Here's where the letter of intent comes in
After months of searching for a dental practice to purchase, you’ve finally found the one. You review the opportunity, complete your initial diligence and site visits, and you’re now ready to submit an offer to the seller, showing your commitment to moving forward with the practice.
How do you place that offer on your dream dental practice? Enter the letter of intent (LOI).
Also known as a purchase proposal, an LOI is a written offer to buy the practice and details the material terms of the dental transition and negotiation. Typically, the LOI is a skeleton that includes the big pieces to agree upon, serving as the framework for the legal documents as well as a good faith agreement by both the buyer and seller. When the time comes to bring in an attorney, the attorney will draft an agreement that is consistent with the terms in the LOI.
Some brokers may ask you to sign an LOI before you’ve reviewed the financials or you’ve completed the initial diligence of the practice. We suggest proceeding with caution in these situations, ensuring you don’t agree to anything you aren’t certain of or aren’t willing to commit to. It’s hard to go back on a price once you’ve signed an LOI where the offer price is stated.
As you’ve decided you’re ready to create an agreement with the seller and lay out the terms, here’s how to proceed.
Formatting Your Letter of Intent
There are a variety of ways to put the LOI together. The LOI can be an email with bullet points, a simple Word document or a formal letter using a template provided by your dental transition advisor. In more complex cases, where the offer price is high, has unique terms or it involves a building purchase, the LOI can also be in the format of a legalese letter drafted by an attorney.
Depending on your relationship with the seller—whether you’ve recently met this individual or you’ve previously worked with them as an associate—you may decide to go the formal route versus a casual email. No matter the format, the most important thing is that both parties agree on the terms and are ready to move forward.
Including the Necessary Information
As each LOI is different, there aren’t specific requirements to what you need to include in yours. Often, where you are in the due diligence process of gathering and reviewing practice information will determine the level of detail to include. Here are a few common items that you can add in:
- Offer price
- Asset/Tax allocation
- Identification of type of sale (asset or stock)
- Closing date
- Contingencies to closing
- Seller work-back terms
- Building sale and/or lease terms
- Non-compete and non-solicit terms
- Accounts receivable and patient credit handling
- Exclusivity and confidentiality clause
- Retreatment clause
- Prepaid and work-in-progress patients
- Patient and referral notifications
While you don’t have to incorporate all of these items in your LOI, agreeing on these terms with the seller ahead of time will not only speed up the purchase process, but could also identify any red flags or dealbreakers early. If they’re not included in your LOI, these terms will be included in the formal legal documents.
Neither the buyer nor seller should feel obligated to sign the letter or accept the offer if they don’t agree with the terms. It’s often difficult for both parties to go back on what was thought as “previously agreed.”
Draft Your Letter of Intent with NDP’s Guidance
Buying a dental practice is an exciting yet nerve-racking time. Our advisors at NDP work with you before, during and after the LOI process, guiding you in the direction of your goals. If you need assistance drafting your LOI or have questions about other transition pieces, contact our team for a complimentary call.