How to Purchase a practice on your own!

Transcription

1 How to Purchase a practice on your own! We have had doctors request an outline of the many considerations required for purchasing a dental practice on their own. Since AFTCO is the oldest, largest, and therefore the most experienced consulting firm engaged in the business of purchasing and selling dental practices, we thought you might appreciate this outline which will cover most of the topics that should be considered when you are attempting to by a practice on your own. They include: Step #1: Should You Buy a Practice? 1. Determine your long-term personal goals. 2. Determine your long-term professional objectives. 3. Determine if buying a practice is your best option. 4. Explore all other practice options besides buying. 5. Choose a walk-away or a pre-sale, which would be better and why. 6. Determine if you should buy the practice or become an associate first. 7. Determine if you should buy 50% or 100% of a practice. 8. Determine whether you should borrow money from the bank or use seller financing. 9. Determine how long (if any) the seller will remain in the practice after the closing. Step #2: Financial Considerations 1. Determine the practice fair market value. a. Value the equipment, furniture and supplies. b. Value the intangible value of the practice. c. Allocate the purchase price for maximum tax benefits. 2. Obtain a valid practice appraisal. a. Convince a seller that your appraisal is more valid than his/her s. b. Convince a bank to finance the purchase based on your credit history (or lack thereof). c. Convince the seller's accountant that your appraisal is more valid. d. Convince the seller's attorney that your appraisal is more valid. 3. Negotiate a fair purchase price. a. Convince a seller to accept your offer. b. Convince a seller's accountant to accept your offer. c. Convince a seller's attorney to accept your offer. 4. Establish the method of payment and financing terms. a. All cash b. Cash and seller financing c. Earned equity and cash d. Earned equity and seller financing. e. All earned equity. 5. Write a 10-year computerized income and expense proforma and include projections for: a. Working capital. b. Installment payments. c. Inflation effects on income and expenses. d. Seller's projected post-sale production. e. Your projected added production. f. Breakdown production related expenses. g. Breakdown fixed expenses. h. Breakdown interest expense and loan amortization.

2 i. Breakdown tax treatment for purchaser. 6. Research the latest tax legislation and the effect on the practice acquisition. 7. Organize the practice information so it can be presented to your advisors. Step #3: Locating a practice to purchase 1. Respond to blind advertisements on the internet 2. Respond to blind advertisements in the State Dental Journals. 3. Write ad inquiries so you keep your identity confidential (especially if you are currently employed). 4. Contact potential sellers in person and maintain your confidentiality. 5. Screen potential practices without disclosing your identity. 6. Learn what to look for when reviewing practices. 7. Schedule after-hour interviews with seller and maintain your confidentiality. 8. Learn how to conduct an interview with a seller candidate. 9. Learn how to control your temper when you are being lied to repeatedly. 10. Teach the seller how to value the practice. 11. Explore practice merger options in the same area. 12. Teach the seller not to disclose the sale to the staff so they don t quit before you purchase. 13. Learn to select the right practice for you. Step #4: Banking and Seller Considerations 1. Prepare the paperwork for the bank financing, including: a. Prepare a financial statement. b. Present a 10 year income and expense projection to the banker. c. Answer the banker's questions relating to the financial aspects of this acquisition. d. Locate a co-signer for the bank note. e. Prepare all of the required insurance needed for the closing. 2. Learn what a first-in-priority secured position is and how it affects financing. 3. Handle seller loan subordination requests from the bank. 4. Coordinate the bank loan closing with the practice closing. Step #5: Working with the Attorneys and Accountants 1. Work with both party's attorneys, including; a. Schedule meetings with the seller's attorney with your attorney. b. Get the seller's attorney to return your attorney's calls. c. Get your attorney to return the seller's attorney calls. d. Get your attorney to return your calls. e. Learn how to plead with your attorney to return any calls. f. Learn how to plead with the seller's attorney to be reasonable. g. Learn how to plead with your attorney not to kill the deal. h. Learn how to select a new attorney and start the process all over again. 2. Working with your accountant, including: a. Scheduling meetings with the seller's accountant with your accountant. b. Get the seller's accountant to return your accountant's phone calls. c. Get your accountant to return the seller's accountant calls. d. Get your accountant to return your calls. e. Learn how to plead with your accountant not to kill the deal. f. Learn how to plead with the seller's accountant. g. Learn how to select a new accountant.

3 3. Explain your needs to your accountant and attorney. 4. Learn to control billable hours by your accountant and attorney. 5. Try to keep your accountant and attorney fees from being higher than the purchase price. 6. Try to maintain a friendly relationship with the seller during adversarial negotiations, including: a. Tell the seller that "My attorney wants this!" and "But I can't say for sure; it's up to my attorney." b. Assure the seller that you are not as bad as your attorney is. c. Assure the seller that things will be better after the closing. d. Try not to be too nervous about a seller who now wants to get even with you because of all the adversity that took place during "negotiations". Step #6: Contract ConsiderationsA contract should cover a m ultitude of subjects for the protection of both parties, for example: 1. Sale of assets and description of categories. 2. Purchase price and method of payment. 3. Allocation of the purchase price for tax purposes. 4. Inspection of the premises by the purchaser. 5. Title considerations. 6. Signature date and closing. 7. Date of possession. 8. Cash and accounts receivable. 9. Prepaid fees, extended treatment and work in progress. 10. Outstanding patient contracts, prepaid fees, work in progress, etc. 11. Acknowledgments and warranties of seller. 12. Acknowledgments and warranties of purchaser. 13. Assumption of patient care by the purchaser and patient refunds. 14. Announcements of the transaction to the public. 15. Bulk sales tax considerations. 16. Taxes on the sale and transfer of assets. 17. Prorated expenses including staff employment considerations. 18. Restrictive covenant considerations. 19. Post-sale non-solicitation of patients. 20. Post-sale patient communications. 21. Individual patient record value. 22. Liquidated damages. 23. Breach and Default issues. 24. Waiver of right to protest. 25. Specific performance. 26. Assignment of warranties and covenants for death or disability. 27. Use of seller's name after the sale. 28. Patient records responsibilities. 29. Bill of Sale for both corporate and individual interests. 30. Expenses associated with the transaction. 31. Attorney's role after the sale. 32. Mutual Indemnification. 33. Notification. 34. Integration. 35. Choice of law. 36. Binding effect, rights of assignment.

4 37. Severability. 38. Notice of relocation. 39. Waiver of breach or violation not deemed continuing. 40. Lease and/or lease assignment. 41. Arbitration of disputes. 42. Item headings and interpretation. 43. Personal guaranty. 44. Corporate approval and certification. 45. Post-sale provider agreement. 46. Definitions of liabilities and collateral. 47. Security interest. 48. Validation of security interest, U.C.C. filings. 49. Sale or transfer of collateral and other assets. 50. Judicial encumbrances and defense of title. 51. Maintenance of the assets and insurance. 52. Notice of relocation and discontinuance. 53. Terms of the office lease. 54. Addition of an associate to the practice. 55. Financial statements. 56. Events of default, acceleration. 57. Notice of default and right to cure. 58. Rights and remedies on default. 59. Restrictive covenant. 60. Office building right of first refusal in the event of the office building being sold. 61. One general obligation - cross collateralization. 62. Non-waiver. 63. Waiver by debtor. 64. Right to offset. 65. Termination of security interest. Step #7: Closing the Sale 1. Scheduling the closing with the parties and their respective attorneys and accountants. 2. Handle last minute negotiations. 3. Counter unreasonable and unfair last minute changes to a contract by the seller's attorney. 4. Counter unreasonable and unfair last minute changes to a contract by your attorney. 5. How to make unreasonable and unfair last minute changes to the contract if it is to your advantage to do so. 6. How to get the attorneys to agree to last minute changes. 7. How to plead with the other party s attorney to be reasonable.8. How to plead w ith your attorney to be reasonable. Step #8: After the SaleC on gratu lation s if you m ad e it to th is p oin t; very few purchasers get to this point on their own. Now, to successfully complete this transaction, consider the following when dealing with the seller after the sale: 1. Learn how to communicate with the seller candidate after your lawyer has talked to him. 2. Learn how to send letters to your seller to communicate with him because he/she will no longer speak to you. 3. Learn how to defend yourself following a lawsuit filed by an irate seller. 4. Learn how to hire another lawyer to defend yourself in that lawsuit.

5 5. Learn how to sue your seller for misrepresentation as to the practice value. 6. Learn how to select a lawyer to defend yourself against lawsuits from patients who have been told by the seller that your professional services bordered on malpractice (because he/she now wants to get even with you after the sale). 7. Learn how to purchase a ticket to South America without leaving a forwarding address. These are just a few topics that need to be addressed in order to complete a practice sale on your own. Some of these subjects may not be familiar to you, and we would be glad to schedule a consultation with an AFTCO analyst to review the importance of these items on a one-on-one basis. On the other hand, you might find it simpler to just calling AFTCO at or visit our website at It s time to call AFTCO! Courtesy of Clyde Dollens, DDS cdollens@aftco.net