If you are considering purchasing or selling your practice, utilizing an Escrow company will be an extremely smart decision Here are the benefits of working with an escrow firm and what you will need to consider.
A benefit of an escrow firm is that they will help you assemble specific documents for signature and make sure they are signed without alterations. It could be catastrophic if one party signs the document after changing a specific element of the contract; say, reducing the Covenant Not to Compete from 10 miles to one mile!
What is also very handy is once the documents are fully executed, or signed, each person involved will receive a copy of the finished product for their records. This comes in handy in later years when certain aspects of the transaction need to be found out. One example is the “Allocation of the Purchase Price” among the assets bought / sold. Tax wise, this is important information to have so that the correct form and amounts are submitted to the IRS.
And, having a digital copy of the records makes storing them much easier than a paper copy in some drawer of a desk at home….(“Where did I put those papers???”)
Oh, and if the buyer of a practice is required to put Earnest Money down towards the purchase price, having someone who knows what they are doing and is independent of the parties involved is a VERY wise move. The escrow company will watch after the funds and make sure they are handled professionally and accurately. For example, the Letter of Intent or Offer to Purchase may stipulate specific conditions where the Earnest Money may be refunded in its entirety, is partially refunded, or is non-refundable. The escrow company will manage this important aspect to be sure the money is distributed correctly, according to the documents signed by buyer and seller.
When all is said and done, the escrow company will make sure the documents and related exhibits are organized and properly executed, or signed. They will then help distribute funds according to the instructions provided by the parties involved.
To be sure everyone knows what’s going to happen, the escrow company will prepare a Settlement Statement. This document outlines all debits (inflows) and credits (outflows) for each party so that there isn’t any falsehood or confusion as to how the transaction is being handled at closing. This document is reviewed and signed by both parties.
The true benefits of using an escrow company is that an objective third party will organize and maintain document control, manage the money involved in the transaction, and make copies of and distribute all the transaction documents. Again, escrow is equally responsive to both parties and is not an “advocate” for one party over the other. Fees for escrow services, traditionally, are shared equally by both buyer and seller.
An experienced escrow agent helps provide for a smooth and fair practice transition and an efficient Close. There are risks to the parties with every practice transition even with well negotiated contracts and due diligence review by the Buyer, but using escrow minimizes the risk of post-closing disputes because of the work described above.
When contemplating a practice purchase or sale, be proactive and consider engaging an escrow company so that the practice transaction will be completed correctly.
Many dentists feel frustrated and lost as they start to navigate the process of buying or selling a dental practice and need a partner that will work to remove concerns and frustrations. Fred Heppner, Transitions Consultant, Business Management Advisor, and owner of Arizona Transitions, is a leader when it comes to the business of dentistry. Nearly four decades of experience helping dentists transition their practice allows him to understand the issues and challenges that today’s dentists face. His expertise and dedication to his clients and his work make him one of the premier advisers in the industry.
Contact Fred for a complimentary consultation on how to form transition plans that will accomplish meaningful personal and professional goals! 602.320.8073 email: [email protected]