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?

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.

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.

What Information Should I Request During Due Diligence?

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 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/