Dental Practice Buyer’s Guide & Workbook
What’s Inside? 3
I’m Ready to be an Owner!
10 Practice Economics
4
How do I Find a Practice?
11 Hygiene Program Strength
6
How are Practices Valued?
12 Premises Lease
7
Income Statement Comparison
14 Staffing Contracts
8
I’m Interested in a Practice
15 Seller Transition Plans
8
Location
16 Frequently Asked Q’s
9
Patient Base
Published by the British Columbia Dental Association, in collaboration with Dr. Patti-Anne Jones, Transition Consultant & Sales Representative, Tier Three Brokerage Ltd., A Henry Schein Company Dr. Patti-Anne Jones is a transition consultant and sales representative at Tier Three Brokerage Ltd., a Henry Schein Company, working with dentists on the appraisal and /or sale of their dental practice. She earned a DDS and an MBA from Western University. Combined with 25 years of clinical dentistry experience, Dr. Jones has held industry roles in marketing, communications and business development, including seven years as a director of member services at the BC Dental Association, where she provided one-on-one assistance to dentists on practice-related issues, lectured at major dental conferences, and delivered practice management content to third and fourth year UBC dental students. For further information on how to assess a potential practice purchase opportunity, please contact Dr. Jones at patti-anne.jones@henryschein.ca.
Copyright © 2023 by the British Columbia Dental Association (BCDA). All rights reserved. No part of this guide may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or any other information storage and retrieval system, without permission in writing from the copyright owner.
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I’m Ready to Be an Owner! Congratulations, you’re ready to embrace dental practice ownership! Becoming a practice owner comes with more responsibility, but can be far more lucrative than working as an associate and allows for greater control over your work environment and how you practice dentistry. Be prepared for a few lean years initially as you pay down your bank loan. However, rest assured you’re investing in yourself and building your personal net worth, and years down the road, with proper planning, you can sell the practice in a tax-advantaged fashion to fund a welldeserved retirement. This resource is intended to provide information on how to conduct a preliminary assessment of a purchase opportunity to determine whether it’s a good fit for you personally and financially and whether it has the elements necessary to set you up for success.
What Advisors do I Need? Before considering a practice purchase, it’s important to have the right team of advisors in place. Unlike the sale of a house, whereby both parties to the transaction are normally represented by a brokerage, with the sale of a dental practice, dental practice brokers only act as agents for the seller and strictly provide customer service to the buyer.
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A buyer’s team of advisors typically consists of an accountant and a lawyer. The sale of a dental practice differs in many ways to the sale of other businesses, so it is important that both these professionals have significant experience with dental practice sales to ensure they have the necessary expertise to advise you appropriately throughout the process. It’s also a good idea to establish yourself with a lender in a bank’s healthcare group who can provide guidance, in advance of submitting an offer, on what financing would be available. Keep in mind that a dental practice appraisal arrives at a value based on an estimate of the financial performance an “average” buyer is likely to able to achieve. Your accountant and banker will run financial forecasts specific to you, taking into account your personal scope of practice, productivity, and potential to grow the practice, to determine the level of financing the practice would be able to support in your hands. This ultimately plays into the purchase price you’re able to offer for a practice. Once you have your team of advisors in place, remember they work for you. Don’t hesitate to ask any questions so you’re fully informed each step of the way.
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How do I Find a Practice? Before launching your search for the “perfect practice”, explore what that looks like to you:
Preparation Checklist
• What location do you prefer?
Accountant
• What size practice are you looking for (number of operatories, amount of revenue, size of patient base, etc.)?
Lawyer
• Do you prefer a leased space or the opportunity to own the property?
Lender in a bank’s healthcare group Determine your “Perfect Practice” Location:
• What sort of transition are you looking for (do you want the seller to stay long term, or just 3-6 months to transition the patients and staff)?
Size:
• Are there other attributes that are important to you (exposure/visibility, growth potential, room for expansion etc.)?
Lease or Own:
Once you’re clear on the type of practice you’re looking for, there are steps you can take to broaden your exposure to practices for sale:
Transition Preference:
Register with ALL the Practice Brokerages This can easily be done via brokerage websites and sets you up to receive email notifications of all new listings in your preferred geographic region. You can also visit the brokerage websites intermittently to stay apprised of all the new and active listings in the market. Registering with several brokerages ensures you’re exposed to the entire pool of practices for sale. Each brokerage will require you to have a non-disclosure agreement on file before they share appraisals and other confidential practice information. This also prevents you from disclosing the practice is for sale, which could be damaging to the vendor’s business if employees and patients are prematurely made aware of the sale.
List any other factors:
Other - List your own
Recruit your Advisors Dental accountants and lawyers work with a large number of dentists on a regular basis. They may be able to connect you with a dentist looking to sell.
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Your “Perfect Practice”
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How are Practices Valued? EBITDA* x Earnings Multiple = Practice Value Valuation methodologies vary somewhat, but from a simplified perspective, practice value is derived from a multiple of earnings (EBITDA), either a trailing EBITDA, based on the practice’s historical performance or a forward-looking EBITDA, based on an estimate of the purchaser’s expected future earnings. *
What is EBITDA?
EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization and is basically the cashflow generated from the business before taxes and loan repayment. Practice value is based on an adjusted EBITDA, which incorporates several adjustments, eliminating any discretionary costs to reflect the true cashflow of the business independent of the owner. As you can see from the sample “adjusted EBITDA” calculation below, the following costs are removed: ʚ All personal/discretionary costs (e.g., dentist and family wages; personal cell phone expenses and personal insurance etc.) ʚ Any costs associated with the dentist rather than the business (e.g., interest, automobile; travel, meals and entertainment; licenses, fees and dues; and continuing education etc.) ʚ Any non-cash expenses (e.g. amortization). Furthermore, dentists’ compensation is built-in at a standard market rate (e.g., 40% of all dental billings) to account for the fact that any purchaser would expect to earn at least what they would as an associate in practice.
How is the Earnings Multiple Determined? Whereas the earnings are derived from the practice, the earnings multiple is determined by the market and is a range, with the specific multiple impacted by a variety of factors related to the practice, economic environment, type of market etc. For example, an attractive practice with new equipment and a great location would likely
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sell for a higher multiple than a practice with less ideal attributes even with the same EBITDA. A seller’s market drives competition, often yielding multiple offers for good practices, bumping up the earnings multiple buyers are willing to pay. Interest rate hikes put downward pressure on earnings multiples because borrowing becomes more expensive, meaning most buyers can’t offer as much for a practice.
Asset Valuation Sometimes the practice value will be presented in the format of an asset valuation, which is the sum of the value of all the practice assets: goodwill; equipment; instruments and supplies; and leaseholds. Assigning value to the tangible assets is relatively straightforward, for example, equipment value is typically market value adjusted for depreciation; leaseholds are based on a dollar amount per square foot and instruments/ supplies are often a percentage of annual supply costs. Conversely, goodwill being an intangible asset is more difficult to quantify, and therefore different brokerages have their own proprietary methods for valuing goodwill. Technically, the goodwill calculation is just a subtraction exercise, the enterprise value (overall practice value) derived from practice earnings less the value of the tangible assets equals goodwill. If a more arbitrary approach has been used to determine goodwill, then it’s important that you consult your accountant to ensure the method makes sense. One specific situation where an asset valuation may be used is when practice value derived from the earnings is less than the value of the tangible assets. In these cases, the practice value may be based on the value of the tangible assets plus a price per patient for goodwill. Keep in mind that an asset valuation without an accompanying cashflow analysis demonstrating sufficient funds to support the loan payments will make it challenging to secure bank financing.
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Income Statement Comparison Sample Income Statement
Adjusted Income Statement
Hygiene
$300,000
Hygiene
$300,000
Dental
$630,000
Dental
$630,000
Lab
$70,000
Lab
$70,000
Total Revenue
$1,000,000
Total Revenue
$1,000,000
Wages and Benefits
$270,000
Wages and Benefits
Management Salaries
$150,000
Management Salaries
Lab Costs
$70,000
Lab Costs
$70,000
Dental Supplies
$80,000
Dental Supplies
$80,000
Rent/Occupancy Costs
$70,000
Rent/Occupancy Costs
$70,000
Utilities
$2,000
Utilities
$2,000
Bank Charges
$4,000
Bank Charges
$4,000
Interest
$7,000
Interest
Insurance
$10,000
Insurance
$5,000
Professional Services
$6,000
Professional Services
$6,000
Telephone
$4,000
Telephone
$2,000
Automobile
$10,000
Automobile
$0
Travel, Meals & Entertainment
$5,000
Travel, Meals & Entertainment
$0
Advertising & Promotion
$10,000
Advertising & Promotion
$10,000
Repairs & Maintenance
$12,000
Repairs & Maintenance
$12,000
Office Expenses
$10,000
Office Expenses
$10,000
Licenses, Fees & Dues
$4,000
Licenses, Fees & Dues
$0
Continuing Education
$5,000
Continuing Education
$0
Amortization
$10,000
Amortization
$0
Total Expenses
$739,000
Adjusted Expenses
$541,000
Net Income
$261,000
Cashflow before Drs’ Compensation
$459,000
Doctor’s Compensation (40% of dental revenue)
$252,000
Adjusted Cashflow
$207,000
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$270,000 $0
$0
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I’m Interested in a Practice How do I assess whether it’s a good fit for me? When you find a practice that piques your interests, engage your advisors. Review the practice appraisal, attend a practice showing, conduct your own research and ask questions of the seller to ensure you have all the information you need to make an informed decision about whether to make an offer. Keep in mind, your initial assessment is just to determine whether you’re truly interested in the practice and if it meets your criteria. There will be an opportunity later in
the process to conduct a detailed due diligence on the practice with the assistance of your advisors. This would entail a deep dive into the financials, contracts, regulatory and legal compliance, status of equipment, patient base, patient care and general operations of the business. Below is a list of items you will want to consider in your preliminary assessment to determine if the practice is a good fit for you based on your personal goals, treatment philosophies and scope of practice.
Location Exposure
Surrounding Area
Is the practice in your preferred geographic area? Also, how much exposure does it get from foot and vehicular traffic? The greater the visibility, the greater the exposure which helps drive new patient flow. The patient base is the most valuable asset in a dental practice, so strong new patient flow is key to offsetting natural patient attrition and growing the patient base. An effective marketing plan, as well as internal referrals from existing patients are also important, but a practice that clearly stands out visually will attract more attention.
Take a drive around to get a feel for the area. Is there a sufficient source of patients? For instance, is the surrounding area primarily residential, or commercial/ industrial? Residential pods are often the greatest source of patients; however, some patients prefer a dentist closer to work and therefore come from local businesses. Is there any local residential development planned or underway? Information on local development can also be obtained from the city’s website or planning department.
Practices with the best exposure are those with streetlevel, retail space, with prominent signage on a main traffic artery, as opposed to practices on an upper level of a medical or high-rise building.
Consider the mix of businesses in the plaza, building and/or immediate area and whether they complement a dental office. Is there a strong anchor tenant, like a popular pharmacy or grocery store to attract an abundance of people to that location? What is the demographic of the area? Are there other healthcare providers in the plaza or nearby from which referrals may arise? Are there a number of vacant units meaning the location may not be very busy?
Accessibility Is the practice easy to get to? For example, is the office close to public transit, bus stops and/or subway stations? Is there enough parking for patients and staff, and is it free or pay parking?
Tenant Mix
Competition How many dentists are in the surrounding area and is the population large enough to keep them all busy and generate a steady stream of new patients?
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Patient Base Patient base is the most valuable asset to a dental practice, so both quantitative and qualitative factors should be assessed. Size
Qualitative Factors
What is the total patient count, or the total number of patients who regularly frequent the dental office? This information would be available in a practice appraisal, or alternatively you could ask the seller to generate a report from the practice management software. The number should be scrutinized as to how it was determined and what time period was considered. For example, is it an “active” patient count or a true representation of the number of patients who attended the office within a given time period, and is that a twelve or twenty-four-month period?
(e.g., Demographics & Insurance Coverage) The age and ethnic diversity of the patient base are important demographic factors. Is the average age of the patient base younger or older than the general population? An older skew generally means the patients will require a greater amount of dental care; however, a very old patient base could equate to above average attrition and a declining patient base. An ethnically diverse patient base is less risky than one with a significant ethic skew unless the buyer is of the same ethnicity. For example, if a Polish vendor is selling a patient base with mostly Polish patients, a buyer of nonPolish decent would be at risk of losing many patients in search of another Polish dentist. The same applies with language, if a large proportion of the patients only speak Farsi, then a solely English-speaking buyer is likely not going to thrive in that setting.
Be cautious if it’s an “active” patient count, as that is just a sum of the total number of patients whose account has the box checked for “active” patient. The accuracy of this count is questionable, as the box may not have been unchecked, despite the patient having left the practice or not having been appointed for several years. These patients would still be included in the “active” patient count.
Trend Over Time It’s also helpful to evaluate how the patient base has trended over time: is it growing, stable or declining? This is a function of the balance between the new patient flow and patient attrition. If the patient base is growing, it means the number of new patients exceeds the patients lost each year. This could be due to a strong marketing plan, great practice exposure, or perhaps an exceptional patient experience that results in attraction of new patients, excellent patient retention and referrals from existing patients. The opposite may be true for a declining patient base, or perhaps the office is just at capacity and limiting new patients due to a lack of space or a limited schedule. Alternatively, maybe there have been little or no marketing efforts, so the new patients simply don’t make up for the natural attrition from patients passing away or relocating. Whatever the case, the trend in the patient base provides interesting insight into how the practice has been performing.
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You’ll also want to consider what proportion of the patients have private healthcare coverage through their employer. Patients with private coverage can often afford more dentistry and therefore may be more likely to proceed with complex treatment plans compared to those without insurance coverage.
Patient Base Exercise Assessment Active Patient Count: Trend Over Time:
(Growing, Stable, Declining)
General Demographic of Patient Base: % of Patients with Insurance
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Practice Economics Profitability
Opportunities for Growth
Is the practice profitable? In other words, after paying all the operating costs of the business, including market compensation for the dentists (even the owner), is there enough positive cashflow available to pay taxes, bank financing and support the lifestyle you want?
Is there an opportunity to increase new patient flow and decrease patient attrition to grow the patient base, for example through internal and external marketing and improving the patient experience?
If the cashflow is minimal or negative, why is that and are there opportunities to boost profitability in an ethical way by growing the patient base, increasing billings or reducing costs? Conversely, if the practice is extraordinarily profitable, is that something you will be able to duplicate to arrive at the same level of cashflow?
Or, is the practice already space constrained, so the office is purposefully limiting new patients, and currently unable to meet the dental needs of its existing patient base? If the latter, is there the ability to expand the office hours or add further operatories to treat more patients and deliver more care?
Revenue Generation
Cost Management
In addition to growing the patient base, is there potential for incremental revenue in your hands? For instance, do you have a wider personal scope that will allow you to keep more procedures inhouse? Is the schedule booked out far in advance, which would suggest the patient base could support expanded hours of practice? Does the existing owner have an atypically conservative, “watch-and-see” approach, whereas, in your view, many cases could benefit from crowns or other procedures? Does the office bill less than the BCDA Suggested Fee Guide or provide significant discounts which could be gradually increased to the current fee levels with minimal patient attrition?
How do the costs as a percentage of billings compare to a “typical practice”, and are there opportunities to reduce costs to improve profitability? The three most significant costs to a dental practice are staff wages, rent/occupancy costs and dental supplies.
Alternatively, compared to your practice style, does the existing owner have a much wider personal scope of practice or more aggressive treatment philosophies which would make it challenging for you to sustain current revenue levels?
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Rent costs may be high due to the location, and/or if the space is too large for the size of the patient base. Growth of the patient base would result in better utilization of the space and lower occupancy costs relative to revenue. It may be possible to achieve lower supply costs through smarter purchasing decisions, and lower wage costs by consolidating staffing and ensuring wage rates reflect current market levels. Keep in mind, any thought to terminating employees or changing their terms of employment should be done in consultation with an employment lawyer to minimize potential liability and determine appropriate severance.
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Hygiene Program Strength The strength of the hygiene program is key, as it’s the hygiene revenue that a purchaser can rely on as a sustainable revenue stream going forward. Patients become accustomed to attending for hygiene appointments at certain intervals, seeing the same hygienist and paying a certain amount for hygiene procedures. This, for the most part, continues unchanged with sale of a practice, whereas dentists’ billing can change dramatically based on the dental provider.
All other factors equal, a practice with 90% of their patient base on a regular recare/hygiene maintenance program, with average frequency of six months has a stronger hygiene program than a practice with 80% of patients on a regular program with average frequency of nine months. If the hygiene program is weak, there may be an opportunity for a purchaser to yield some improvement through patient and staff education and a greater focus on preventive care.
There are two primary metrics to consider when evaluating the strength of the hygiene program: • What proportion of the overall patient base attends for regular hygiene appointments • How much hygiene care on average does each hygiene patient consume annually?
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Premises Lease
Is the premises leased or for sale along with the practice?
Leased Premises
Owned Property
A commercial lease is a very long, legal document that will ultimately be reviewed in detail by your lawyer as part of due diligence. The bank will also take the lease into account when structuring a practice loan. The length of tenancy and the various terms in the lease could have considerable impact on the value of the practice, and the ability to assign the lease and operate the practice at its current location. As a result, the premises lease deserves due consideration.
The option to purchase the real estate in conjunction with the practice is typically of benefit to a buyer because it puts them in control of their own tenancy. There is no longer risk of insufficient tenancy length or detrimental lease terms that could significantly impact the value of the practice down the road, or potentially require the practice to relocate. However, the cashflow from the practice would need to be able to support both the practice loan and the mortgage on the real estate unless you’re able to contribute personal funds and/or security.
Most commercial leases for a dental practice are “triple net leases”, which means the tenant is charged a base rent per square foot, as well as a proportionate share of the landlord’s operating costs, primarily property taxes, maintenance and insurance, plus applicable taxes.
Some factors to consider when conducting a preliminary review of the premises lease: Tenancy Length
Assignment
Ideally, the lease would have a minimum of 10-12 years of tenancy certainty made up of the current lease term, plus renewal options. Practice loans are typically amortized over 12 years, with banks requiring tenancy certainty over the entire amortization period. If for instance, there are only eight years of tenancy available, the bank may choose to amortize the practice loan over eight years, increasing the annual loan payments, making it harder to service the debt. This lack of tenancy length could just be an oversight by the practice owner; however, it creates risk that you may have to relocate and build a new facility in eight years if the landlord doesn’t grant further renewal options.
Assignment is the ability to transfer the lease to a purchaser of the practice. In almost all cases, this requires consent of the landlord, which typically can’t be unreasonably withheld. However, in some cases the consent may be unreasonably withheld, or the landlord has the right to terminate the lease instead of consent to assignment. In other cases, you might have to own assets or provide financial documentation to support the ability to make the lease payments before the landlord will grant assignment.
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Exclusivity Sometimes the lease will provide exclusivity for dentistry, which is a real advantage, because it prevents the landlord from leasing space to another dentist in the same complex.
Relocation Clause
Lease Review Exercise Review your potential lease while watching for the following:
This clause gives the landlord the right to relocate the tenant to another unit in the building/complex. There are several factors to consider with this clause. How much notice is required by the landlord and is it sufficient to build a new office? Who is responsible for the relocation costs, the landlord or tenant? Must the new unit be of similar size, or could it be smaller, limiting operating capacity, or larger, increasing rental costs?
Tenancy Length:
Demolition/Redevelopment/Substantial Renovation Clause
Assignment:
Depending on how this clause is drafted, it could mean the landlord has the right to terminate the lease if they wish to demolish the building or in some cases, “substantially” renovate, perhaps to accommodate a tenant that will pay higher rent. This would require you to relocate and build a new facility at considerable expense also risking patient attrition. Plus, securing a loan may be quite challenging, since most banks will hold back a reserve to fund a relocation and thus will not finance as much for the practice purchase. Also consider the amount of notice the landlord must provide and whether it’s sufficient to find a location and build a new office (e.g., 12 months versus 3). Demo clauses are becoming more prevalent, but they can still be a red flag. Some banks will do a reasonability assessment, looking at the age of the building, amount of local development etc., to determine the likelihood the demolition clause will be exercised, and take this into account when assessing available financing.
Minimum 10-12 years Renewal Options
Would you like the ability to sell your practice at this location in the future? If yes, does the lease outline the ability to grant assignment to the future owner?
Exclusivity: Does your lease include exclusivity to dentistry?
Relocation Clause: Does your lease include a relocation clause? If yes, how much notice is given?
Are you responsible for relocation costs?
Demolition, Redevelopment, Substantial Renovation Clause: Does your landlord have the power to terminate your lease to make substantial renovations to the building? If yes, how much notice is given?
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Staffing Contracts
Do the employees and associates have signed contracts and are they enforceable? Employment Contracts As part of a preliminary assessment, it would be helpful to know if some or all of the employees have employment contracts which include a termination provision that limits notice or pay in lieu of notice, ideally to what is required under the Employment Standards Act. A non-solicitation clause is also beneficial, especially for hygienists as it prevents employees from soliciting patients and other employees for a period of time once they leave the practice. Keep in mind that all the employment contracts will be reviewed in detail by your lawyer as part of due diligence if you proceed to that point. The lawyer will assess the strength of the contracts and their enforceability. Most dental practice sales involve the sale of shares of the vendor’s dentistry professional corporation. Given it’s the corporation that employs the staff, the employer does not change with the sale of the practice. As a result, the purchaser inherits the severance liability of the staff, which is why enforceable employment contracts are so important, especially for practices with many long-term employees. The situation is different in an asset sale. In any case, a purchaser should consult a lawyer to assess the potential risk and advise on appropriate management.
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Ordinarily, the purchaser will want to keep all the staff members given they are intricately linked to the goodwill of the practice, and their retention is integral to a smooth transition and minimizing patient attrition. However, in the event you opt to terminate an employee after close, the absence of an enforceable employment agreement could dramatically increase the employee’s severance entitlement due to common law. Often in these cases, the purchaser’s lawyer would include safeguards in the purchase agreement that would require the vendor to be solely or partially responsible for any termination liability for a specified period of time post-close. As a result, although existing staff contracts are preferred, it’s rarely a deal-breaker.
Associate Contracts Enforceable associate contracts with reasonable nonsolicitation and non-competition clauses are essential when purchasing a practice. As mentioned previously, the patient base is the most valuable asset to a dental practice, and it’s the patients from which the practice revenue is generated. Without an adequate restrictive covenant in place, an associate could relocate down the street with many of the patients you just purchased.
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Seller Transition Plans Questions to keep in mind Seller’s Transition Plans What are the seller’s ideal transition plans and do they fit with your plans for the practice? ▢ Is the seller willing to associate for a period of time to help transition the patients and staff? ► If so, for how many months, at how many days per week? Or, are they looking for a long-term associateship, and if so, are there enough patients and sufficient space to keep both of you busy for the days you want to work? ▢ Alternatively, is the seller looking to hand over the keys and never set foot in the office again which increases the risk of patient and staff attrition? ▢ Is the seller intending to retire after a transition period, or is there a chance they will want to associate elsewhere? ► If so, what sort of restrictive covenant would they agree to in order to prevent competition and loss of patients and staff?
Practice Showing Another great way to assess whether the practice is a good fit for you is to attend a practice showing and ask questions one-on-one with the broker or seller. Get a feel for the space and the equipment. ▢ Are the operatories a good size? ▢ How is the flow of the office? ▢ If you’re left-handed, are the dental units ambidextrous? ▢ How old is the equipment and does it appear in good shape? ▢ Will you want to purchase additional equipment (e.g., panorex) or replace older equipment which would require further funding? ▢ Is there space to build more operatories as the practice grows?
During a practice showing, you may also have brief, preliminary access to a computer and some patient charts and radiographs: ▢ What practice management software does the practice use? ▢ Are the X-rays digital or analog? ▢ Does the office still use paper charts or digital charts? ▢ How sophisticated is the technology in the office? This will give you a sense of additional costs down the road. From the schedule, you can assess the business of the practice: ▢ How far out are patients booked, for hygiene and dentistry? ▢ How much time is scheduled for each patient and are there efficiencies to be achieved in your hands? ▢ What procedures are being performed and how does this compare to your personal scope of practice? ▢ How well utilized are the operatories? What are the office hours? When reviewing a sample of patient charts and X-rays, you may want to get an initial sense of the quality of the dentistry and amount of dentistry being performed: ▢ Does the dentistry meet an appropriate standard or are there an abundance of overhangs, open margins and short root canals that could lead to patient conflict and regulatory concerns? ▢ Does the owner seem to take a conservative approach to care, or have most teeth been crowned leaving little dentistry left for you to do? ▢ Are the X-rays of good quality and easy to interpret, or are they blurry and difficult to diagnose?
▢ Do the operatories have rear, side or over-thepatient delivery systems and does that work for you?
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FAQs If through your preliminary assessment you find a practice that seems like a good fit, your advisors will work with you on drafting an appropriate offer and conducting a comprehensive due diligence on the practice. The details of this process are outside the scope of this resource; however, answers to some frequently asked questions are provided below.
Is the Practice Broker Working for Me or the Seller?
What Information Should I Request During Due Diligence?
In most, if not all cases when a practice broker is involved, they will be representing the seller and strictly be providing customer service to a buyer. In other words, the broker has a fiduciary relationship with the seller, their client, similar to the relationship a dentist has with their patients. The broker owes a duty of confidentiality to their client, and also must always act in their client’s best interest. Whereas, for a buyer, a broker need only provide information, and answer questions such that the buyer can make an informed decision in their own best interest. The broker does not owe the same duty of confidentiality to a buyer, but they must treat all parties to the transaction with fairness, honesty and integrity.
Information requested in due diligence can vary substantially, and a purchaser should work with their accountant and lawyer to establish an appropriate list. This could include, but may not be limited to a series of financial documents, legal contracts, premises lease, practice reports, employment/payroll records. In addition, there may be an in-office visit, for a more fulsome assessment of the equipment, patient base and care delivered etc.
What’s the Difference Between a Letter of Intent and a Purchase Agreement? The Purchase Agreement is the formal, binding, offer to purchase that lays out all the terms and conditions of the sale. It’s a long, legal document, drafted initially by the purchaser’s lawyer, and contains several covenants, representations and warranties and often certain conditions that need to be fulfilled or waived (e.g., financing) for the agreement to become firm and the sale to proceed. A Letter of Intent (LOI) is a shorter, less formal document that is not legally binding, but is intended to allow the parties to come to an agreement on key terms first, before committing the time and incurring the legal costs to draft a formal purchase agreement. Although the LOI is not legally binding, it’s considered morally binding and should represent the terms a purchaser is willing to move forward with, provided no concerns arise from due diligence.
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What’s an Appropriate Deposit and When Should it be Paid? There’s no set rule of thumb for what deposit to offer. The purpose of the deposit is to demonstrate a purchaser’s commitment to the transaction. Therefore, in a competitive situation with multiple offers, a larger deposit is one way a purchaser may differentiate themselves. When the deposit is due may also vary; for example, the deposit may be paid upon signing of an LOI, or upon signing of the formal purchase agreement. In some cases, there may be multiple deposits to mark various milestones, for instance perhaps one with a signed LOI, another with a signed purchase agreement and a third deposit once all the conditions are satisfied and the deal becomes firm. All deposits are deducted from the purchase price upon close. If the conditions aren’t met, and the agreement becomes null and void, the deposit(s) is typically returned to the purchaser.
Additional Resources More questions? Visit CDA’s resources on purchasing a practice. Scan the QR code or visit: dentalcareeroptions.ca/buying-a-practice/
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Notes
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bcdental.org
Your journey starts here. We help dentists like you, bring your vision to life. Our dedicated Healthcare Specialists provide tailored advice, business banking and practice financing solutions – all designed to help you set-up, grow and manage your practice. To learn more, visit scotiabank.com/dentists or scan the QR code to contact a Healthcare & Professional Specialist.
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Dental Practice Buyer’s Guide & Workbook | 19
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