Selling a Dental or Medical Practice in California

It’s a fairly common pattern. Finish medical or dental school. Work for someone, but then realize that running your own office is the way to go. You start from scratch, or buy an existing practice, and then spend years serving the community to build a steady, loyal base of patients. You then watch your young patients grow up, and start families of their own.

Once you’re ready to sell your practice (whether it’s due to a move, retirement or any other reason), you should start planning for the sale right away. A Dental or Medical Office sale should be an easy process, right? It’s not easy, and the complexity of the process should not be underestimated, even if you sell to your partner or someone else you know.

1. Real Estate Sale or Assignment of an Existing Lease

Because a key issue for maintaining a client base is consistency in the location of the practice that is transferred, one of the first issues you want to consider is the location where the practice is currently located. Do you own the real estate and the building of your dental practice, or are you leasing the location from another owner? If you own your own real estate and are planning on selling the real estate as part of the sale of the practice, a good starting point when you begin planning for the sale of your practice is to have the real estate appraised by a qualified appraiser. Your appraiser will provide you with the information you need to help arrive at a realistic price for the real estate, which will be a key part of the equation when determining the overall value of your practice.

If, on the other hand, you are leasing the property, that houses your dental practice, you should begin by having your attorney closely scrutinize the existing lease to determine what your rights under the lease agreement are when it comes to assigning your interest in the lease. If your purchaser is taking a loan out to cover the cost of purchasing your practice, it is likely the lender for the buyer will require that the remaining lease term is, at a minimum, long enough to cover the period of the loan repayment. If the initial term of the lease is not long enough, the lawyer can determine if the lease allows for extension periods, and if so, what is required to exercise your right to extend the lease.

A third option exists if you own your property but wish to lease it to your predecessor rather than sell the real estate with the practice. Your attorney can assist you with drafting a lease agreement that is sufficient to protect your interests while remaining an attractive prospect for potential purchasers.

2. Practice Transition Period

In a dental practice, much of the client base is likely concerned with the trust and confidence in the skills and ability of the dentist who treats them. If you have been practicing in the same office for an extended period of time, you may have clients who have established a personal rapport with you and may be nervous about transitioning to a new provider. Because of the importance of the patient-client relationship, the amount of time the selling doctor will remain at the practice following the sale for a “transition period” can be a major consideration for the agreement between you and a potential buyer.

It is important, as the selling doctor, to be clear about what your intentions are regarding a transition period and to set forth in your agreement any obligations you have to meet during the period. Transition periods can vary from the selling doctor remaining only a few weeks or months to simply introducing the new doctor to patients to selling doctors who plan to remain in an office for a number of years, typically working a reduced schedule as an independent contractor.

Either approach is perfectly viable so long as the parties are clear on their expectations and obligations. Your attorney will assist you in drafting and negotiating, as part of the overall agreement, the parameters of the transition period and what is required of both parties during the period.

3. Covenants Not to Compete

As a part of the overall agreement, most selling doctors will be restricted from practicing dental medicine within a certain geographic area around the existing practice for a specified period of time. Your attorney can help review any requested restriction on your right to practice to ensure it is reasonable under the circumstances and can secure any exceptions to the restriction you may need, such as an allowance for teaching, charitable work, or public health-related work.

4. Staff Concerns

One of the most important things for many retiring practitioners is ensuring that the staff that has worked with them over the years is taken care of in any arrangement to sell the dental practice to another dentist. Luckily, most dentists depend on purchasing a ready-to-run office with an experienced staff already in place. The new dentist relies on the staff relationships with existing customers to help bridge the gap that might be created by the exit of the selling dentist while the new dentist takes time to build relationships and trust on his or her own. It is important to work with your attorney to tie up all loose ends that may be related to your former staff, including closing out a pension or 401k plan and paying out built-up paid vacation days (where applicable). Your attorney can also assist in transferring any outstanding employment agreements.

Preparing the Sale Itself

The four items discussed above are far from an exclusive list of the number of considerations that should be carefully reviewed if you are thinking of how to sell your dental practice. Work with a qualified attorney who has experience selling dental practices, a broker, and an accountant to ensure that all of the special considerations of your specific practice are carefully weighed before you move forward with any sale. If you take time to plan with a qualified team, you can help ensure the sale and transition are seamless, not only for you but for your predecessor and staff as well.

Here are 4 tips to help you navigate a sale:

1. Gather your financial statements and documents

As a dentist or physician, you probably have a very robust financial history. Receipts for equipment. Cash flow and Income statements. Balance sheets. Tax documents. All of this paperwork will paint a picture of a growing, stable (or struggling) business for potential buyers. Ideally, you’ll want to show opportunity for a new buyer through a steady stream of income from a steady stream of patients. If your business is cyclical, make sure your potential buyer knows this. Ultimately, if your dental or medical practice is not in the best financial shape, you may need to sell for a lower price. Seek multiple bidders to improve your chances of getting the best price for your office.

2. Take inventory of your equipment

How much does a basic, older dental chair cost compared to a modern chair with all the bells and whistles? What about an exam table, an EKG machine, or a laboratory-grade refrigerator? Chronicle everything in your office that you plan to sell, from the waiting room chairs to printers, and use receipts and appraisals to determine the value of tangible property. As is standard, expect to reduce the price of equipment that has a limited lifespan like computers, printers, and other electronics, more than you would for other items, like waiting room tables or office desks.

3. Make arrangements to retain and store records

In a physician or dentist’s perfect world, each patient signs an authorization to transfer or forward records with clear, concise directions on where those records need to go. Unfortunately, some patients may not be around to sign this authorization form, leaving a considerable amount of records in limbo, but still in your custody. Even though laws vary by state on how long you’ll need to store those records, or even where you can store them, at a minimum, you’ll need to find a secure, sufficient place to either a) keep the records until patients sign an authorization form, or b) keep the records until you’re legally permitted to destroy them. The Health Insurance Portability and Accountability Act (HIPAA) should give you guidance regarding patient records.

4. Forget your overpriced broker, and use an experienced attorney to manage your sale.

Many medical and dental professionals automatically assume that you need a broker for a Dental or Medical Office Sale. While many brokers specialize in finding buyers for these types of businesses, dentists and doctors are often unaware that using a broker can cost much more in fees than having an attorney arrange their sale. In a transaction, brokers and attorneys play different roles. While the broker might help find you a buyer, a knowledgeable medical and/or dental attorney can help with buyer sourcing as well. More importantly, no one is better equipped than an attorney to help you negotiate the sale price, and deal terms, and ultimately finalize the transaction.

Just like a homeowner struggling to sell the house where their children grew up, you might have an emotional attachment to your dental or medical office. That’s why it’s all the more important that you consider using an attorney, rather than just a broker because any way you approach it, Dental and Medical Office Sales are complex multi-step transactions with serious tax implications that are very difficult to navigate without an experienced Medical or Dental Attorney. In fact, this niche transaction spans multiple areas of law that require intricate knowledge, strategic thinking, proper documents, and an understanding of the specific challenges ahead.

Here are just some of the involved tasks:

• Protect your interests
• Attempt to get you the best return on your investment
• Identify serious buyers specifically interested in an office with your metrics and demographics
• Review and draft documents, including sales, lease, and title documents
• Conduct escrow, including full documentation thereof
• Help you develop a plan to transfer receivables, payables, and intellectual property

At Vaksman Khalfin, our team approaches each Dental or Medical Office Sale based on the individual situation. In fact, we know this area of law because we’ve lived in it. Robert Vaksman, our firm’s founding partner, has numerous physicians and dentists in his family, and he is married to a respected South San Francisco dentist. Robert has over a decade of experience working within the legal and operational framework of medical offices, including the purchase and sale of medical practices. But he isn’t alone. Vaksman Khalfin has a team of attorneys with significant and varied experience, who are prepared to assist your business.

By following our 4 tips for your Dental or Medical Office Sale, you’ll have a much better chance of a smooth and prosperous transaction.