Selling Your Dental Practice: Tips From A Healthcare Law Attorney

Aug 16, 2021

At some point, every dentist who owns his or her practice will contemplate selling it, whether as an exit strategy, pathway to retirement or, occasionally, under duress and by necessity. The circumstances of such a sale will have bearing on the transaction and its terms, and there are a number of considerations for owners contemplating a sale in the near-term or distant future.

Identifying a buyer can be among the challenges sellers face, and prospective purchasers are either found or created. Some sellers are lucky in identifying a buyer through networking. Many sellers elect to “incubate” a future buyer, through grooming an associate to become an eventual partner, or buyer. This is a strategy that requires significant planning but is often effective and can result in a seamless transition for patients and personnel.

Finally, most sellers engage a broker to assist in identifying a buyer. The downside to using a broker is the associated cost; however, an effective broker can be extremely valuable, not only in connecting buyers and sellers, but in supporting and contributing to a successful closing. Dentists who use brokers should conduct due diligence, select brokers with experience selling dental practices, and critically, have your attorney review the brokerage or listing agreement before you sign it. Most of these contracts are exclusive, and many contain limiting terms if you seek to change brokers.

Once you have identified a prospective buyer, you, your attorney or your broker should negotiate final terms for the sale. A Letter of Intent (“LOI”) or Memorandum of Understanding (“MOU”) can be a useful tool to facilitate negotiations and create an agreed upon framework for the anticipated transaction. LOIs and MOUs are typically non-binding and should be sufficiently detailed to avoid significant conflict as the parties enter into definitive agreements.

Most practice sales are a conveyance of the physical assets and goodwill, include a transfer of medical records that must comply with privacy laws, and generally exclude seller’s accounts receivable and liabilities. Some sales include a sale of the professional entity itself, and the assets it owns are transferred with the equity. Engaging an attorney with experience in healthcare transactions is vital in determining what type of transaction is most suited to the parties’ needs and ensuring that the transaction is properly structured to comply with state and federal law. Similarly, you should seek the advice of a tax or accounting professional to ensure optimal tax treatment and allocation of the purchase price for your practice.

Selling your practice and transitioning from being an owner benefits from preparation. Sole-proprietors may seek to incorporate, well in advance of selling, in order to limit personal liability in practice and the eventual sale. Maintaining and organizing all of your third-party contracts and vendor agreements is helpful, but establishing and safeguarding the value of the practice’s goodwill is critical. Steps that safeguard your goodwill can include entering into favorable lease agreements or acquiring the practice site’s real estate, and ensuring that associates are precluded from solicitation and competition against the practice you seek to market to buyers.

Planning and closing your sale will take time, and beginning the process early will serve you, your employees and your buyer’s future patients.

This blog on selling your dental practice is by Matthew Feldman, a partner and attorney at Feldman Kieffer. Visit our blog to read more advice from legal experts, as well as tips for new dentists, industry news and case studies. Follow us on Twitter and LinkedIn for the latest updates.