Dental Practice Letter of Intent: A Practical Guide

What should the LOI accomplish?

Use the LOI to decide whether both sides are ready for the next stage. That stage will cost time and money. It does not need to answer every drafting question. It must flag issues that would change the price or prevent the sale.

A seller needs to know how the buyer will pay and fund the purchase. The seller also needs to know what work is expected after closing. A buyer needs to know what the price buys and which facts still need review. Write those points down while both parties are discussing them.

The ADA describes how unresolved expectations and delayed agreement on terms can undermine a transition. Its example supports early discussion and attorney involvement; it is not a model transaction or a case handled by this firm. (Source: ADA: A transition that fell through.)

What belongs on the business-term sheet?

Use this worksheet to prepare the conversation with your attorney. It is an issue list, not a form agreement or recommended contract language.

Mark open items explicitly. A blank line can conceal a disagreement, while the word “included” can mean different things to different readers. If the practice building is outside the proposed purchase, say how occupancy is expected to work. If receivables are excluded, ensure the buyer's opening-cash model uses that assumption.

How precise should the price language be?

Distinguish a fixed proposed amount from a formula tied to a financial measure. For a formula, define the period and earnings measure. List the proposed changes and evidence needed to check each one. Ask how a disputed change will be handled. Also address a drop in current results.

Show closing cash apart from later payments. An offer described as $1 million might hypothetically consist of $800,000 cash and $200,000 contingent on an agreed result. That is different from $1 million of immediate cash. The example illustrates payment structure only; it is not a market price or standard earn-out.

List debt payoff, changes to working capital and deal costs where they apply. Do not assume an expression such as “debt free” resolves the treatment of every balance-sheet item. Have the advisors define these terms. Show their effect on seller cash and buyer funding needs.

For an applicable asset acquisition, purchase-price allocation also needs CPA attention. IRS Form 8594 addresses reporting for qualifying transfers; the parties should coordinate the allocation with their agreement. A high-level LOI discussion does not replace the final tax analysis. (Source: IRS: Form 8594 asset acquisition statement.)

Why does the asset boundary matter so much?

Make a preliminary included-and-excluded list. Consider equipment, inventory, software rights, trade names, websites, telephone numbers, receivables, contracts and real estate. Check who owns each item. The seller may use equipment that belongs to someone else. Leased equipment or licensed software may require a separate transfer process.

Plan who will hold patient records, who may use them and how care will continue. Counsel needs to review that plan. Do not describe them casually as an unrestricted marketing list. The records-transfer guide identifies the questions that should be taken to healthcare counsel.

Expect the initial list to change as facts are checked. The LOI can still establish which categories the parties intend to include and who will investigate transfer requirements. That early work makes the definitive agreement easier to reconcile with the negotiated business deal.

What should the parties settle about seller work?

Separate transition assistance from ongoing employment. Introductions, availability for historical questions and support with unfinished administrative tasks are different from maintaining a clinical production schedule. List the tasks, work period and pay. State who makes decisions and what coverage is needed.

Suppose the seller expects to stop treating at closing while the buyer's model assumes continued seller production. The two plans do not support the same price or staffing budget. Identify it before exclusivity rather than leaving it for the employment agreement at the end. Good intent will not settle a dispute about required work.

For a DSO proposal, review the relationship among acquisition, employment, equity and management documents. Keep restrictions and departure consequences on the issue list even if final drafting comes later. Read the DSO comparison guide to organize the economics before comparing headline offers.

How can exclusivity be tied to real progress?

Exclusivity can limit a seller's ability to consider other opportunities while the buyer spends money investigating the practice. Ask counsel to review its scope and length. Check what starts it, extends it or ends it. No single period fits every transaction, and this guide does not prescribe a standard number of days.

Compare the requested restriction with a practical schedule. What information will the seller provide? When will the buyer submit lender materials? Who will request landlord review? When will the parties discuss unresolved financial issues? Set dates for these events. A closing goal has little meaning if the steps needed to reach it remain unclear.

Create a small milestone table that records the evidence of completion. “Financing in progress” is not the same as a written proposal for the target practice. “Lease discussed” is not landlord consent. Give the parties a route to address delay through their attorneys rather than silently assuming an extension.

What should diligence access look like?

Give access in stages that match the question being answered. Summary reports may answer the first questions about earnings and how the practice works. Later review may require more detailed material under a process approved by the appropriate advisors. Keep an access log and a consistent version of the document index.

Control conversations with employees, patients, suppliers and the landlord. Agree on who may contact whom, for what purpose and at which point. A buyer needs sufficient access to investigate, while a seller needs to protect an operating business from premature disclosure and disruption.

HHS describes permitted uses and disclosures of protected health information. A commercial NDA does not independently authorize unrestricted access to patient records. Get advice on the proposed disclosure before sharing named patient data. Use a secure method suited to that data. (Source: HHS: Summary of the HIPAA Privacy Rule.)

What questions should go to the attorney before signature?

Ask counsel to walk through what happens in both the success and failure scenarios. Which obligations begin at signing? What conduct could violate the document? What must the parties do if financing is unavailable or a material diligence problem emerges? Are deposits refundable, and under what conditions?

Also ask how the LOI interacts with earlier NDAs, broker engagements, associate agreements and any existing exclusivity. A new document may not erase earlier commitments. Give counsel the full set so the business discussion does not overlook an obligation already in place.

The ADA's sale guidance emphasizes a professional transaction team and careful contract review. Brokerage coordination, legal advice, tax analysis, underwriting and clinical review have different responsibilities. Use each advisor for the question their work is meant to answer. (Source: ADA: What to do when selling a practice.)

How do you move from LOI to a coordinated transaction?

Turn agreed assumptions into a work plan. Assign leads for money, clinical review and funding. Also assign the premises, licensing, entity, records, technology, staff and closing-account work. For each area, record the next decision and the evidence needed to make it.

Use one issue log. An entry should state the fact, the source, its possible effect, the responsible advisor and the proposed response. That structure helps distinguish a solvable information gap from a disagreement about price or risk. Preserve original reports and document the final resolution.

Before setting a firm closing date, reconcile the definitive agreement, financing documents and operating-readiness plan with the LOI. If something changed, record why. A deal can change as facts emerge. Compare the final terms with the original offer so neither party relies on an old assumption.

Make the next meeting a decision meeting

Circulate the open issues before the meeting and identify which person can resolve each one. Separate a request for missing evidence from a request to change a business term. Close the meeting with agreed actions, owners and a date for the next decision. Record unresolved matters accurately; silence should not be treated as agreement. Both sides can then see what has changed and which open item is holding up the deal.

What can you prepare for an LOI discussion now?

Bring the proposed price, known included assets, financial summary, lease, buyer funding information and preferred seller role. Add copies of anything already signed. Write down the three matters most likely to change your decision. That gives the discussion a useful focus without requiring a complete data room before the first call.

For sellers, begin with a blind summary and controlled disclosure rather than broad circulation of identifying practice details. For buyers, provide a clear explanation of clinical fit and financial preparation. The objective is a proposal both sides can evaluate, supported by a process that protects confidentiality and makes unresolved assumptions visible.

Common mistakes before and after signing an LOI

One mistake is treating an open item as an agreed term. Suppose a buyer says that old receivables are included, while the seller expects to keep them. A price may appear agreed even though the parties are discussing different assets. Put the open point on the term sheet and send it to counsel. Do not hide it in a note to be resolved at closing.

A second mistake is granting time without defining progress. A seller may stop other talks while receiving only broad updates from the buyer. A buyer may wait for reports that the seller did not know were needed. Use a joint request list with actual dates and owners. Have counsel address what a missed milestone means under the signed terms.

A price-change worksheet

The following amounts are invented to show a review method. They are not dental market benchmarks. Imagine an $800,000 initial asset offer. The buyer then proposes $740,000 and cites old equipment and a revised staffing budget. A lower number alone does not explain the change.

A repair quote and a recurring labor cost affect a model in different ways. Ask the buyer to show both calculations. Check that the earnings change has not also been counted as a separate one-time deduction. The parties may still disagree about value, but they can then discuss a defined issue.

Track evidence of progress

Use a short log for the proposed deal. These are examples of useful entries, not legal deadlines or required contract terms.

The log records facts; it does not amend the LOI. If a term needs to change, have counsel handle that change in the proper document. Preserve the prior version so the parties can trace how the final position was reached.

Summary: turn an offer into a decision the parties can explain

Before signature, be able to state what is being sold, how payment works and which points remain open. Know what duties the LOI creates and what evidence the next stage must produce. After signature, track those points against the signed terms. That keeps the process tied to facts while leaving legal interpretation to counsel.