Almost every dental practice transaction starts with a Letter of Intent (often referred to as a “LOI”). The Letter of Intent is a fairly straight forward document that lays out the main terms of the purchase and sale of the dental practice. The buying dentist and the selling dentist agree on items that will set the stage to draft the final practice transaction documents that will be needed to properly transfer the practice. The letter of intent is typically a few pages long and in many situations is non-binding, in that there typically would be no penalty if the sale of the practice does not go through. You want both parties to agree on as many terms as possible before they move the deal forward so that they do not hit stumbling blocks as they prepare to finalize the sale of the dental practice. You can look at the LOI as a sale contract for a house where you agree to the price and timeline of the sale of the home but you have a period of time that you can canceled or rescind the contract. Some of the main items in an letter of intent are consist of:
- The purchase price of the dental practice.
- Overall list of assets that will be sold in the transaction or excluded from the sale.
- The closing date.
- The Goodwill allocated to the practice.
- Any type of noncompete terms and agreements.
- The transition terms for the selling dentist and any compensation.
- If there are any legacy employees that will be guaranteed to stay on with the practice.
- If there is a lease that needs to be addressed or if the property and office the dental practice is in will be sold with the practice.
- Terms of the due diligence for the buying dentist to review the book and financials of the dental practice.
- If the Accounts Receivable (AR) will be sold to the buying dentist or if it will be collected by the buyer and given to the seller.
- Document preparation for the sale.