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Bruce Bryen is a certified public accountant with over 45 years of experience and is a part of Baratz & Associates CPAs. He specializes in deferred compensation, such as retirement planning design; income and estate tax planning; determination of the proper organizational business structure; asset protection and structuring loan packages for presentation to financial institutions. He is experienced in providing litigation support services to dentists with Valuation and Expert Witness testimony in matrimonial and partnership dispute cases. He is also a financial writer for several dental journals. You may contact him at 609-502-0691 or at Bryenb@baratzcpa.com, or through www.Bryen-BryenLLP.com.
A look at some of the important documents and advisers you need to have a successful transition.
At some point after negotiations have taken place between each party to a transition, there needs to be a memorialization of the terms and conditions of the transaction so that a successful closing may occur. Unless an excellent brokerage house is involved that may have a template of the underlying agreements available, an attorney is typically retained to prepare the documents needed to complete the sale.
There may be a non-binding letter of intent that is prepared in advance of the retention of the attorney or the use of the template by the brokerage house that sets the terms and conditions in writing for review by the parties as well as the attorney. This is sometimes an agreeable step so that the attorney has a clear understanding of these circumstances regarding the sale to incorporate into the agreements. It can save considerable time and money by not having the attorney sit through the entire process that has already been completed. If good dental CPAs are already part of the equation, or if the brokerage house has a lot of experience in dental transitions and input into agreements, then the attorney can be responsible for the legal and not the business side of the agreement. Having a brokerage house with templates ready to forward to everyone will speed up the process as well. It is typical for the buyer and seller to have representation with attorneys because the simpler and faster the process, the more quickly the transition will occur.
The documents and their timely production
Too many times an attorney will slow down the process by not producing the documents in a timely manner. While the agreements are being prepared, the buyer and seller do not have to wait for them before they begin their steps in readying themselves for the transition. The buyer can apply for financing needed to complete the transaction. Both parties can discuss the letter and content to be used to send to patients and referring dentists. The dental CPAs can ready the format to prepare their respective clients for the tax or savings that will occur when the sale takes place. These points of concern for the dental CPAs are important for the final allocation of the purchase price that must be put into the final agreements and settlement sheet.
The roles of the lender, the dental CPA and the attorneys
Each of the above people has an important role in bringing the buyer and seller to the transition table for the closing and transfer of funds. It is important for the buyer to transmit a full package of documents to the lender as quickly as possible for approval of the financing. Lenders take different amounts of time with their own guidelines for granting loan approval. Typically, the local bank has very little experience in lending to dentists, other than loans secured by equipment or real estate. Remember that a dental practice transition is primarily composed of the goodwill of the dental practice and the seller’s personal goodwill. The transition loan is considered based on cash flow and most local banks don’t lend without a physical asset supporting that loan.
The dental CPA may be the buyer and seller’s most important adviser in the transition. A dental CPA with plenty of experience will know what must be delivered to the lender. Not knowing what to transmit will cause a tremendous delay in the process. If real estate is involved, knowing that the appraiser must come from the lender’s approved list means that the financial package presented should be complete. A person purporting to be a dental CPA who has represented only a few dentists is not the right person for the buyer to retain, even if it is the long-time CPA used. The old expression of ‘time being money’ is accurate here.
The attorney representing the buyer and seller is where things can get testy. It is important for each adviser to know his or her individual role. Getting bogged down by the attorneys taking on the role of the dental CPA is taboo. Understanding that the role of the attorneys is not the business side of the transaction is necessary so that the papers don’t revert between the attorneys needlessly. When the attorneys start offering advice that is the bailiwick of the dental CPAs, it is time for the buyer or seller to step in and remind them who each has been retained for each role.