Essential Steps for Dental Practice Buyers: How to Prepare for a Smooth Transition

By David Haynes, MBA, Vice President of National Practice Sales

Acquiring a dental practice requires careful planning to ensure a smooth transition. By preparing early, buyers can avoid last-minute stressors and ensure everything is ready for a successful closing. Here is a checklist of essential steps for dental practice buyers:

Set Up Your Business Entity

To get started, set up a legal entity, such as an LLC or corporation; your CPA or attorney can help you determine the entity type that is right for you. You’ll also want to obtain an Employer Identification Number (EIN) from the Internal Revenue Service. When you set up your business bank account, use the exact name listed on your entity’s articles. When filling out important documents, don’t put the address of the practice you’re buying until after close.

Open a Business Bank Account

Choose a reputable bank and open an account. This account will manage business funds, automatic payments and transactions related to your new acquisition. Be prepared to provide the minimum deposit requirement as specified by your bank. The lender you select will likely require you to have a business account at that institution, so open an account with the lender you will likely use.

Execute Important Agreements

Finalize the practice purchase agreement, including any employment agreements with non-compete clauses as required by lenders. Lenders often require the office lease length to match the loan term, so ensure you have renewal options in your lease. You should also finalize an operating agreement if you are entering into a partnership. Reviewing lease documents, operating agreements and practice purchase agreements should be done with the attorney of your choice.

Review the Beneficial Owner Report

The Federal Government recently passed a law to better identify the individuals who own businesses. As a result, the U.S. Treasury Financial Crimes Enforcement Network now requires business owners to submit the Beneficial Ownership Information Report. Work with your CPA to accurately complete this new requirement, sharing correct information about your business and ownership structure.

Organize Funding Details

Coordinate closely with the escrow company and your lender to ensure loan documents are signed on time and that all payoffs have been accounted for by the escrow company.

Coordinate with Your Landlord

Work with a dental-specialized broker to establish a new lease or a lease assignment of the existing lease. Most banks require certain lease terms, which they will review prior to funding. For example, your lender may require you to obtain and sign a Landlord Waiver before closing.

Order UCC Searches

Work with the escrow company to check for liens on the practice. Most U.S. states have public records that you can search yourself, but the escrow company will likely order a Uniform Commercial Code (USS) search to check for existing liens. Address any discrepancies with the seller that may arise from these searches.

Set Up Merchant Processing

Complete an application with a merchant processor, which will enable you to start accepting payments as soon as the business is operational. Once again, make sure you don’t use the practice address until after you close. Most lenders provide merchant processing, but you will want to check if see if their merchant processing system integrates with your practice management software.

Verify All Required Insurance Policies

Coordinate with your insurance agent to ensure the following policies are active and meet the lender’s requirements:

• General Liability and Property Insurance for the business premises. Your lender will give you minimum amounts.
• Disability Insurance for income protection. Your monthly benefit needs to match the payment amount.
• Malpractice Insurance with coverage requirements as specified by the lender (if applicable).
• Life Insurance Assignment that meets the loan requirements. The policy amount usually needs to match loan amount.

Each of these steps contributes to a seamless closing process, helping ensure you’re prepared for day one. Taking these actions well in advance of your estimated closing date will help you avoid common pitfalls and pave the way for a smooth transition.

To learn more about buying a dental practice, check out our Buyer FAQs.