Dental Practice Earnest Money and Deposits: A Cash Guide

Define the payment before discussing its size

For planning purposes, an earnest-money deposit is money sent ahead of closing under the parties' written terms. The useful question is what that payment does. Does it become part of the price if the sale closes? Who holds it in the meantime? What evidence permits its return or payment to someone else?

Write the purpose beside the amount. A purchase deposit, a payment for separate services and a later holdback can have different jobs. A holdback may involve money retained from closing proceeds for a stated purpose. It should have its own terms and record. Calling every payment “escrow” makes the cash plan harder to follow.

Do not choose an amount from a generic dental percentage or another buyer's deal. Discuss it alongside the buyer's available cash, the seller's concerns, the stage of review and the proposed terms. More money at risk does not answer a missing question about where it goes.

Use the dental practice LOI guide to organize the broader business terms. Then give the attorney a focused deposit issue list. An LOI labeled nonbinding still needs review before anyone relies on its payment language. This guide is a preparation method, not a form agreement or a conclusion about enforceability.

Identify the holder and the instructions they will follow

Record the holder's legal name, contact details and specific role. Ask counsel to confirm who may hold the funds for this transaction. Determine who represents each party, who performs the custody work and whether the proposed holder has agreed to the instructions. Avoid treating a familiar name on an email as proof of authority.

California's Department of Financial Protection and Innovation describes escrow through a neutral third party following buyer and seller instructions for real or personal property. That is a useful structural example from California, not a nationwide dental-sale rule. Confirm the arrangement that applies to the proposed transaction. (Source: California DFPI: General definitions.)

A lawyer's role also needs care. The ABA's comment on Model Rule 1.15 discusses separation of client or third-party property from the lawyer's property. It distinguishes a lawyer providing legal services from one acting solely as an escrow agent. These are model-rule comments, not proof of the rules governing every lawyer or deposit holder. Ask counsel to identify the applicable duties. (Source: ABA: Comment on Model Rule 1.15.)

Keep the instructions with the signed transaction papers. Ask which document controls if amounts, names or release terms conflict. Record who receives any interest, who pays custody charges and how those items appear in the final account. Those details should be resolved in the documents, not inferred from the word deposit.

Track receipt, clearance and authority as separate facts

A message saying money was sent does not complete the deposit record. Ask the holder what it needs to confirm receipt and whether the funds are available for the planned disbursement. Bank processing and the holder's authority to release money are separate questions. A bank balance alone does not answer both.

Use the following record to follow one payment. Give each later payment its own entry. Keep bank details in the secure transfer file, and use a limited reference in the broader deal log.

Assign someone to update status when evidence arrives. Use precise labels such as “sent; receipt unconfirmed” or “received; release not yet authorized.” A single green check labeled “deposit done” can hide the next decision.

If a payment is short, late or misdirected, record the actual fact and send it to the responsible advisers. Do not edit the ledger to match the amount that should have arrived. Let counsel address any contractual effect. The record should show the difference between the obligation and the completed transfer.

Read the refund and release path before sending money

Review the success and failure paths with counsel before funding. Identify the relevant clauses, the facts they require, the notice method and the evidence the holder will need. Ask what happens if the parties disagree. A reader should be able to find the process without piecing it together from a long email chain.

Refund eligibility and completed repayment are different facts. A buyer may believe the signed terms support a return while the holder still needs an instruction or other required evidence. A seller may claim entitlement while the buyer contests it. Keep the amount outside either side's available-cash plan until its use is supported and the cash movement is confirmed.

This worksheet organizes questions; it does not determine anyone's legal rights.

Do not assume that a missed closing date, financing problem or decision to stop creates the same result in every agreement. Have counsel evaluate the facts under the actual documents and law. This article does not supply automatic refund, forfeiture or cancellation rights.

Keep release instructions narrow and clear. Ask whether a proposed signature affects other claims or obligations before signing it. A business discussion about returning money and the legal effect of the release document need to agree.

Reconcile the deposit with the closing price

Build the price account from the current agreement. Show the gross price, the deposit credited toward that price and the remaining price funds. Then show separate fees and other uses. Match each figure to the relevant document or invoice.

The deposit should appear once in the total funding account. If it is already credited toward the price, adding it again as a separate price cost overstates the buyer's cash need. The opposite error is subtracting a promised deposit that the holder never received. A draft closing statement should not turn a planned transfer into a completed payment.

Confirm how the buyer's lender treats the actual deposit and the remaining contribution. Provide the source-of-funds evidence it requests. Do not assume a later loan will reimburse money already sent. A lending discussion, an approved amount and an actual disbursement are different stages. The loan underwriting guide explains the broader funding review.

For the seller, reconcile the deposit within gross price proceeds before calculating net cash. Debt payoffs, fees, taxes and any agreed amounts retained after closing need their own treatment. A large gross price receipt does not establish the amount the seller can spend.

Ask the person preparing the closing account to trace every credit to its receipt and every deduction to its basis. Resolve conflicting drafts before approving a final transfer. Use the version number and date in the approval record so an old draft cannot quietly become the payment plan.

Follow an invented deposit through closing and cancellation

The following amounts are fictional teaching inputs. They are not a suggested deposit, financing quote or budget for a real practice. Assume a fixed purchase price of $960,000. The buyer starts with $180,000 of available personal cash and sends a $24,000 deposit. The signed terms in this example provide a full price credit at closing.

For the successful closing branch, assume the lender actually funds $840,000 toward the price. Assume the buyer pays $18,000 of separate closing fees. There are no other purchase adjustments, costs or cash movements in this simplified branch.

The price balances: $24,000 plus $840,000 plus $96,000 equals $960,000. The buyer's own cash used across the transaction is $138,000: the earlier $24,000 deposit plus the $114,000 needed at closing. The deposit is part of the price funding. The separate $18,000 fee is an additional use.

The buyer's bank cash falls from $180,000 to $156,000 when the deposit leaves. The proposed price credit does not restore that bank cash while the funds are held. After the successful closing payment of $114,000, the buyer has $42,000 left. This balance is not a finding that the buyer has enough working capital. Use a separate opening-cash forecast to assess that question.

The lender's $840,000 remains conditional in the planning record until funding is confirmed. The table assumes it arrives and all required closing and release steps occur. If it does not arrive, the table describes an unfunded plan; it is not authority to close.

Now consider an alternative cancellation branch from the same starting cash and deposit. Assume no lender funding and no closing fees. The buyer has paid $6,000 of review costs after sending the deposit. Available bank cash is therefore $150,000. The buyer seeks return of the $24,000 deposit, but no return has yet been approved or paid. The available balance remains $150,000.

For this invented branch only, assume the parties later sign valid instructions for a $600 charge deducted from the deposit and return of the remaining $23,400. After the return is received and available, bank cash becomes $173,400. This equals the original $180,000 less the $6,000 review cost and the $600 charge. The assumed instructions do not establish a holder's general right to deduct fees.

These branches answer different questions. The closing branch checks whether the deposit reduced the unpaid price. The cancellation branch checks whether money actually came back and what reduced it. Neither branch treats a request, expected credit or possible refund as cash already in the buyer's account.

Verify payment instructions through a trusted route

The FBI describes business email compromise as fraud in which a message appears to come from a known source. Its guidance calls for verifying payment requests and changes in account numbers or procedures, using independent contact information. It also warns about pressure to act quickly. (Source: FBI: Business email compromise.)

Before a deposit or closing payment, compare the recipient with the agreed holder. Use a trusted contact route established independently of the payment-change message. Record who verified the instructions and when. A familiar email thread, logo or signature block should not replace that step.

If instructions change, pause the transfer while the change is checked. Reconcile any new recipient or fee with the transaction team. Keep the transfer details within the people who need them, rather than attaching full banking instructions to every progress update.

If money may have been sent through a fraudulent request, the FBI advises contacting the financial institution immediately and reporting the incident to its Internet Crime Complaint Center. Prompt action does not guarantee recovery. Preserve the relevant messages and transfer record for that response. (Source: FBI: Business email compromise.)

Keep deposit status separate from disclosure permissions

A deposit does not settle who may see the practice's identity or contact its people. Start buyer outreach with a seller-blind summary. Obtain the buyer's NDA before releasing identifying practice information, then approve the particular files and contacts needed for the next decision. The confidential sale guide and NDA guide explain that process.

Give each adviser enough information to perform the agreed work through an appropriate secure channel. A payment reference in the coordination log may be enough for a progress update. Full bank statements, account details and signed instructions need a more restricted audience.

ADA sale guidance recommends experienced advisers, careful contract review and planned notification. Keep each professional's deposit decision within their role. (Source: ADA: What to do when selling a practice.)

Plan staff communication around participation in the transaction, the effects on their work and applicable duties. Some staff may need information to complete a specific task before a wider announcement. A deposit date alone should not trigger that announcement or justify withholding information from someone who needs it. Use the staff communication guide to plan roles and timing.

Patient privacy needs a separate review. Neither a payment nor a commercial NDA should be treated as blanket permission to share identifiable patient records. Direct that question to healthcare counsel and use the HIPAA diligence guide. Keep the deposit ledger free of patient details; its purpose is to trace transaction money.

Common mistakes that make the deposit hard to follow

The first mistake is agreeing on the amount while leaving the holder or instructions unresolved. That creates pressure to improvise when payment is due. Bring the full payment path to the discussion: obligation, recipient, receipt, custody, authority and final use.

Another mistake is collapsing all stages into “paid.” Money sent, money received and money released are different events. A missed acknowledgement should remain an open item with a named owner. Do not replace the missing evidence with an assumption because the target closing date is near.

A third mistake is changing the price but leaving the old credit in the closing file. An amended deposit, partial return or separate charge can also change the account. Reconcile the latest signed terms with the actual holder balance before approving the final price calculation.

Finally, avoid counting disputed or requested money as available to fund another purchase. Carry the possible return as a separate scenario until receipt is confirmed. If another commitment depends on it, show the gap and the evidence needed to resolve it before making that commitment.

Summary: approve a complete deposit record

A useful deposit record allows another reviewer to follow the money without guessing. It names the payment's purpose, the holder, the governing terms and the proof of each completed step. It shows the amount still held and the event that may permit its next use.

Before funding, resolve unclear instructions and take legal questions to counsel. Before closing, match the deposit receipt to the price credit and separate fees. If the sale stops, retain the notice and release evidence, then reconcile the actual return.

Finish with an account that balances to the holder's record and the receiving bank evidence. Explain any remaining difference and assign its next action. That is a concrete way to judge whether the deposit has been handled as agreed while preserving a clear cash plan for both sides.