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How to Sell a Dental Practice (Part 2 of 2)

Sell A Dental PracticeIn Part I of this article, we focused on the initial steps required to sell a dental practice, including choosing a transition strategy, determining practice value, and confidentially marketing the practice to find a qualified buyer.  Once a buyer has been identified, the process has truly just begun!  The final stages of the transition are complex and can cause the parties to endure a tremendous amount of undue stress if not handled properly.  During this phase, the practice broker will play a pivotal role in assisting the parties with negotiating the terms of the sale, buffering their emotions, and walking them through the closing process.  We will now examine the additional steps required to sell a dental practice and realize a successful transition:

  1. Once an ideal buyer has been located, the next step in the process is to agree on the terms of the purchase in a Letter of Intent, which should detail the proposed purchase price, intended closing date, assets included in the sale, and a list of contingencies that have to be met before the transition is completed.
  2. Upon agreeing on the terms of the sale, the next step in the process is for the buyer to secure financing.  Since most buyers will require 100% financing, it is important that they work with lenders who are familiar with dental transactions.  It is equally important that the practice broker help position their loan request in a favorable light with each lender to give the buying dentist a strong change of securing the level of financing requested.  This involves understanding each lender’s unique underwriting requirements, presenting a comprehensive practice prospectus and cash flow analysis, and proactively addressing any potential red flags up front.
  3. While navigating the financing process, the buyer will also be completing their due diligence on the practice.  This typically involves meeting the selling doctor, reviewing patient charts and practice reports, inspecting equipment, and consulting with an accountant to evaluate practice financials.
  4. The most important document involved in a dental practice sale is the Asset Purchase Agreement, which serves as the legally binding document detailing the terms of the sale.  This document should be specific to a dental transition and be a win-win agreement that protects both sides and discusses how common issues, such as accounts receivables and credit balances, will be handled after the sale occurs.   It is imperative for each party to hire their own legal counsel (with experience in dental transitions) to review the APA and other agreements involved with the sale.
  5. In addition to the APA, the buyer will need to negotiate an assignment of the existing office lease or negotiate a new lease with the building landlord.  It is important to consider the requirements of the lender when negotiating the lease term and to approach the landlord at the proper point in the transaction to protect confidentiality while not delaying the closing.
  6. As the closing date approaches, the buyer, seller, and broker will work closely to ensure that all the details of the transition are completed prior to closing, including transferring/establishing service provider accounts (utilities, phone, etc.), PPO credentialing, drafting a transition letter that will be mailed to active patients upon closing, and ensuring the lender receives all necessary documentation to fund on the closing date.
  7. Throughout this process, the staff and patients are typically unaware that the dental practice is being transitioned to a new doctor.  The reason for this is simple: to protect the goodwill of the practice.  Selling a dental practice is an emotional process for any doctor because of the relationships developed with their patients and staff over the years.  Timing of this introduction, how the initial meeting is handled, and training the staff to explain the transition to patients is a critical step in ensuring a smooth transition of ownership and maximum patient retention following the sale.

While this article covers the most significant steps required to sell a dental practice, it is by no means comprehensive.  Each practice transition is unique and presents its own set of challenges to overcome during the closing process.  Therefore, it is imperative to be educated about the process and employ the services of experienced professionals (broker, attorney, accountant, etc.) to help you navigate the process, protect practice value, and ensure a successful transition for all parties involved.

This article is brought to you by David McLerran of McLerran & Associates, specializing in How to Sell a Dental Practice in Texas.

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