When buying a dental practice, how do you know what to do after the letter of intent? Almost always, there is a period of time between when you’ve negotiated the letter of intent and when you walk through the front doors of your new practice, keys in hand, as the brand new owner.
Picture the moment: You park the car and start walking toward those front doors you own for the first time! The opening few bars of “Sweet Emotion” by Aerosmith are running through your head. You own your own practice now, you stunning piece of humanity! If there was a confident emoji, it would look like you.
But what if you don’t feel confident?
What if you show up on your first day, like a pediatric dentist I know in Arizona, and you realize the schedule is only half-full and your front desk can’t bill to insurance yet because credentialing hasn’t happened?
What if you’re like an orthodontist in Texas who had to keep pushing back the close date on his practice three times because the bank wouldn’t release funds due to lack of life and disability insurance?
What if you’re like a general dentist I know in Seattle who showed up on his first day of ownership to find out two of the five employees had quit and weren’t coming back?
With a little knowledge of what to do, you can feel confident. You can feel ready. You can walk through those doors, humming Aerosmith, knowing you’ve taken care of the essentials and you’re ready to wow your patients and continue an amazing career! The steps below outline what to do after the letter of intent.
Step 1: Make Sure Your Dental License is in Place
While obvious, some buyers I’ve talked with don’t know the bank won’t lend you the money you need to buy your practice if your state license is not in place. This can take a while (Florida is the worst, from what I’ve seen) so get started on obtaining your state license right away!
Step 2: Finalize Your Financing – Choose a Bank
You’ll want to work closely with your accountant to help you know about the best lenders, evaluate the offers they provide, and apply. I recommend buyers evaluate at least two different lending offers. Have your dental accountant evaluate the offers because the best option may not be the one with the lowest interest rate!
Step 3: Start on Your Life and Disability Insurance Policies
Like your state dental license, getting life and disability policies in place can take a while. You’ll want to evaluate multiple quotes and use your accountant to help you evaluate which options are best for you and your situation. And which will fit your budget. The bank you choose will have you “collaterally assign” the benefits of these policies to them, so make sure you understand what would happen should the unthinkable take place.
Step 4: Plan Your Buyer Due Diligence Trip
Visiting the practice and working with the seller before signing the letter of intent is a lot like dating – everyone has their best foot forward. You must take a separate due diligence trip to the practice after the letter of intent. You will visit to evaluate in-depth items like: equipment, building, signage, patient charts, scheduling, employees, accounts receivable, etc.
I send my buyers with a 5 page, single-spaced document that usually takes them two days to complete. We then review the document to ensure what the buyer saw is what they expected. We ensure there will be no surprises when they show up as the owner. Get a copy of the Buyer Due Diligence Checklist I use with my clients here.
Step 5: Work with Your Accountant on Financial Due Diligence
Your dental accountant will also need to review the financial information provided by the seller and verify everything is accurate. They should verify tax returns, accounts receivable, production, total work days by provider, employees, active patients, the lease, and other essential items. Make sure the dental accountant you’re working with has a robust process in place to ensure you’re buying what you expect.
Step 6: Get Your Contents, Malpractice & Business Insurance Policies in Place
You’ll need to work with an insurance agent to make sure your business insurance policies are in place, as well as your life and disability policies. Business insurance policies don’t typically take as long as life and disability to nail down, but are still crucial.
Step 7: Get Credentialed with All the Seller’s Accepted Insurance Plans
You’ll want to be able to bill and start collecting as soon as possible. One key to making that happen is to be credentialed with all the insurance providers the seller’s patients currently use. Be ready for lots of phone calls and emails here, but this is important and should not be put off! Business survival is all about cash flow, and cash will come into the business when you can bill your patients’ insurance providers and get checks mailed to you!
Step 7: Set Up Your Business Entity
Work with your accountant and attorney to determine which type of business entity is best for your situation. You have two options to actually file with your state for your business entity:
Option 1: Do it yourself with a service like legalzoom.com. The advantage here is it’s generally a little cheaper to do this on your own. Unless you feel confident you know what you’re doing, there can be a steep learning curve that probably isn’t worth climbing for most dentists.
Option 2: Utilize your attorney. Any good dental attorney will have included entity set up as part of their package. If you’ve chosen an attorney with a flat rate, this won’t cost you anything additional. Logistically, this step is not very difficult. It’s definitely worth outsourcing this task to someone else who has done it hundreds of times.
Step 8: Establish Your Business Banking Accounts
You’ll want to get your business bank accounts set up quickly after your letter of intent is signed. First, you’ll want to be ready to collect money and put it somewhere on Day 1 of practice ownership. You’ll have bills, payroll, and other expenses, and need to have an account to pay those from. Second, you’ll want to keep track of any and all business-related expenses between now and ownership. Now is the perfect time to separate business and personal expenses. Your accountant can go back in time and re-categorize the two if they are mixed, but keeping things separate early on will make your life easier.
One suggestion with your business checking account: if you don’t have any objection, go with the biggest bank in your area. Typically, this will be Wells Fargo, Chase, or Bank of America. Their business checking solutions are typically very good, and they have lots of physical locations if you need to visit a branch. Finally, their online access for accountants is almost always far superior to the local credit union or small bank on the corner. Superior technology makes delegation of your finances to other parties much, much simpler.
Step 9: Have Your Accountant File Business Info with IRS
You’ll typically need two forms filed with the IRS when starting your dental practice business. First, your new dental practice will need an Employer Identification Number (EIN). This is like your personal social security number, but for your business. You’ll use this number a lot. Second, as long as your accountant and lawyer agree on the entity, your business will need to file IRS form 2553. This elects “s-election” taxation for your LLC. Ask your accountant for details, but you essentially get the legal liability protection of an LLC, with the taxation benefits of an s-corporation.
Step 10: Work with a Payroll Company to Ensure State IDs are in Place
Before you show up to the office on Day 1, you need to ensure you have a plan to pay your employees. As an employer, nearly every state will require that you have what’s called a “state employer ID.” Your payroll company can help here.
Make life simple on yourself. Hire a payroll company to take care of getting your employees paid. Your payroll company will help you decide on payroll frequency. They’ll provide the software. They’ll help file quarterly state payments and will handle any notifications you get from the state or federal government. Your payroll company will also ensure you’ve filed all the necessary paperwork to have the right identification numbers on file with the state and federal government.
Step 11: Sign Lease & Asset Purchase Agreements
Your attorney will help you with the review and collaboration on the documents that will officially transfer ownership of the dental practice to you and your business entity. Yes, this is one of those times in life you need to read every word of those long documents. Sorry! Muscle through and use a highlighter. Ask your accountant or attorney questions about sections and language you don’t understand. Be crystal clear about what you’re agreeing to!
Step 12: Ensure Accountant Verifies Form 8594 with Seller’s Accountant
When you buy a business, typically the sales price will be broken up into different types of assets – supplies, equipment, goodwill, etc. This is called the “asset allocation”. When you file your next tax return, your accountant will include that information with your return. The IRS will compare the information you include with the seller’s tax return and ensure the two asset allocation amounts line up. The name of this form is Form 8594. Make sure your accountant coordinates with the seller’s accountant to ensure the two line up.
Step 13: Make Sure Merchant Services Account is Set Up
Merchant services is a fancy way to say you have a credit card reader in your office and can take credit and debit card payments from patients. Obviously, the ability to accept payments from patients is the point of being in business. There are a couple dental-specific merchant services providers that do a fantastic job for dentists. Ask your accountant who they recommend. Getting set up is typically quick and can be done is less than a week.
Step 14: Meet with the Staff, Change Nothing
Set up a meeting with the staff of your new practice and get to know them! For many dentists, you’ll spend more time with your staff than you will with your family. Start to build those great relationships! Meet one-on-one with these folks and ask them about what is important to them. What do they live for? What do they like about the office? What would they change about the office?
You’ll have lots of ideas on how to improve the way the dental practice runs. Staff-related improvements should be on the list, but delayed! Don’t make changes to staff, salary, benefits, vacation, etc. for at least the first 90 days of owning your practice. (The exception to this rule is a pension or 401k plan. It’s important to start your own, and not adopt the previous owner’s plan. Talk to your dental accountant for details.)
Your staff know the patients. Your staff know the processes of the practice. Helping them to feel comfortable with the change in doctor will go a long way towards ensuring that patient turnover stays low and your first few months of business lay the solid foundation for even better results down the road!
Step 15: Celebrate!
Finally, take an evening or two to celebrate with your significant other or close friends! Buying a dental practice is a big deal! You’ve worked your tail off to get in to and finish dental school. Odds are you have worked hard as an employee or associate somewhere before owning your practice. You’ve had a long road to get to where you are! You’re probably not diving into piles of money Scrooge-McDuck-style yet, but you absolutely should spend a little and celebrate the amazing accomplishment of getting to where you are today! (Just don’t go too crazy!)
Walking through the doors of a dental practice you own should be a feeling of accomplishment and anticipation! The last thing you want to be feeling on that day is a sense of dread or worry over some detail you haven’t yet completed. Make sure your team has helped you through a checklist similar to the one above to ensure you’re ready to kill it in your new practice!
If you’ve purchased a practice already, is there anything you’d add to the list above? Let us know in the comments!
Know someone about to buy a practice? Share this article with them! Or, have them reach out directly to me via email, email@example.com to help them through the process.
Read more below about dental transitions because a tooth fairy gets her wings with every article you read!
Four Things Your Attorney Should Do for You When Buying a Dental Practice
A Letter of Intent Should Include This When Buying a Dental Practice
Why You Should Buy a Dental Practice BEFORE Your Student Loans are Paid Off