Offers to purchase a practice are designed with the buyer in mind in that they come with contingencies and conditions so that if the practice is not what it appears to be then the buyer can get out of the deal. All offers are contingent on the sellers acceptance many times the offer is not accepted because it is not a strong offer. (too many contingencies) in which case the offer becomes null and void. Time periods should be attached to offers so that all parties can determine where they stand in a situation. If the offer is not accepted by a certain date and time the offer becomes null and void and both parties are released from any liability. A seller may also choose to counter offer at which time you can choose to accept or reject their counter offer much like a real estate transaction.
Some Typical Contingencies are:
1. Financial review including but not limited to Tax returns and current P & L Statements
2. An Equipment audit with a full service equipment dealer
3. Can the buyer get a good lease
4. A lien search of the practice
5. Can the buyer get all of the appropriate licensing to practice in the state.
6. Can the buyer get reasonable financing for the practice
7. Will the Seller sign a non-compete agreement
Some Non-typical Contingencies are:
1. Guarantee by the seller that the staff will remain following the sale
2. Guarantee by the seller of the production of the practice after the sale
Financial Due Diligence
Often the seller is not willing to spend time with a buyer to discuss the practice financials until a purchase offer has been received. This shows the seller that the buyer is serious and that this will not be a waste of time with someone who is simply shopping practices. Tax Returns and current P & L statements are required by most lending institutions and are needed for a financial review. If the financial records do not match the seller or brokers claims then the Purchase offer would become null and void. This review should take a few days.
Many buyers insist that the financial review be done before an offer is submitted. Our experience has shown that this can be a waste of time. If the philosophies of the seller and buyer do not match (practice type) in addition, the buyer cannot agree to the price and terms of the seller then there is no need for a financial review. This is why a financial review is a contingency.
Last, Many sellers would prefer not to disclose personal financials to a buyer who is not willing to make an offer in good faith with the information that they have. This information could be leaked to competitors and other practice seekers which is not keeping the confidentiality of the seller in mind.
Contingencies give you flexibility to negotiate and agree on a deal first
Contingencies enable you to negotiate with the information you have. As an example if the financial records do not match what you have been told then your earnest money will be returned and you are not obligated to buy the practice. The other option is to renegotiate the offer based on the discredited information that has been presented.
Earnest Money/Deposit Money
Earnest money shows that the buyer is willing to make a financial commitment to the opportunity. At this point the seller should take the practice off the market while the buyer does his / her due diligence. It is our philosophy that if the buyer is willing to write an earnest check then the buyer is serious.
