Represent our clients before Canada Revenue Agency (CRA) and other taxing authorities. Our clients are encouraged to contact us whenever correspondence is sent to them that requires action.
Many firms out there are happy to cater to the needs of sellers, but there are few that have the understanding needed to ensure that the buyer’s best interests are met.
There are many considerations in determining the appropriate choice of entity. We provide analysis and recommendations regarding sole proprietorship, professional corporations, technical or hygiene service corporations, and trusts. It is also important to determine if a change in entity choice is warranted during the life of the business.
Purchasing a practice requires knowledge in law, accounting, human resources, banking and business. Dentists can avoid problems in the purchasing process by assembling a team of experts, asking the right questions, fully understanding the required business considerations and choosing an appropriate lender. Here are some tips to help you finance the purchase of a practice.
Prequalify for your financing to determine if you can borrow the needed money to purchase a practice. Negotiate lease/purchase details up front to avoid costs and confirm terms that are acceptable to you. Be aware of risks such as interest rate variability. Ensure sufficient cash flow over a seven-year period for the new practice to support your living needs, tax liability, practice debt and expenses. Determine if the practice purchase includes the accounts receivable and reach out to a consultant to weigh options.
Dental practice financing loan from a specialty lender: Specialty lender with an understanding of the dental business that uses the assets of the practice for collateral. Commercial loan officer from a local bank: Banker with business lending knowledge who uses overall practice, as well as buyer’s home and bank accounts, as collateral. Financing from the seller: Seller’s financing can be used in conjunction with one of the previous options to provide further security or eliminate some risk.
Understand Loan Considerations Interest Rates:
In most cases, interest rates are fixed and usually tied to long-term treasury bills, swap rates set by the Federal Reserve or other cost-of-funds indexes. Always ask for an amortization schedule, compare true APR, monthly payment and total out-of-pocket expenses. Term: Standard loan terms of five to 10 years are the most common. Before deciding on a term length, discuss the options with an accountant who can evaluate the accounting and tax implications.
Payment Types and Terms:
Take time to understand payment types and terms. Payment and prepayment penalties can impact the overall cost of your loan. Payment terms are a differentiating factor between lenders. Poor terms can cost you thousands of dollars over the course of a loan.
Payment Types Equal Payments:
You make equal payments over the term of the loan on a standard amortization schedule.
You make lower or no payments for an initial period of time.
Re-price the Loan:
To obtain lower interest rate payments and greater interest savings in first three to five years. A credit review is usually not required at the re-price period.
You have a low rate for seven years, after which time the loan is refinanced at the current interest rate.
Payment Terms Principal Reduction:
Understand how soon you can make extra payments to reduce the principal without a penalty. This can shorten the term and overall interest costs.
Often carries a penalty and varies greatly between lenders. Ask lenders what the pre-payment penalty is and how it’s calculated. Collateral Generally, dental practice lenders will take the practice as collateral by establishing a first lien against the assets. If financing through a traditional commercial lender, they may use the practice assets and require additional collateral such as the buyer’s home and bank accounts.
Educate yourself on the process of buying a practice and surround yourself with a team of experts. A lender that has the expertise, stability and commitment to help consider alternatives and analyze your unique situation will help ensure a suitable financing plan for your purchase.