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August 13, 2019 Rebecca

5 Aspects of a Letter of Intent for Dental Practice Transitions

Simply put, a letter of intent is a document of understanding between two or more parties used when a buyer is intending to purchase a practice. It is a nonbinding document that states the business terms for purchasing the practice and/or real estate and your intent to follow through with the transaction. Yet, this all-important one-page document leaves little room for error. Follow these steps to ensure a seamless LOI process. 

Components

All LOIs must include the entity, purchase price, earnest money down, acceptance date, and closing date — all of which will then help the buyer calculate return on investment. It also typically includes generic contingencies for which a transaction may fall through (a “get-out-of-jail-free” card, if you will). Most intermediaries or brokers can provide a LOI that can easily be filled out by buyer and their advisories.

Timeline

When vetting potential buyers, a non-disclosure agreement is signed by every potential buyer who inquires about your practice, after which time a prospectus is sent. A conversation between the potential buyer and broker then takes place to answer questions and gain a better understanding of the buyer’s intent. If the practice is deemed to be a good fit, a letter of intent is submitted, which typically takes 10 days

Finances

As the buyer, a LOI must be filled out and sent to the broker within a day of visiting the practice. Offer price is determined by the buyer by analyzing the prospectus or appraisal, while also taking market conditions, overall desirability, and competitions into consideration, then asking the bank how much financing is available.

Options

After reviewing the LOI with the broker within five days, the seller is presented with three options: acceptance, counteroffer (terms, price, closing date, agreement, etcetera), and decline (though unlikely, this just means the seller is not willing to negotiate).

Negotiations

Within a five-day window, a conversation usually takes place between the buyer and seller by way of the broker to determine agreed-upon terms. Once the terms are determined amenable to all parties, the LOI is signed, and the due diligence process begins.

What’s next?

Put the LOI process in the hands of the experts at Professional Transition Strategies



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