20 Jun How to sell your own practice

Through the years, PARAGON has had numerous doctors request an outline of considerations for selling their own practice. While PARAGON strongly advise against the “do-it-yourself” practice sale, we recognize that some doctors will try this complicated process regardless of our warnings. They are convinced they can do this and save paying a fee to a professional.

Please accept the following outline with our compliments. This outline covers most of the topics that should be considered when selling a dental practice on your own.

Step #1: Should I Sell?

• Determine your pre and post-sale needs and goals
• Determine if a full sale or a partial is the best option
• Explore other possible practice options
• If a full sale, determine if a Walkaway or PreSale is best fit for the practice
• Determine if selling immediately or adding an associate is the best option
• Structure of your post-sale considerations into the overall practice transition plan

Step #2: Financial Considerations

• Determine the fair market value of the practice
  • Valuation of the equipment & furniture
  • Valuation of the clinical and office supplies
  • Valuation of the miscellaneous assets
  • Valuation of the goodwill
  • Valuation of the covenant not to compete
• Draft a practice appraisal valuation and justification report
• Establish the purchase price
• Establish the down payment and financing terms
• Prepare a 10-year income and expense proforma, including practice fair market value, practice price and projections for:
  • Working capital
  • Installment payments
  • Inflation effects on income and expenses
  • Seller’s post-sale production
  • Purchaser’s added production
  • Production-related expenses
  • Fixed expenses
  • Interest expenses
  • Other expenses
• Establish purchase price allocations for income tax purposes (sellers often hurt themselves here by not setting allocations for advantageous tax treatment)
• Review tax legislation and the effect on limited liability companies (extremely critical income tax issue in co-ownership transactions)
• Review tax legislation and the effect on professional corporations
• Organization of the information for the purchaser and his or her tax and legal advisors

Step #3: Locating the Purchaser

• Place advertisements
• Draft blind ads
• Contact D4 students
• Screen applicants
• Review resume and CV
• Schedule potential purchaser interviews (typically must be after hours)
• Determine the pros and cons of selling to new recent graduates
• Determine if practice merger purchasers are a better alternative
• Maintain confidentiality, including:
  • Keeping the news from your staff
  • Keeping the news from your patients
  • Keeping the news from your colleagues
• Final selection of the appropriate purchaser fit for your practice and your  specific transition structure

Step #4: Banking versus Seller Considerations

• Preparing the purchaser for initial meeting with the bank
  • Preparing a personal financial statement
  • Preparing a Curriculum Vitae
  • Presenting the 10-year income and expense proforma to the banker
  • Answering the banker’s questions
  • Justifying the practice fair market value and practice price
  • Justifying the working capital projections
  • Justifying the purchaser’s added growth to the practice
  • Justifying practice acquisition loan in addition to existing school debt and other loan debt
  • Negotiating bank rate and terms
  • Locating a co-signer
  • Locating a guarantor
• Establish seller’s security position in conjunction with the bank’s security position
• Handling and evaluating seller loan subordination requests
• Handling and evaluating seller loan guarantee requests
• Coordinating the bank loan closing with the practice closing
• Securing the closing agents/attorneys required by the bank

Step #5: Working with the Attorneys and Accountants

• Work with the attorneys, including:
  • Scheduling meetings with the purchaser’s attorney
  • Scheduling meetings between your attorney and the purchaser’s attorney
  • Getting the purchaser’s attorney to return your attorney’s calls
  • Getting your attorney to return the purchaser’s attorney’s calls
  • Getting your attorney to return your calls
  • How to plead with your attorney
  • How to plead with the purchaser’s attorney
  • How to select a new attorney
  • How to convince the purchaser to select a new attorney
• Work with the accountants, including:
  • Scheduling meetings with the purchaser’s accountant
  • Scheduling meetings between your accountant and the purchaser’s accountant
  • Getting the purchaser’s accountant to return your accountant’s calls
  • Getting your accountant to return the purchaser’s accountant’s calls
  • Getting your accountant to return your calls
  • How to plead with your accountant
  • How to plead with the purchaser’s accountant
  • How to select a new accountant
  • How to convince the purchaser to select a new accountant
• How to explain your practice transition needs to your accountant and your attorney.
• How to explain the unique nature of a dental practice to your attorney and your accountant
• How to explain the unique nature of a dental practice to the purchaser’s attorney and the purchaser’s accountant
• How to control billable hours by your accountant and attorney.
• How to keep accountant and attorney fees from accumulating to a level that is higher than your selling price.
• Maintaining your good relationship with the purchaser during the adversarial negotiation process, including:
  • How to assure the purchaser that you are not as bad as your attorney or your accountant and that you truly do care about the purchaser’s needs and goals as well.
  • How to assure the purchaser that everything will be much better after the closing.

Step #6: Practice Sale Contract Considerations

A contract should cover a multitude of subjects for the protection of both parties, including, but not limited to, the following:

• Sale of assets and description of each asset category
• Purchase price and method of payment
• Allocation of the purchase price for tax purposes
• Inspection of the premises by the purchaser
• Title considerations
• Signature Date and Closing Date
• Date of Possession (why it should never be the Closing Date)
• Cash and Accounts Receivable treatment
• Prepaid fees, extended treatment and work in progress
• Outstanding patient contracts
• Acknowledgments and warranties of seller
• Acknowledgments and warranties of purchaser
• Assumption of patient care by the purchaser
• Patient refunds
• Post-Sale remakes of Pre-Sale dental work
• Announcements of the transaction
• Bulk sales tax considerations
• Taxes on the sale and transfer of assets
• Prorated expenses including staff considerations
• Restrictive covenant considerations
• Post-sale non-solicitation of patients
• Post-sale patient communication by the seller
• Individual patient record value
• Liquidated damages upon breach or default
• Additional consideration for the purchaser
• Waiver of right to protest by the purchaser and seller
• Specific performance by the Seller
• Assignment of warranties and covenants for death or disability
• Use of the seller’s name after the sale
• Patient records responsibilities
• Bill of Sale for both corporate and individual interests
• Expenses associated with the transaction
• Attorney’s role after the sale
• Accountant’s roles after the sale
• Indemnification by both parties
• Notification requirements for legal actions
• Integration of entire agreement
• Choice of law
• Binding effect, rights of assignment
• Severability of invalid contract sections.
• Notice of relocation
• Waiver of breach or violation not deemed continuing
• Lease and/or lease assignment
• Settlement of disputes
• Item headings and interpretation
• Personal guarantees
• Corporate approval and certification
• Post-sale provider agreement considerations
• Definitions of liabilities and collateral
• Establishing your security interest in the assets
• Validation of security interest, U.C.C. filings
• Sale or transfer of collateral and other assets
• Judicial encumbrances and defense of title
• Maintenance of the assets and insurance
• Notice of relocation and discontinuance
• The office lease as security
• Addition of an associate to the practice
• Financial statements
• Events of default, acceleration
• Notice of default and right to cure
• Rights and remedies on default
• Debtor restrictive covenant
• Right of first refusal in the event of a sale by the purchaser
• One general obligation – cross collateral
• Non-waiver
• Waiver by debtor
• Right to offset
• Termination of security interest

Step #7: Closing the Sale

• Schedule the closing with all parties as well as their respective attorneys, accountants and financial advisors
• Schedule the closing with the bank and their attorneys
• Handle last minute negotiations and counter unreasonable and unfair last  minute changes to the contract by the purchaser or his or her advisors
• Plead with the purchaser’s attorney to be reasonable so this process is not delayed indefinitely
• Plead with your attorney to be reasonable so this process is not delayed indefinitely
• After the closing fails (happens at least 50% of the time in “do-it-yourself” and/or attorney controlled transactions) go back to Step 3 (# 1)

Step #8: Post-Sale Considerations

Congratulations! If you made it to this point you have certainly beat the odds. Very few who try to sell a practice without professional assistance ever get this far.

Now, consider the following potential issues when dealing with the purchaser after the sale:

• How to communicate with the purchaser after your lawyer has completely alienated and insulted the purchaser.
• How to handle patient calls after an angry purchaser has informed them that your dental work was sub par at best.
• How to select a lawyer to defend yourself against lawsuits from your former patients who have been told by the purchaser that your professional services bordered on malpractice.
• How to defend yourself following a lawsuit filed by an irate purchaser who has been so angry since the closing that the purchaser has been searching for any and all issues possible to sue you over.
• How to purchase a ticket to South America without leaving a forwarding address so you don’t have to talk with anyone about this any longer.

All kidding aside, most of this article truly is useful information and covers quite a few of the pertinent topics that need to be addressed contractually in order to protect the interests of both you and the purchaser. Some of what we have listed in this article may not be familiar to you. We would be glad to schedule a consultation to review their importance if you like.

In conclusion, it is a virtual guarantee that you will spend far more money than our fee  in either in advisor fees and/or a reduced selling price if you attempt to sell your own practice. If you change your mind and feel you would indeed benefit from professional assistance, call PARAGON, this is what we do every single day!