When you are preparing to enter into a major business transaction such as the purchase or sale of a dental practice, you are likely feeling excited, nervous, proud, scared, and perhaps many other feelings in between. However, one central question stands out above all else: Where is the starting line?
Typically, business transactions start with a letter of intent. A letter of intent, commonly referred to as an LOI, is a document that communicates the initial commitment of one party to do business with another and outlines the key terms of the proposed deal.
What is the Most Effective Way to Use an LOI?
Use an LOI to bridge your intention to purchase a healthcare practice and a legal sales contract. It is a way of making an offer and putting simple terms on the table for the seller.
Serious prospective buyers use the LOI in a practice purchase. The letter serves as an initial offer and is prepared based on information provided by the seller or selling broker.
Essentially, you use an LOI before a formal purchase agreement is entered. Plus, you can negotiate all other terms in the sales contract by utilizing the LOI.
How Do You Write an LOI?
A letter of intent is often a concise document no more than three pages in length, but the content may differ depending on who is writing it. Generally, the broker for the selling doctor will write the LOI, but in some cases, the buyer may draft the document for the parties to review and sign.
Regardless of who is drafting the LOI, the letter should contain the following:
- An opening paragraph including a purpose statement.
- Parties involved, including the names and contact information of the buyer, seller, and their respective brokers.
- A description of the practice being purchased, including the address, major assets to be included with the sale, and the excluded liabilities.
- An outline of the offer’s terms, including purchase price, financing or loan contingency terms, and expected contingency dates.
- Disclaimers that disclose any circumstances why either party may terminate or void the agreement (even though the agreement is typically non-binding, to begin with).
- Date of acceptance of the letter of intent.
- A closing statement (typically a sentence or two) that sums up the LOI and outlines that the LOI is not a contract and is nonbinding.
- Signatures from both parties.
What Comes Next?
Through the letter of intent process, both parties have taken measures to protect themselves in the deal by making each other aware of their intentions and agreeing to terms. Doing so increases the likelihood of a successful transaction.
After the LOI is signed, the buyer must complete their due diligence, loan approval, and negotiate a final purchase agreement with the seller. We recommend that anyone negotiating an LOI or purchase agreement seek experienced legal advice to protect their best interests. Contact our office to get in touch with attorneys who can ensure that your LOI best serves your goals in the practice transition.