void Mistakes d Acquisitions EARNED:
WAITING TO BEGIN LEASE NEGOTIATIONS A substantial portion of a dental practice’s goodwill is tied to its location. When real estate is not included in the sale, buyers should request a copy of the lease early and initiate discussions with the landlord promptly. Sellers should anticipate the sale and, when appropriate, notify the landlord. In some cases, buyers may benefit from negotiating a new lease directly. In others, assignment of an existing favorable lease may be preferable. In most situations, landlord consent is required, and delays are common. Beginning these discussions early helps prevent unnecessary disruptions to the transaction timeline.
FAILING TO ADDRESS ACCOUNTS RECEIVABLE There are several ways to handle accounts receivable (A/R), including:
• The seller retains the A/R, and the buyer collects it as a courtesy or for a fee.
IGNORING PURCHASE PRICE ALLOCATION In asset transactions, the purchase price must be allocated among asset classes for tax purposes in accordance with IRS guidelines. This allocation directly affects each party’s tax obligations. Sellers typically prefer allocating more value to goodwill, which is taxed at long-term capital gains rates. Buyers often prefer allocating more value to tangible assets, such as equipment, which can be depreciated more quickly. Because sellers have often fully depreciated these assets, higher allocations may result in ordinary income tax treatment. Coordination with an experienced accountant is critical to achieving a tax-efficient allocation. The dental transactions market remains strong, driven by entrepreneurial dentists, practice transitions, DSO and multipractice consolidation, increased efficiency, and favorable financing conditions. With this level of activity, understanding these lessons can help dentists and specialists navigate transactions more effectively and avoid costly missteps. Dentists considering a transaction are encouraged to apply these insights to achieve a smooth, mutually beneficial outcome. Our National Dental Law Group has assisted thousands of dentists and dental specialists with practice transactions. Contact us today for more information.
• The seller retains and collects the A/R independently.
• The buyer pays additional consideration and collects and retains the A/R post-closing.
• The purchase price includes the value of the A/R, which the buyer collects and retains after closing.
Buyers should identify early the amount and aging of the seller’s A/R. If the seller retains the A/R, the parties must determine how incoming payments will be applied. If the seller continues collecting post-closing, buyers should consider the impact of collection practices on goodwill. Because of the variables involved, failing to clearly address A/R in the purchase agreement exposes both parties to future disputes. OVERLOOKING RESTRICTIVE COVENANTS Understanding the seller’s post-closing plans is essential. Will the seller retire or pursue another venture? These details inform the negotiation of reasonable and enforceable restrictive covenants and help prevent misunderstandings that can lead to disputes or litigation. Sellers typically receive significant consideration for their practice, while buyers acquire goodwill and often assume substantial debt. As a result, it is generally reasonable for sellers to agree to meaningful post-closing restrictions on time and geography.
Editor’s Note: Dental transactions come in many forms, and understanding how money is structured, when it’s paid, how it’s paid, and what risks are involved, can make a meaningful difference in the outcome of a deal. In this month’s Legal Corner, the dental law team at Mandelbaum Barrett outlines the most common transaction structures and the financial terms every dentist should understand before moving forward.
Stan Kinder - (703) 298-1690 · 9
Made with FlippingBook Ebook Creator