March 23, 2020

5 Components of a Purchase Agreement for a Dental Practice Transition

During a dental practice transition, a purchase agreement is put into place to outline the specifics of the business transaction. In the case of a buy-in or special consideration, a stock agreement is used; otherwise, an asset purchase agreement is put in place. In any event, here are the elements that should be included in a purchase agreement for a dental practice transition.

Hard assets

When the selling business is closing and the buyer is opening a new business, hard assets are transferred through a sale document. This includes everything from equipment and software to chairs and lights. During the valuation process, the weighted value of hard assets can comprise 15% of the value of your dental practice and qualify for different tax ramifications.

Soft assets

“Goodwill” is an intangible asset that is the difference between the purchase price and value of the hard assets of the practice. It makes up as much as 80% of your practice’s value in non-categorized assets for tax purposes that assist in the valuation process and help obtain the appropriate financing for the transaction.

Asset allocation

Simply put, asset allocation is the way the purchase price is divided up as a negotiation between the buyer and seller. This especially comes into play when the selling doctor is staying on to practice during the transition.

Non-compete agreement

In all purchase agreements, a non-compete agreement protects the buyer’s interest in the purchase of the goodwill. What’s more, all banks require a non-compete clause within their contracts.

Rework

If a completed procedure fails before it should and the patient would normally receive a refund or remake, because this is a potential liability, the buyer will need to be compensated for that work that needs to be redone.

What’s next?

Contact the experts at Professional Transition Strategies to make sure all aspects are covered in your purchase agreement.