I don't want to be overly aggressive and have the dentist decide that I'm not the best candidate to take over the practice, but I also don't want to be too passive and end up with a bad deal. This is the one shot I have to end up back in my hometown so I really want it to work out, even if it means sacrificing a little bit, but I don't want to be so frustrated that I give up after a few years and go somewhere else anyway.
I'm sure the dentist would be fine with me taking the contract to my own attorney to make sure my interests are protected. Any advice on specifics I should watch out for?
First, you don't have to be aggressive to be prudent. Hopefully the owner will respect you for being prudent and making sure you're protected. Make sure that the owner knows that it's not that you don't trust what's been prepared, you simply are experienced enough to know exactly what everything really means and what the future consequences might be to certain sections of the agreements. You want YOUR person to go over the agreements with YOU to make sure they're fair and balanced just as they had their attorney draft the agreements and they probably went over them together as well.
There should always be give and take on both sides and the job of your advisors is to make sure that one side isn't doing all the giving while the other is doing all the taking.
Hopefully the owner will EXPECT you to get proper advice, if not, I’d be suspicious right from the get go.
What to watch out for?
1. Put the "verbal" agreement into a memo and have both owner and associate initial it so they know that what they discussed and is what is related to their attorneys.
2. Make sure your advisor has the memo of understanding so they can compare it to the agreement. Ask them if there's anything in the agreement that is drastically different than the memo.
3. If there are restrictive covs, see if you can get them NOT to apply for the first 6-12 months in case things don't work out and you have to part ways.
4. Make sure you know the price NOW and that the price is reasonable. Make sure you know what the price includes (A/R, yours and the total?, specifically excluded assets?, debts? etc.)
5. Make sure that if the owner wants to make any significant changes to the practice in the next two years that you are consulted and if possible, you have to agree to them. As the future owner, YOU want to make sure that the business that's been promised to you doesn't materially change in a way that YOU aren't comfortable with. For example, instead of giving bonuses the owner may give some healthy raises to the employees just before they retire. If what they want to give is bonuses to their long term employees, make the owner does that BEFORE you buy, or make it part of the purchase price, i.e. you and the owner agree that instead of a purchase price of $500k, you'll pay $475k and pay out $25k in bonuses the day after settlement, just be sure to factor in any additional costs like payroll taxes, etc. So you pay no more than $500k. It’s always cleaner though that the owner pays the bonuses out of their proceeds.
6. IF the owner lets you go after 12 months and before the end of the 24th month without cause, they simply get cold feet, they should pay you a severance and by the same token, if you walk due to cold feet after 12 months and before the 24th month, the seller may want something from you for wasting their time. The two of you may mutually agree after 12 months that the deal just won't work, no harm, no foul.
Your advisors will give you many other pointers to consider.
This first appeared on New Docs.
Send your questions to Tim Lott, CPA, CVA at tlott@dentalcpas.com
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