Buying a Utah dental practice can be a wonderful move. Although the transaction is complex (and sometimes daunting), if you do it right, you will find yourself in a strong financial position. And by necessity, if the buyer fails to manage the details, he / she will be on tenuous financial footing. So, here is Tip #3, which can help you minimize your transaction risk and maximize its value.
Tip #3: how to manage collections of the seller's accounts receivable
You are reading this article, so I assume that you are considering buying a Utah dental practice. But have you ever really thought about what you are actually buying in a dental practice purchase? Is it the real estate? Equipment? Patients? Or is it ownership of the practice business? It's probably a combination of these things (although you can't really buy patients). However, have you thought about the Utah dental practice's accounts receivable? These accounts are valuable and you should consider these accounts when negotiating the dental practice purchase price.
As a buyer, you can legally purchase all, some, or none of the selling dentist's accounts receivable. So be sure to determine how you and the seller will handle these outstanding accounts. If you choose not to purchase the selling dentist's accounts receivable, be sure that your purchase agreement outlines the extent of your involvement in accounts receivable collections.
Note that it is in both the buyer's and seller's best interest if the buyer collects the accounts receivable. The advantage for the seller is that its collection rate will drop substantially if the seller tries to get current patients to remit payment to different entity and at a new address--there could also be legal complications in doing so.
Similarly, the Utah dental practice's buyer has a strong interest in managing the collections because the buyer can ensure that the collections attempts are positive. And these positive interactions will increase the likelihood that the patient will return even after the selling dentist has transitioned out of the practice.
So, if the buyer and seller agree that the buyer will manage the accounts receivable, the sales agreement must accurately outline the terms. Therefore, the agreement, should clearly delineate: (1) the period of time that the buyer will collect the outstanding accounts within; (2) the collection fee for the buyer to collect the accounts on the sellers behalf (usually between 5% and 15%); and (3) how the parties will allocate payments for new dental work on patients with outstanding account balances.
I see too many dentists overlook this aspect of a Utah dental practice purchase. But accounts receivable is an issue that is potentially full of legal and financial trouble. In light of that, keep your eye on this important piece of the larger puzzle. And you'll be on your way to a successful Utah dental practice acquisition.
-Jeremiah Riley, Esq.
Dentist Legal is Utah's only legal practice group 100% focused on representing dentists with legal issues relating to their dental practices. Contact us to speak with a Utah dental attorney.