The road to practice acquisition can be long, windy and full of potholes. Just because you start the journey doesn’t mean you’ll end up where you thought you would. There are several phases of the acquisition process. How you address each phase could have a major impact on how the transaction is completed.
Assemble Your Team. Assembling a strong advisory team is a great place to start. Like any major undertaking, having the right people on your side can maximize your potential for success. So, who do you need on your side? Start by speaking to a broker. A good practice broker should be able to connect you with potential sellers and practices to purchase. Your team should also include an experienced attorney, CPA and banker. Let us know if you are missing any of these professionals and we would be happy to make an introductions.
Financing. The sooner you begin the financing process, the better. It can be a lengthy process and banks will not disburse the financing proceeds until their requirements are met. Ask your broker or attorney to connect you with competitive banking options with a strong presence in the medical or dental fields.
Letter of Intent. This phase will be spearheaded by your broker and/or attorney. It is an important part of the process as it details the basis of the bargain between the buyer and the seller. So don’t rush this step; do it properly.
Contract Preparation and Negotiation. There are three main types of transactions: stock or ownership interest purchase, asset purchase, and merger. For most small practice sales, the asset purchase will be the right form. It allows the seller to recapture some tax depreciation on assets and reduces the potential liability of the buyer as the assets will likely be required to be transferred free and clear of liens. Thus, the primary agreement will be the asset purchase agreement. Depending on the complexity of the deal, any number of other ancillary documents will also be needed to complete the asset purchase. Additionally, this phase may also include setting up the practice entity, preparing and negotiating real estate lease/purchase agreements and key employment or independent contractor agreements.
Due Diligence. This phase will be going on simultaneously with the others and will include the following: financial review of the seller; reviewing the public record for liens, judgments, and other instruments of note; assigning contracts and acquiring third party consents and approvals; dealing with licensure requirements; insurance acquisition; equipment review; name and patient transition; employee transition and hiring; and other important steps. This is another time consuming process that should be done properly to ensure your practice gets off to the right start.
Closing. This is the actual completion of the deal, the major components being: signing all documents; disbursing financing; paying the purchase price (or that portion of it due at closing); paying off liens, encumbrances and bills; and other steps necessary to transfer ownership of the assets and ownership/possession of the practice premises. It is also important to note that a patient letter should be prepared and sent out to the patients of the selling practice/doctor in accordance with the rules or recommendations of the pertinent licensing board.
Post-Closing Transition. Once the practice acquisition is complete, you may be ready to get rolling with business as usual. But there are a number of additional considerations to be made during and after closing: employee transitions and training; promulgating a comprehensive employee handbook and policy; OSHA and HIPAA compliance procedures and training; coding and billing requirements and training; ongoing transition assistance from the selling doctors; addressing practice management allocation with the owners/doctors; preparing and signing an owner buy-sell agreement with provisions dealing with deadlock, restrictions on transfer, and other key items; addressing personal estate planning to ensure that your personal assets and protected, as well as your business; and other ongoing legal compliance. Some of these items are more pressing than others, but all should be considered in the months following closing.
The acquisition of a practice can take upwards of several months. It is a complex process with implications that can last for years after you start doing business. Take time to do it properly. Surround yourself with the right team and you will be more prepared for the long run.
To get your practice started off on the right foot, give us a call at (919) 900-4720 to speak with one of our qualified attorneys today or visit our Professional Practice Planning page.