You can go ahead and skip the rest of this post.
But seriously, you absolutely need an attorney when buying your dental practice for two main reasons: managing risk and managing complexity.
First, the most valuable thing you are paying for when hiring an attorney is managing your risks. You don’t know what you don’t know and a good attorney will educate you and protect you from unforeseen pitfalls that may occur in the future. An attorney is a sort of an insurance policy protecting you from unforeseen things going wrong.
An example I’ve used that resonates with many buyers is to consider the relative risk of an employment agreement versus buying a practice. When you’re looking at signing an employment agreement, the most likely worst-case scenario for either party is that you don’t work out as a dentist and get a job elsewhere.
Not fun, but certainly something you can recover from.
When it comes to buying a practice, especially a larger one collecting $1 million or more, the cost of failure is likely to be bankruptcy. Consider the worst-case scenario and then ask yourself if paying a few thousand dollars would be worth reducing that risk. (By the way, I do recommend using an attorney to review an employment agreement – the point is about the relative risk between the two scenarios, not when you can skip using an attorney.)
Second, your attorney is going to help manage the complexity of buying a dental practice. He is going to help manage and control several of the major moving parts of a transaction you’ve likely never experienced and are unlikely to ever do again. Buying a practice has a ton of complexity and a good attorney has seen it all before.
If you’re considering not hiring an attorney, ask yourself two questions: “If it goes wrong, how badly will this hurt me?” and “Do I truly know and understand all the steps in this process?”
It’s common for me to hear a dentist tell me about a friend they have who just completed a purchase. The friend told them they mostly saw the attorney reacting to, or drafting, documents. I’ve heard more than a few dentists say, “This seems pretty common sense…I bet I could do what he’s doing here and save the money.” Or, “I can just download the same form from the internet and end up in roughly the same place but save thousands of dollars.”
You probably are smart enough to understand the major issues at play, but you’re incomplete in your thinking.
A good dental attorney is going to know, see, and react to the important points of a deal you don’t see, you don’t know to ask about, and which haven’t yet come up in conversations between you and the seller or broker. A dental-specific transitions attorney is going to have a framework to analyze a deal, a document, an agreement or an opinion that involves hundreds of transactions similar to yours – many of which have had issues or problems that can be avoided in your case. What you’re paying for is the avoidance of – and help navigating – issues which have tripped up other buyers in the past.
One client I worked with in the recent past was suing the seller of his practice for misrepresenting the amount of patient credits left in the practice. The seller had thought there was a small amount of between $7,000-$8,000 in credits owed to patients and the buyer had no reason to doubt the seller.
The two had a great relationship through the transaction and were both invested in each other’s success. However, about six months after closing on the practice, the buyer ran a detailed patient credit report and found that the seller owed over $70,000 to a long list of patients from decades worth of work. Oops. Now the buyer was suing the seller.
Had an experienced attorney reviewed the documents and process prior to closing on the practice, the issue could have been raised and neither party would have been involved in a lawsuit sure to cost both parties at least $20,000.
The root of the issue was that neither the buyer nor the seller knew what they didn’t know. Neither knew enough to ask the right questions and verify reports. And because no one asked the question, the problem became huge and ultimately cost both parties not just cash, but goodwill, reputation, and peace of mind.
What you’re paying for with an attorney is the specialized knowledge to know what to ask, where to have protection for both parties, and how to manage the complexity of the process. While the buying and selling of dental practices are similar in most cases, no two transactions are identical. Every deal is unique in some way.
I can tell you from first-hand experience that getting both the risk and complexity side right when buying a practice is very, very difficult. If you’re talking to a friend who closed on a practice and you hear a version of, “I dunno, it didn’t really seem like my attorney did all that much. I probably could have done it and saved some money…” it’s because your friend used a very good attorney who made the process look as effortless as the 60-year old dentist doing a filling.
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