Your Guide To Buying A Dental Practice
How to Make an Offer
Buyers who wish to make an offer on a dental practice begin with the drafting and execution of an Earnest Money Agreement (much the same as with real estate transactions). This agreement outlines the key terms that include the price, financing, due diligence and closing terms. The Earnest Money Agreement is NOT a definitive agreement that actually conveys the dental practice assets, but merely is a guide to the foundation of that transaction. As a part of our service, we assist in the preparation of the Earnest Money Agreement using the time-tested form that we created. In short, this is the method the buyer uses to convey the buyer’s offer.
We can assist you with an offer or you can use our time-tested Earnest Money Agreement. Simply email us and request the agreement at email@example.com.
Earnest Money Agreement
The amount of the earnest money generally ranges between $100 – $5,000. The exact amount depends upon the need to “secure” the practice in a “hot market”. Normally this amount is kept nominal to avoid conflict if the transaction does not proceed to closing.
Today there are banks that specialize in loans on dental practice transactions. It is very important that you consider using one of these banks to make the process smooth and the transaction possible. Today the often loan up to 120% of the purchase price (with the extra funding used work working capital post-closing).
The purchase price is generally “allocated” for tax purposes. We suggest that this allocation wait until due diligence is complete and the parties are ready to move to legal agreements. The allocation of the purchase price is generally divided among two groups of assets: tangible assets and intangible assets. The tangible assets include the value of the furniture, fixtures, equipment, instruments, and supplies. The intangible assets include the value of the goodwill, covenant not to compete, and patient records. Generally we arrive at goodwill by subtracting the estimated (agreed upon) value of the tangible assets from the purchase price (i.e., goodwill is what is left over after allocation to tangible assets). On average, the allocation is approximately 70% intangible (goodwill) and 30% tangible assets. The actual allocation is agreed upon by the parties, with the buyer favoring a higher allocation to tangible assets and the seller favoring a higher valuation to intangible assets.
From execution of earnest money to closing, the process takes normally 4 to 6 weeks. After the earnest money agreement is prepared and executed, it is sent to the attorneys for the parties and the bank providing financing. It is the start of the commitment process
We can help draft and prepare and earnest money agreement, as well as the buyer’s loan application process.