4 Things Your Attorney Should Do for You When Buying a Dental Practice

Nov 11, 2016 | Making an Offer on a Practice

When buying a dental practice, one of the most important members of your purchasing team should be your lawyer or attorney. (Read here about who should be on your team and who shouldn’t). A good attorney that understands how to buy a dental practice can literally save you hundreds of hours of stress and hundreds of thousands of dollars.

As a dentist, you know the value of specialization. The entire dental field is based on funneling the right cases to the right doctor for the job. So, you would think every dentist who buys a dental practice would use an experienced attorney who specializes in helping dentists buy dental practices. Right?

Wrong.

Many dental practice buyers choose to save money and rely on the seller’s lawyer. A huge mistake. Some dentists choose to use a lawyer they know personally, but who lacks experience to represent them in one of the most important (and costly!) career decisions of their life. Another huge mistake.

Several months ago I was working with a recent dental school grad on the purchase of a practice in Georgia. He got a recommendation for a local attorney who was competent, but didn’t specialize in dental transitions. The attorney didn’t know about warranties on dental work and the buyer had to re-do some very costly crown work the seller should have at least partially covered, costing the new dentist close to $20,000 in his first three months of business.

The worst part was when the buyer received the lawyer’s bill, it was based on an hourly rate. The bill was three to four times higher than a specialized dental attorney would have charged. Another $10,000+ down the drain in the first few months of business!

Double-whammy.

You Need a Good Attorney on Your Team!

When selecting a lawyer for your dental transition, we strongly recommend you interview a few attorneys. Just like you would refer a complex oral surgery case to an oral surgeon, interview attorneys that only focus on dentists and will bill on a flat-fee basis, not hourly.

What does a lawyer do when you’re buying a dental practice? Your lawyer should be involved in at least four key areas of your dental practice purchase:

1. Reviewing Letter of Intent

The letter of intent (LOI) is the document you negotiate with the seller around the major terms of the deal – price, timing, etc. It is a document that is typically legally non-binding – essentially a piece of paper both the buyer and seller sign saying, “we want the transition to look like this…” (To see more about what your Letter of Intent should include, click here).

Some brokers will discourage getting a lawyer involved in the transition at this stage “to save money.” They want you to feel locked into what is in the letter of intent before you hire competent advisors. Both a good dental accountant or CPA, or lawyer can help with the negotiations at this crucial stage of discussions with the seller.

A properly negotiated LOI can literally save you hundreds of thousands of dollars, protect both you and the seller, and increase the chance your purchase will be successful.

2. Creating the Right Entity for Your Practice

How do you know whether you should be an S-corporation, LLC or sole proprietorship when buying your dental practice? A good dental transitions lawyer can help you know both the legal and monetary impacts of the most common choices. Combine the lawyer’s advice with your dental accountant’s, and you can protect yourself, your business and minimize the taxes you’ll pay as an owner.

Your state will have rules around what types of entities you can choose as a dental practice and what names you are allowed to use. A good dental transitions attorney can help you choose the right entity for your practice. Additionally, they will be the ones to file the documents with your state to actually open the entity and get you a legal business.

Dental attorneys should also help with the naming of your business. They’ll do a search to see if your name is available, and what other names will be similar in your area possibly causing patient confusion. Depending on your state, they might trademark your name or help you with a DBA (“doing business as”) and explain why that could benefit your new practice.

3. Reviewing and Negotiating the Lease

Your lease is one of the most expensive monthly bills you’ll have as an owner of a dental practice. And unlike dental supplies or lab fees, once the ink is dry on the lease, you don’t have the ability to lower your monthly lease cost for sometimes a decade or more.

It’s crucial to have an attorney review your lease to ensure the core issues in the lease are fair and protect both parties. You’re more likely to get rent modified or get additional lease periods with the help of an attorney with experience negotiating dental spaces. This review could save you tens or even hundreds of thousands of dollars over the life of your lease.

Your dental attorney reads every word of the lease, unlike a broker or agent. The dental attorney is looking for smaller things, like who owns the trade fixtures and what constitutes a default. “The goal of your dental attorney should be,” says Jason Hirst, a dental attorney at McGregor & Oblad, “that there isn’t some obscure provision in any of your sale documents that could cause you a headache.”

4. Creating or Reviewing the Purchase Agreement

The purchase agreement is the document that ultimately transfers ownership of the dental practice. Having an attorney you pay negotiate and help review this document is absolutely crucial. You want to see an agreement that protects you from the seller competing with you post-sale. You want an agreement that deals with accounts receivable and uncompleted work, not to mention protecting you regarding warranty issues of the seller’s patients coming back in with problems you didn’t cause, but need to fix “for free.” The purchase agreement will deal with patient retention, employee benefits, the asset allocation, and tax treatment of goodwill and several other important issues.

Everyone believes their transition will be smooth and they have the best relationship with their new best friend, the seller. The reality is transitions sometimes go bad. One of the best ways to prevent that from happening is to have a well-written purchase agreement both parties understand and agree to.

Wrap-Up

Buying a dental practice is one of the most important decisions a dentist makes in their career. The decisions a buyer has to make throughout the process are complex and unique to the dental profession. Using a dental-transition- specific lawyer is the best way to ensure all your bases are covered. It will cost you some money in the short-term, but the right lawyer can ultimately save you tens and even hundreds of thousands of dollars over your career.


Need help finding the right attorney for your practice purchase? We work with several dental transition-specific attorneys we know, like, trust, and charge a flat-fee for buyers. Contact Brian Hanks via email for specific referrals. Of course, we never receive any compensation or have any other referral arrangements with any attorney we refer to. Our interest is solely in your success as a buyer.


Like what your read? Read More About Buying a Dental Practice:

4 Common Mistakes Dentists Make with Student Loans

How to Analyze a Dental Practice for Sale – The Quantitative Factors

How to Analyze a Dental Practice for Sale – The Qualitative Factors

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