The Letter Of Intent (LOI) – Does a Dentist Really Need It?

Here is a post from Tim Lott, CPA, CVA and Ellen Dorner of NL Transitions, a Dental Brokerage firm.

The easy answer is no, it is not necessarily needed.   In most states it is not a legally binding agreement anyway, so why go through the effort?

There are actually some very good reasons why having a LOI is crucial to every dental practice transaction, in spite of it not always being a legally binding agreement.  In my opinion, there really is no downside to having one.  Let’s discuss what a letter of intent is and what purposes it serves.

The primary purpose of the letter of intent is just as it’s titled, to lay out what one’s intent is as it relates to the transaction at hand. It should be a one or two page letter or memo detailing some of the major points of the transaction. In the case of a sale or purchase of a dental practice, some of these major points typically identify: what’s being purchased, the parties involved, the price, the timing of the payment, the structure of the transaction, exclusions, covenant details, seller’s compensation and general terms, buyer contingencies, time frames for acceptance of offer and due diligence, deposit requirements, etc.

As mentioned above, since the majority of these letters are NOT necessarily legally binding and may be somewhat boiler-plate, they shouldn’t cost too much in the way of professional fees to put one together. While you may not need to have an attorney involved to draft and submit a letter of intent, we do suggest you have attorney look over it before submitting it to the other party. If you can hammer out the meat of the transaction BEFORE engaging your attorney you may save money and a lot of headaches having your attorneys iron out these issues.

The letter should be a way for the parties to document what they believe has been discussed as it pertains to the major points. It serves as a way to let the seller know your intent to purchase the dental practice is serious enough to make a written offer and should give them some level of confidence that you’ll be committed to the transaction.

It is customary for the seller to require a deposit with the signed letter of intent. The amounts can vary, however, it’s usually in the range of $5,000. Many times the deposit is non-refundable so if the buyer walks away from the transaction, the seller is covered for any professional fees they’ve incurred to entertain the offer. If a seller requires a substantial deposit then the seller may also have to commit to a penalty if they walk away.

The drawback of NOT having a LOI is that without consensus on the main points, the two parties can wind up going back and forth, or worse, the attorneys or other professionals go back and forth on the main points and the parties wind up spending more in professional fees than they have to. Do yourself a favor and minimize your stress level, start with a LOI BEFORE jumping right to the legal agreements. 

For more information about your situation, email Ellen Dorner or call her at (800) 772-1065. Visit our website at www.NLTransitions.com .