Selling Your Dental Practice; Legal Considerations for Dentists
As more and more dentists of the baby boomer generation approach retirement, the most common question is, “will there be a young dentist with the financial capability of purchasing my practice?” With student debt ballooning and many young doctors opting to work in corporate dentistry, there sometimes seems to be more supply then demand for existing practices.
Dentists with practices that are still thriving, however, will usually find the right buyer with proper planning, help from a qualified practice broker and some patience. Once a buyer is identified, the process can move fairly quickly, and there are many issues to be addressed at the same time as the selling doctor is trying to maintain his or her practice leading up to the sale. Consulting with the attorney who will handle the sale of your practice early in the process will help make the sale, closing and transition as seamless as possible. Issues for the selling doctor to consider include:
Sale of Real Estate or Assignment of Lease
One of the first questions any purchaser will have is whether the selling doctor owns or leases the real estate that houses the practice. If the real estate is owned, it may be worthwhile to hire an appraiser to value the real estate before listing the practice and/or real estate for sale. An appraisal can help provide a realistic listing price and can also provide leverage if a buyer attempts to negotiate down from the listing price.
If the practice leases its office, the lease should be closely evaluated to determine the remaining term of the base lease and any options to extend the lease. Most purchasers will need a loan to purchase the practice, and most lenders will require a lease of at least as long as the term of the loan. For example, if there are only three years remaining on the lease but the term of the buyer’s loan is to be ten years, the seller will likely have to secure an extension of the lease of at least seven years to make the purchase possible.
Transition Period
A crucial consideration in every asset purchase agreement is the length of the transition period during which the selling doctor will remain involved with the practice in some form or another. Some selling doctors who are truly ready for retirement would prefer a very short transition period of one or two months during which they would do little more than introduce the new doctor to existing patients, while others may prefer to work in earnest one or two days a week for one or two years as an independent contractor. Both approaches come with advantages and disadvantages, but it is important that all parties involved share similar expectations so that the attorneys can draft the asset purchase agreement and independent contractor agreement accordingly and so that there are not post-closing disagreements between the doctors that might impact the health of the practice moving forward.
Restrictive Covenants
Every asset purchase agreement will include a restrictive covenant limiting the selling doctor’s ability to practice for a certain length of time within a certain distance of the practice. Both the time and distance of the restrictive covenant can be negotiated, and the selling doctor should also consider proposing exceptions to the restrictive covenant for non-private practice work such as teaching or working in public health.
Staff Considerations
Many selling dentists want to see their staff taken care of once they retire. Fortunately, many purchasing doctors will have to rely on existing staff members to ensure that strong relationships with patients continue beyond the selling doctor’s transition period. Even if the purchasing doctor plans on retaining all of the staff members, the selling doctor will have to ensure that any pension/401(k) plan is closed, any outstanding vacation time is paid out and that any existing employment agreements are transferred to the new practice.
In addition to the four categories discussed above, there are many other considerations that should be discussed between the selling doctor and his or her attorney, broker, accountant, etc. to ensure that the unique characteristics of the practice are taken into consideration when the necessary legal documents are being drafted and negotiated. Dentists who plan for the sale of their practices by taking all of those factors into consideration and who collaborate with their team of professionals early in the process will face fewer challenges during the sales process and will likely enjoy a much easier and more fulfilling transition.
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