Thomas L. Snyder, DMD, MBA Managing Partner The Snyder Group, LLC Printer Friendly Version

Why A Three-Page Term Sheet
May Not Be In Your Best Interest

For those of you who are considering purchasing a practice or patient records this year, simply having your transaction documented by an abbreviated term sheet may not be in your best interest. Often times, Sellers aren’t really as concerned about any post-sale complications, particularly if they are not remaining in the practice. Not spelling out key issues that may arise after a purchase could prove costly to you. Non-dental advisors often do not take into consideration some of these issues that we’ll address in this article. The Snyder Group has developed acomprehensive document called an “Asset Purchase Agreement.” This twenty-eight to thirty-five page document incorporates the key points that must be considered to protect theinterests, particularly of a Purchaser. We will address some of the key points that are contained in a well-crafted agreement:

1. Medical Waste
   Are you sure that the Seller has always been operating the practice in compliance with all laws, rules and regulations regarding the treatment, disposal and handling of medical waste? Is Seller now or not ever in violation of any law or rule pertaining to the disposal of handling medical waste?
2. Environmental Matters
   If you are also considering purchasing the professional building with the practice, environmental issues can be quite significant as pertains to any type of toxic waste or other ground contamination that may lie beneath the building.
3. Insurance Plan Participation
   The Seller should warrant that any insurance contracts that will be transferred, particularly those relating to PPO and Capitation Contracts, are in full force and in effect. The Seller should also warrant that he/she has not received any notice of termination, either orally or written, to any plans.
4. Creditors’ Accounts Payable
   Warranties should be included in the agreement stating that all trade creditors have been paid and that all accounts are current and not past due.
5. Deposits/Advanced Payments
   Your agreement should make sure that you are protected against the Seller having been paid in full for services not completed prior to the sale. This is particularly true in orthodontic practices or general practices providing orthodontic services wherein a patient pays in full for treatment at the outset and the treatment has not been completed. Therefore, the Buyer will have to complete the treatment without payment.
6. Collection of Receivables
   As we’ve mentioned in previous articles, the Accounts Receivables normally are not part of the sale price. Therefore, in most cases, the Purchaser will not purchase the Accounts Receivables of the departing Seller, but will collect the receivables on his or her behalf. This can become somewhat complicated as it relates to a significant amount of past due balances. If a patient visits the practice after the closing and there is an outstanding balance, who gets paid first is a key issue. The Buyer, of course, would like to get paid at the time of service for the procedures, but the Seller, who has an outstanding amount due him or her, wants to receive payment as well. Therefore, addressing these scenarios has to be dealt with prior to closing and written explicitly in the Agreement.
7. Remakes and Work In Progress
   Remakes: In the case of remakes, Purchasers may request establishing an escrow account for a specific time period. If the Seller remains, then developing a formula for reduced fees for remakes to be performed by the Seller is a reasonable approach. Many term sheets or other “shelf agreements” do not address these areas carefully, and it can lead to much contention.
   Work In Progress: If the Seller remains with the practice, completing work in progress is not so difficult. If the Seller retires, careful determination of any unfinished cases measured against payments needs to be addressed.
8. Notification of Patients
   If the Seller is retiring, proper notification is mandatory. We suggest that a well-designed letter be written and approved by both parties prior to settlement and mailed on the day of closing and that the actual letter be attached to the Asset Purchase Agreement.

These are only a few of the many points that need to be addressed in a properly designed Asset Purchase Agreement. For additional information about our contract services, please give us a call at 1.800.988.5674.

Dr. Thomas L. Snyder is Managing Partner of The Snyder Group, LLC, a nationwide practice transition and financial management consulting firm. With more than 75 years of experience in the field, The Snyder Group can provide you a full range of services relating to practice transition matters and retirement planning. They can be reached directly at 1.800.988.5674.

If you would like additional help, email Dr. Snyder at drsnyder@thedentistsnetwork.net.

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