Buying a Dental Practice: Seven Legal Issues to Address Before the LOI
Buying a dental practice is not simply a purchase of equipment and patient records. It is a coordinated transaction involving the practice’s goodwill, workforce, contracts, real estate, financing, regulatory obligations, and the seller’s transition. A thoughtful letter of intent can prevent the parties from spending time and money negotiating a deal that was never truly aligned.
The points below are not a substitute for advice about a particular transaction. They are a practical framework for the issues a buyer should address before committing to the structure and economics of a dental-practice acquisition.
1. DEFINE EXACTLY WHAT IS BEING PURCHASED
Most dental acquisitions are structured as asset purchases, but “the assets” should never be left undefined. The parties should identify the clinical and office equipment, furniture, supplies, telephone numbers, websites, trade names, transferable permits, assignable contracts, goodwill, and patient records included in the transaction. The agreement should also identify excluded assets, such as the seller’s cash, personal items, certain accounts receivable, tax refunds, or assets used by a related entity.
The buyer should determine early whether accounts receivable will be purchased, collected by the buyer for the seller, or retained and collected directly by the seller. Each option creates different operational, accounting, and patient-relations issues.
2. TEST THE PURCHASE PRICE AGAINST THE REAL ECONOMICS
The headline price does not tell the whole story. The parties should address how the price is allocated among equipment, restrictive covenants, goodwill, and other asset classes; whether any portion is contingent; and whether adjustments will be made for inventory, prepaid items, deposits, or assumed obligations.
A buyer should also understand what is included in the reported revenue and expenses. Owner compensation, related-party rent, discretionary expenses, hygiene production, insurance adjustments, and one-time expenses may materially affect the practice’s normalized cash flow. The legal documents should match the financial model used to justify the transaction.
3. MAKE DUE DILIGENCE SPECIFIC AND USABLE
A due-diligence provision should give the buyer sufficient time and access to evaluate the practice and a clear right to terminate if the investigation is not satisfactory. Typical review areas include financial statements and tax returns, production and collection reports, patient demographics, accounts receivable, employee compensation and benefits, payer agreements, material contracts, equipment condition, liens, claims, compliance history, licenses, insurance, and real-estate documents.
The process must also respect patient privacy and applicable healthcare requirements. The parties should coordinate the scope and method of disclosure so the buyer receives meaningful information without treating due diligence as permission for an unrestricted transfer of protected information.
4. ADDRESS THE OFFICE LEASE OR REAL ESTATE AT THE OUTSET
A strong practice can become a poor acquisition if the buyer cannot remain in the location on acceptable terms. If the seller leases the office, the transaction may require a lease assignment, landlord consent, or a new lease. The buyer should evaluate rent, operating expenses, maintenance duties, renewal options, exclusivity, assignment restrictions, personal guaranties, and responsibility for specialized improvements.
If real estate is being purchased with the practice, the parties should coordinate the practice acquisition and real-estate closing, title review, survey, environmental issues, financing, and remedies if one component can close but the other cannot.
5. PLAN FOR EMPLOYEES, THE SELLER’S TRANSITION, AND PATIENT COMMUNICATION
Employees do not automatically transfer in an asset purchase. The buyer should decide which employees will receive offers, when those offers will be made, and who is responsible for accrued wages, paid time off, benefits, payroll taxes, and pre-closing employment claims. Careful communication is important because uncertainty can cause key team members to leave before closing.
The seller’s post-closing role should be documented rather than assumed. If the seller will continue treating patients, assist with introductions, or provide transition services, the agreement should specify duties, schedule, compensation, insurance, billing, documentation, termination rights, and the relationship between transition obligations and any contingent payment.
6. PROTECT THE GOODWILL WITHOUT OVERREACHING
A substantial portion of a dental practice’s value is goodwill. Noncompetition, nonsolicitation, confidentiality, and nondisparagement provisions help protect that value, but they must be tailored to the transaction and applicable law. The documents should address geographic scope, duration, restricted activities, treatment of existing outside work, emergency coverage, patient choice, enforcement remedies, and what happens if the buyer later relocates or sells the practice.
Restrictive covenants should be drafted for the actual business being purchased. A generic clause copied from an unrelated transaction may be either ineffective or unnecessarily broad.
7. ALIGN THE APA, FINANCING, AND CLOSING DOCUMENTS
The asset purchase agreement, promissory note, guaranty, security documents, lease, employment or transition agreement, restrictive covenants, and closing statement must all reflect the same economics. Inconsistencies about payment dates, interest accrual, collateral, default remedies, closing conditions, or post-closing obligations create avoidable disputes.
The closing conditions should identify the third-party approvals and deliverables required before funds move. These may include lender approval, landlord consent, lien releases, entity approvals, licenses, insurance, employment arrangements, and delivery of patient and business records through an agreed process.
A PRACTICAL NEXT STEP
The most efficient transactions begin with a short but careful deal summary before the definitive documents are drafted. Buyers and sellers should identify the price and payment structure, included assets, accounts-receivable treatment, due-diligence period, real-estate plan, employee approach, seller transition, restrictive covenants, financing contingencies, and target closing date.
Lee A. Mangum advises dentists and other healthcare-business owners on acquisitions, management arrangements, commercial agreements, real estate, and ongoing business matters through Cook Pearce Litchford Rector, PLLC. To discuss a proposed transaction, contact the Law Office of Lee Mangum in Carrollton at (770) 759-5880 or Lee@CPLRLaw.com.
This article provides general information only and is not legal advice. Reading it does not create an attorney-client relationship.
