what compensation applies, and whether duties are clinical, managerial, or both. When a selling dentist continues practicing after closing, the LOI can specify the duration and pay structure of that post-closing employment. In DSO transactions, multi-year working agreements are common, while in doctor-to-doctor walk-away sales, the work-back period is usually shorter.
Seller negotiation points: State compensation as a defined percentage of collections or a fixed salary, not as “market rate” or “to be determined.” Separate clinical duties from management duties. Key post-closing obligations to address can include compensation rates, clinical versus management duties, non-compete scope, and termination consequences that affect earnout, rollover equity, and restrictive covenants. Red-flag language appears when earnout payments depend on continued employment but the LOI does not define what counts as termination “for cause.”
Right-Sizing Restrictive Covenants
A restrictive covenant, most often a non-compete agreement, can prevent the selling dentist from practicing within a defined geographic radius for a set period after closing. Goodwill, which can represent 60–80% of a dental practice’s value, is often protected by these provisions, so their scope can be a meaningful economic term. Non-compete covenants in dental practice LOIs usually specify a geographic radius and duration that must remain reasonable to stay enforceable, with terms often negotiated toward the lower end in metro markets.
Seller negotiation points: Offer seller-drafted non-compete language instead of accepting buyer-drafted terms by default. Define the geographic radius by the practice’s actual patient draw area, not an arbitrary mileage figure. Vague LOI language such as undefined non-compete geography can allow buyers to reinterpret terms during purchase agreement drafting, which can create unenforceable covenants. Red-flag language includes “reasonable geographic area” or “customary non-compete” without specific mileage and duration figures.
Seller-Protection Call-Out: Vague non-compete terms in the LOI are often resolved in the buyer’s favor during purchase agreement drafting. State radius in miles and duration in years before signing.
Clarifying Which LOI Terms Are Binding
The earlier discussion of restrictive covenants highlights how certain LOI provisions can affect your future options. As established earlier, the hybrid structure of dental LOIs can create a key asymmetry. The seller often cannot hold a buyer to the stated price, while the buyer can hold the seller to exclusivity and confidentiality.
Signing the LOI is often the moment when negotiating leverage shifts, so many sellers focus on getting terms right before signing. Non-binding economic terms still create a reference point that can pressure sellers to accept later changes during exclusivity, even when those terms are not legally enforceable.
Seller negotiation points: Ask the LOI to include a clear list of which provisions are binding and which are non-binding. Seller leverage in an LOI negotiation can peak the day before signing and often declines afterward, which can make it easier to secure favorable terms at the LOI stage than in the definitive purchase agreement. Red-flag language appears when the LOI does not clearly identify binding provisions or states that the entire document is non-binding while still including an exclusivity clause. Courts in many jurisdictions may enforce exclusivity even when a general non-binding disclaimer appears.
Structuring the Exclusivity Period
The exclusivity, or “no-shop,” provision often shifts leverage most directly from seller to buyer. Once both parties sign, the seller usually cannot solicit or negotiate with other buyers during the exclusivity period. Exclusivity provisions in dental practice LOIs can suspend the seller’s competitive leverage for that period, and a 60-day window tied to diligence milestones can differ materially from 120 days without milestones.
Seller negotiation points: Many sellers propose a 45–60 day exclusivity period with automatic expiration if the buyer misses defined diligence milestones. Include an automatic termination trigger if the buyer materially changes terms, fails to deliver financing commitments on schedule, or acts in bad faith. Automatic renewal language in exclusivity provisions can convert a fixed 45-day window into a rolling lockup and may be limited to a single extension tied to documented buyer milestones. Red-flag language appears when exclusivity exceeds 90 days or when the buyer can extend the period unilaterally.
Seller-Protection Call-Out: A 120-day open-ended exclusivity period without milestones can function more like a surrender of competitive leverage than a negotiation. Counter with 45–60 days plus milestone-based termination rights.
Defining Conditions to Closing
Closing conditions describe the events that must occur before either party must complete the transaction. Common conditions can include financing approval, regulatory or state board approvals, lease assignment consent, and the absence of a material adverse change, or MAC, which means a significant negative development in the practice’s financial condition or operations. A seller-focused LOI can define closing conditions, including MAC carve-outs and financing contingency language that names specific lenders.
Seller negotiation points: Ask that any financing contingency name specific lenders and include a commitment timeline. Negotiate MAC carve-outs that exclude industry-wide events, regulatory changes, or broad market conditions from triggering a buyer walk-away. Red-flag language appears when the LOI uses broad “subject to financing” language without a named lender or commitment deadline, because that approach can give the buyer a wide option to exit without consequence.
Protecting Yourself With Clear Termination Rights
Termination rights describe when either party can exit the LOI and what financial consequences follow. Clear termination triggers can help protect the seller from a buyer who uses the diligence period to re-trade price and then threatens to walk away. Sellers can push back on broad “subject to due diligence” language that allows buyers to walk away “in buyer’s sole discretion,” and can request that concerns be “material” and “reasonable,” which can limit re-trading without consequence.
Seller negotiation points: Describe specific walk-away triggers for both parties. Require that any buyer termination based on diligence findings identify the specific material issue in writing. Consider negotiating a break-up fee or earnest-money forfeiture if the buyer terminates without a defined material cause. Red-flag language appears when termination rights are exercisable at the buyer’s “sole and absolute discretion” without a materiality standard.
How McLerran & Associates Supports Seller Value
McLerran & Associates is a dental-specific, sell-side-only advisory firm that represents the practice owner, not the buyer. Each engagement starts with a CPA-led EBITDA analysis. EBITDA stands for earnings before interest, taxes, depreciation, and amortization, and it is a common measure of a practice’s operating profitability. This diligence-grade valuation is completed before the practice goes to market so the numbers can hold up when buyers review them, which can reduce the risk of downward renegotiation after exclusivity begins.
From that starting point, McLerran often creates competition by running a structured, auction-like process among a vetted pool of qualified buyers. That competitive tension can help keep the seller in control of the LOI negotiation instead of relying on buyer-drafted terms. The firm reports a transaction rate of roughly 85–90% among its clients, compared with an industry norm closer to 35–40% and do-it-yourself close rates that can run as low as 15–20%. Across approximately 2,000 successful practice sales and roughly $2 billion in closed transaction volume, McLerran’s LOI negotiation process, including quality-of-earnings support through diligence, can be one of the main factors that help agreed values hold at closing.
Schedule a free, confidential discovery call with McLerran & Associates at (512) 900-7989 or visit dentaltransitions.com/contact-us to discuss your situation.
Frequently Asked Questions
Is a dental practice LOI legally binding?
Most dental practice LOIs function as hybrid documents. The majority of economic terms, including purchase price, deal structure, and working-capital targets, are usually non-binding statements of intent. Certain procedural provisions can become legally enforceable once both parties sign. These binding carve-outs often include the exclusivity or no-shop clause, the confidentiality agreement, earnest-money forfeiture conditions, expense allocation, and governing law.
A seller who signs an LOI and then negotiates with another buyer during the exclusivity period can face injunctive relief or damages, even when the surrounding document states that it is non-binding. For this reason, many sellers ask dental transaction counsel to review every provision, both binding and non-binding, before signing.
How long should the exclusivity period be in a dental practice LOI?
A seller-protective exclusivity period often falls in the 45–60 day range for a straightforward single-doctor transaction. A single optional extension of 15 days can be tied to documented buyer progress on named milestones such as delivery of a financing commitment or a first draft of the purchase agreement. Buyers, especially DSOs, commonly request 60–90 days or longer to accommodate internal approval and lender underwriting processes.
Sellers can resist exclusivity periods longer than 60 days when no milestone-based termination rights exist, and can decline automatic renewal language that might convert a fixed window into an indefinite lockup. The key principle is that exclusivity duration and milestone structure are usually negotiated before signing, because seller leverage often declines once the no-shop clause takes effect.
What is the typical earnest-money deposit in a dental practice LOI?
Earnest-money deposits in dental practice LOIs typically range from 1–3% of the purchase price and are held in escrow by a neutral third party. Smaller deposits near the lower end of that range are more common when the seller accepts a longer exclusivity period. Larger deposits can be appropriate when the buyer wants a shorter exclusivity window or when the seller wants stronger financial consequence for a buyer who re-trades or walks away without cause.
The deposit amount can matter less than the forfeiture conditions. A 3% deposit with no defined forfeiture trigger can provide less protection than a 1.5% deposit with explicit, non-discretionary forfeiture language. Sellers can ask the LOI to state exactly when the deposit is forfeited and when it is returned, and can decline any language that makes the deposit “refundable at buyer’s sole discretion.”
What is the difference between an asset sale and a stock sale in a dental practice transaction?
In an asset sale, which appears in the large majority of dental practice transactions, the buyer purchases specific assets of the practice, including equipment, patient records, goodwill, and restrictive covenants, while the seller keeps the legal entity and its historical liabilities. In a stock or equity sale, the buyer acquires ownership of the legal entity itself and inherits all assets and liabilities.
Buyers often prefer asset sales because they receive a stepped-up tax basis in acquired assets, which can support future depreciation deductions. Sellers may prefer stock sales in some situations because a larger portion of the gain can sometimes be taxed at capital gains rates instead of ordinary income rates. The choice of structure can directly affect the seller’s after-tax net proceeds, and two offers with identical headline prices can produce different cash-in-hand results depending on structure and allocation. Sellers can consult a qualified dental CPA or tax advisor before agreeing to any allocation schedule.
Can a buyer re-trade the LOI price after exclusivity is granted?
Re-trading, which means reducing the agreed purchase price after exclusivity begins, often occurs when buyers cite issues discovered during due diligence. Because the purchase price in most LOIs is non-binding, buyers can attempt to reduce it by pointing to financial discrepancies, compliance issues, or operational concerns uncovered during diligence.
Several defenses can help reduce re-trading risk. A diligence-grade valuation completed before the LOI is signed can make the numbers more defensible. A defined diligence scope and firm deadline in the LOI can limit the buyer’s ability to expand the review indefinitely. A competitive process that keeps other vetted buyers engaged can allow the seller to remind the buyer that alternatives exist. Sellers who enter exclusivity with a single buyer and no competitive tension can be more exposed to re-trading.
Next Steps for Practice Owners
The LOI is often where the real negotiation occurs, and seller leverage can be highest before the document is signed. Practice owners who engage a dental-specific sell-side advisor before receiving an LOI can be better positioned to negotiate from strength instead of reacting to buyer-drafted terms under time pressure.
McLerran & Associates has guided practice owners through approximately 2,000 successful transactions, evaluated more than 10,000 practices, and closed roughly $2 billion in transaction volume. The firm’s high close rate, mentioned earlier, can reflect both the quality of its valuation work and its LOI negotiation process. McLerran works exclusively on the sell side and represents the practice owner in every engagement.
Schedule a free, confidential discovery call with McLerran & Associates to discuss your practice, your goals, and what a seller-protective LOI can look like for your specific situation. Call (512) 900-7989, email info@dentaltransitions.com, or visit dentaltransitions.com/contact-us.
Practice owners who are not yet ready to sell can still prepare. The McLerran M&A Summit, scheduled for October 29–30, 2026, is designed for practice owners who have not decided yet. Attendees receive 4 CE credits and a complimentary practice valuation, which the firm values at $2,500. Registration is available at dentaltransitions.com for owners who want education before making a decision.
