August 24, 2023
Ask An Expert: Answering Your Top Legal Questions When Selling Your Practice
As there are many questions you may ask when involved in a dental transition, Professional Transition Strategies (PTS) teamed up with Justin Marti from Marti Law Group to get answers to your FAQs about selling your dental practice. As mentioned in our previous article, Marti holds a unique perspective concerning dental transitions due to his previous ownership in a dental service organization (DSO).
PTS and Marti Law Group often get asked similar questions regarding selling your dental practice, so we teamed up to answer those for you. Here’s what Justin Marti had to say about those FAQs.
How long does the mergers and acquisitions (M&A) process take, and which factors dictate the timeline?
The timeline can vary per transaction. For example, we’ve had deals close after two weeks, and other times, we’ve had the process take close to a year. A general timeframe is two to three months from start to finish, with possible delays if the due diligence process drags.
What can the seller expect during the due diligence process?
Due diligence can be an incredibly lengthy and, at times, painful process. A great team of advisors will help the seller to collect all necessary documents and be prepared for buyer-requests. With a larger transition or more demands from the buyer, the diligence period could be prolonged.
What steps can a seller take prior to diligence to prepare for the process?
Getting your financial house in order is always a good place to start. Sellers must build a trusted team of advisors from their certified public accountant (CPA), to a broker, attorney and financial advisors. You must make sure taxes were filed, and your profit-and-loss statements, tax returns and production reports are easily accessible and accurate.
Starting the selling process early is the most important part. Make sure to prepare early when thinking of selling, as it will help the process run smoother when the time comes and give you more options than a rushed timeline can. Be cognizant and realistic.
When a seller remains at the practice post closing, should they be classified as an employee or independent contractor?
In sticking with the classic lawyer answer … it depends! This question can quickly go down an employment law rabbit hole. The bottom line is that the worker’s categorization really depends on control.
A good rule of thumb to follow is based on employment laws. If the seller stays at the practice as their full-time job, then they should be an employee. However, if they are a traveling specialist or working at multiple offices, then they will likely be a contract employee. Both parties may have preferences to categorization, as there are tax consequences to both options.
What is a reasonable non-compete/non-solicitation provision?
Non-compete and non-solicitations are very different. Non-compete is defined loosely as a boundary for where you can/can’t work in the future. Tread carefully with non-solicitation, as how you advertise to your current client base that you’re leaving and going somewhere else can be in conflict.
To answer your question, a one-year non-compete is generally OK with three years max. If you are at two years or less, you are in a good spot.
Is a non-disclosure agreement (NDA) necessary?
NDAs are used in so many different scenarios, and I’m a very big fan of these as they can act as a safety net. At the end of the day, an NDA can’t hurt.
What should our readers take away from this?
When selling your dental practice, it is imperative to be prepared and organized. Finding a team of trustworthy brokers, attorneys and a CPA is key to a smoother selling process. As a buyer or seller, understand that you can leverage resources like dental acquisition brokers or attorneys to help navigate your transition.
To learn more about dental practices transition, check out a few helpful links below.