If you are transitioning your dental practice with the intent to retire from dentistry, you might ask yourself, “if I don’t intend to work as a dentist, why would I sign non-compete agreement when I sell my dental practice?” It may seem unnecessary to you. To the buyer doctor, however, this document is extremely important. In this post, we’ll discuss a little about what these agreements are and why they matter.
Before we get started, however, please understand that the issues surrounding these agreements are legal matters and you need a qualified attorney to counsel you regarding the reasonableness and enforceability of non-competes in your state. This post is for general informational purposes only and should not be relied on for legal advice.
What is a Non-Compete Agreement?
A non-compete agreement is a contract in which one party agrees to not compete with another party in their area of business within a defined geographical area and for a certain length of time. A non-compete agreement may include non-solicitation provisions which prohibits one party from soliciting customers away from another party.
In dentistry, these agreements come up in three basic scenarios:
When Hiring an Dental Associate: the dental associate will likely be asked to sign a non-compete agreement that covers the period after the associate leaves the practice. It would protect the practice by prohibiting the former dental associate from competing directly with the practice or using information from patient files to lure patients away.
When Entering into a Dental Partnership: similar to the dental associate scenario, the agreement covers the period after a partner leaves, to protect the practice.
When Selling a Dental Practice: Again, the agreement is to protect the practice. But, here, the doctor being protected is the buyer—the new doctor. The agreement prohibits the seller from practicing within a certain area for a certain length of time, thereby increasing the chance that the practice’s existing patient base remains with the practice, even after the departure of the long-time owner.
In most states, these agreements are enforceable (California is one notable exception). This means that, especially with regard to dental associates or when you decide “it’s time to sell my dental practice,” a non-compete agreement will likely be a non-negotiable part of the deal. And, in fairness, they are a good idea for whichever doctor is left in the dental practice.
For the buyer of a dental practice, it’s important to be assured that the selling doctor is not going to pocket the money, open a practice across the street, and take all of the patients with them. Also, if the selling doctor is going into retirement, that’s uncharted territory for the seller. What if after a few months or a year or so the seller decides they don’t really like being retired? The buyer wants a guarantee that they will have time to establish themselves in the practice and earn the trust of the patients and staff before having to compete with the seller.
Reasonableness of the Terms
A key to the enforceability of the agreements is whether the terms are reasonable. What does that mean? Well, it depends. It depends on the state law governing the agreement and it depends on the location of the practice. Again, you will need a qualified local attorney to advise you on these issues.
There are two main points on which the agreement must be reasonable: the scope of the geographical area being restricted and how long the restriction will be in place. For the length of time, two to three years is a common duration, although it may be up to five. For the geographical area, it will largely depend on where your practice is located. For instance, in a dense metropolitan area, such as New York City, the area may be small, defined in city blocks. However, in rural Texas, a dental practice for sale might be the only one in a 50-mile radius.
One guide to determining a reasonable geographic area is, before you think “it’s time to sell my dental practice,” consider where your patients live. The area that you draw patients from can be quantified as the area in which about 80% of your patients live. That way you capture the bulk of your patients without chasing the outliers that might make the area too broad and, therefore, unenforceable.
A word on the enforceability of unreasonable restrictions. Some employers or buyers of dental practices might purposefully try and see what they can get away with in terms of overly broad restrictions. This is a bad practice for both parties as it relates to the agreement. Overly broad terms may have the effect of invalidating other parts of the contract which are related—so if you are the one asking for the non-compete, don’t push your luck by asking for too much. If you are the party being restricted, sometimes courts will take the approach that you knew what you were getting into when you signed. Don’t take the risk. Plus, do you really want to be contractually obligated to a party that is trying to get something from you unfairly? In that situation, it’s probably better to walk away.
Other Considerations for the Terms of the Non-Compete Agreement
What circumstances will negate the agreement? If the practice ceases operations, is sold to another dentist, or moves location, you should consider how these factors will impact the agreement. For instance, if the practice closes, maybe the agreement should no longer be enforceable. If the practice moves, it should probably depend on where it moves, and how far that is from the original location (e.g., whether it changes the geographical area from which the practice draws the majority of its patients). If the practice is sold, there will likely be a non-compete between the parties to that sale. That would be a situation you’d want to discuss with your attorney.
Does it cover going to work for an existing competing dentist? This is mostly applicable to former dental associates or partners, although it could arise in the sale of a dental practice. Even if the change in employment is not advertised and no one is stealing patients, it’s still possible, especially in a small town, that people will learn of the change and that could draw patients away. This is something you should consider and discuss with your attorney and dental practice transition specialist. If you are dealing with a partner or employee leaving the practice, they may be leaving because they are unhappy in the practice, a factor to be carefully considered.
Are staff covered by the non-compete agreement? Do you want to prohibit the other party’s ability to hire your staff away from you? Will you state laws allow you to do anything about it proactively?
If partners are splitting a practice, how do you divide the resources? Who keeps the patients? Who gets the referral sources? These factors must be decided before you can move forward with any further restrictive agreements.
You Need a Trustworthy Specialist when it’s Time to “Sell My Dental Practice”
At DDSmatch Southwest, we are expert dental transition specialists who draw on the experience of hundreds of dental practice transitions from across the country to assist and advise our clients with their dental practice transitions in Texas and New Mexico. One of our satisfied clients said one thing he especially appreciated about the dental transition specialist that handled the sale of his dental practice was that
“Your issues were his issues . . . the thing that was amazing with me was that I absolutely knew nothing, but absolutely had an amazing experience, and that’s because Andy took good care of me. . . . He’s a good guy. He looks out for his clientele.”
Whether you think “it’s time to sell my Texas dental practice” or whether you think that time is still a few years down the road, it’s not too early to find out what DDSmatch can do to help you meet your dental transition goals. Contact us today for a free, no-obligation consultation.
https://www.ddsmatchsouthwest.com/wp-content/uploads/2019/04/3-sell-my-dental-practice_HERO.jpg6281200adminhttp://www.ddsmatchsouthwest.com/wp-content/uploads/2021/03/LOGONOTAG.jpgadmin2019-04-03 05:00:032019-04-11 03:11:49Why Do I have to Sign a Non-Compete When I Sell My Dental Practice?
Anyone with experience with putting up their dental practice for sale will tell you that you need an experienced team of specialized advisors: dental brokers such as DDSmatch Southwest, a dental CPA, and a dental attorney, at the very least. There are too many details that require expertise and, frankly, this is too important to let any detail slide. Below is our recent conversation with David Cohen, a dental lawyer, of the Cohen Law Firm in Dallas, Texas, giving his perspective on what dentists considering transitioning their practice should consider and why a broker is a crucial member of your team.
Please tell us who you are and what you do for doctors with dental practices for sale.
My name is David Cohen. I own a law firm that specializes in helping dentists and specialists from a legal, transactional business perspective. What that means is I do a lot of practice transition work. I help draft and review contracts in connection with practice sales and purchases and partnerships. I also work a lot on business formations, business structuring, real estate in terms of buying and selling real estate and review of leases. Those are the main things that my practice specializes in. We have clients all over the country, and we’re well known for being very expeditious and responsive.
Primarily dentists then?
Correct. 99% of our clients are dentists.
How was it that you came to have a relationship with DDSmatch Southwest?
I just ran into Andy [Edmister], I think, at the Texas dental meeting, and we hit it off and we just talked about doing some work together. Andy gave me an opportunity on one of our transactions that went really well, and so we’ve worked on other transactions together.
What has been your experience working with Andy and DDSmatch Southwest?
The experiences have been great. Andy’s a really hard worker. He’s incredibly expeditious. He’s on the ball, and he really does everything he can for the client, but he also understands the full transaction and the scope of it, and that it has to work for everybody. He does his best to make sure that it does work for everybody, and I think in the end that that provides a really successful transaction that closes and optimizes the opportunity for it to close.
Have you done both seller transactions where you’re advocating for the seller and for the buyer, or do you generally do one or the other?
I don’t represent both at the same time typically, but I am sometimes on the buyer’s side and sometimes on the seller’s side. It just depends on the transaction. I’ve done both.
What’s your advice from a legal standpoint for a dentist who is to put up their dental practice for sale, or is even just starting to think about selling their dental practice?
I think there are two primary pieces of advice that I would have for that particular individual. Number one is make sure that they’re ready to sell. I’ve dealt with some sellers in the past that think they may be ready to sell, and they’re not, and it ends up being time-consuming for all parties involved. There’s time, money, and headaches for that particular doctor as well. They get to the finish line and realize it’s just not for them. Now, sometimes it just takes getting to the finish line for them to realize that, there’s no way around it, so I’m not knocking them. But if they can do the best they possibly can to begin with to really do some soul-searching and make sure they’re ready to sell, I think that’s extremely important before they start paying legal fees and spending their own time and money, and also other people’s time and money.
The second piece of advice that I would have is to hire a good team around you. That’s really important to know that you can’t do everything yourself. You specialize in dentistry, and even if you specialize in other areas, you probably don’t have the requisite time to do everything properly. It’s really important to have a team that’s dental specific, in my opinion, and really lean on them to help you. A team could consist of people like DDSmatch [Southwest] and Andy, or a lawyer, or a CPA, an insurance agent if they’re on the buying side—they need insurance, they need to get credentialed. Or a bank if they’re buying.
When you say, “Make sure they’re ready,” are you speaking about being emotionally ready? Or are you speaking about financially?
I think it’s all of the above. I was referring a little more to the emotional side of it, but I think it’s important to have all of the physical things ready. The office ready, or the records ready, and all of that. And I think that also comes down to surrounding yourself with the proper team, because those people are going to help you be ready from an operational standpoint to sell, but the doctor—only they can be ready from an emotional standpoint. I think it’s really important. It’s hard for anybody to let go of a business that they’ve operated, particularly for a number of years, and so there’s nothing wrong with that. But you really have to do some soul-searching and recognize if you’re ready to let go. Because if you’re not, you can either come to the end of the deal and have spent the time and the money, and that goes to waste because you’re no longer doing the deal.
But also it can kill a deal, because then you may not be as realistic about having a fair deal or thinking, “Well, I need to go work for 10 years for this buyer afterward, because I don’t want to let go and I want to continue to do this.” Now of course, there are different transactions and every one is unique in its right, and from time to time, you’ll get a seller who says to a buyer, “Hey, I’m looking to sell, but there’s one condition. I need to work for X amount of years. I know that might be more than the norm, but that’s just what’s going to work for me.” And that does happen from time to time, but in my extreme example, it just wouldn’t be realistic on a normal basis for a seller to think that they would just be retained for 10 years by a buyer to continue to work. Again, unless it was unique circumstance like an investment practice or something like that. So it’s important to be ready for those reasons.
What is something that sellers sometimes overlook as they prepare to transition their practice?
There’s one key thing I can think of that’s outside the box that sellers need to be prepared for when they sell a practice, and it’s very important because it can affect in an adverse manner the value of the practice that they sell or their ability to sell at all. And that is, if they have associates in the practice, make sure that they have an associate agreement in place with those associates. Now that sounds like a no-brainer, but there are a lot of doctors out there that don’t have associate agreements with their associates. So it’s important to have that agreement, not only because you want to protect yourself as an employer, but also you want to have a non-compete, so long as you’re in a state where non-competes are valid and enforceable against associates.
Because if you don’t, even if you’re not in fear of that associate competing, the buyer’s going to want that. And if the buyer believes that the associate can open up next door, and that associate has goodwill in the practice because they don’t have a non-compete, then that’s going to be problematic and the buyer is either not going to buy the practice or say that it’s not worth as much, and try to negotiate the value of that practice down. It can be a mess to try and get associates to sign non-competes and associate agreements after the fact, because they really don’t have any incentive to do it unless they’re dying to have a job and they know that the buyer’s going to retain them. Then, maybe they’d be willing. So, long story short, if there’s one thing outside the box that’s really important—even if a selling doctor does not feel they need an associate agreement or they’re not worried about their associate competing—it’s really important for preservation of value of the practice that they’re looking to sell to have that in place.
If we’re talking about both buyers and sellers, what are things that might not be on their radar that they should be considering?
I think the one thing that people need to understand when they’re going into a transaction is that, particularly in the dental world, is that a transaction has to work for everybody in order to be successful, and if either side comes into the deal wanting to scrap for every inch for themselves and don’t understand that there’s another party involved, it can make for a very difficult transaction. And it can actually cause tension between the parties to the extent that if you’re a buyer and you’re being a pain, the seller won’t have the incentive to help transfer that good will after the closing to the best of their ability. Of course, they have to per the contract, but you want, as a buyer, the seller to go out of their way, above and beyond, to help you transfer the good will in the practice and have a smooth transition. On the seller side, you want to make sure that the buyer’s comfortable and that the buyer feels good about the deal.
So that’s really important, to have realistic expectations and understand what negotiation is all about. In my opinion, negotiation is all about making sure that you’re getting more of what you want, but that the other side is, not below the status quo, where it’s not a win or lose game.
Negotiation’s not about winning or losing or beating the other person, it’s about getting more of what you want in the deal, and I think that’s really important. People can lose sight of that from time to time. For instance, I’ve seen sellers say that they are going to sell, but then if the buyer decides that they might sell their practice to somebody else that the seller gets to swoop back and take it back. Well, that could obviously limit the market ability of the buyer, and so it’s not something typically buyers want to do. That causes problems both from the perspective that (a) the seller doesn’t want to let go, as we’ve already talked about at the beginning of this interview. But (b) it also is an unrealistic expectation that is not about getting more of what you want, it’s about taking as much as you possibly can and having a foothold in everything even after the transaction. So that’s just one example of maybe overextending or having unrealistic expectations in the process.
I think the biggest thing that people need to understand when they go into a deal is that it’s important to get more of what they want in the deal, but it’s not about winning and losing. It has to work for everybody or it’s not going to work. Either it won’t happen because it’s not going to work, or it does happen, and then there’s a number of issues after the fact. Nobody wants issues after the fact. The buyer just bought the practice, last thing they want to do is deal with issues when they’re trying to make good on their investment and run a practice. The seller wants to ride off into the sunset. They don’t want to be looking over their shoulder with problems after the deal.
Are there any other things that might be more specific to the legal aspect of putting a dental practice for sale? Is there anything that you’ve seen with your clients realizing, “Oh, whoa, I didn’t know that would matter.”
If they [the selling doctor] doesn’t own the building and they have a third-party landlord that they’re leasing from, often they’ll go into the transaction expecting that the landlord is just going to allow them to assign the lease to the buyer without recognizing that the lease they signed probably says that they cannot assign the lease without the landlord’s consent. Now, hopefully they have some language in their lease that says, “Consent can’t be unreasonably withheld or delayed,” meaning that the landlord can’t be unreasonable about it, but they still can withhold consent if they feel it’s appropriate. It’s important that sellers understand that some landlords can be a little bit funny, and it’s important to use your team, the DDSmatches of the world, to bridge any gaps that might be there.
Or if you have a preexisting relationship with that landlord, make sure to continue to have open communications about the fact that you are embarking on a sale transaction and that you need cooperation. And then you’ll do whatever you can to get cooperation from that. I think those things are really important, because it’s not a home run. Every once in a while a landlord does not allow the lease to be assigned, or they may require some egregious things like the seller continuing to guarantee the lease after the fact, even through a renewal term. I’ve seen landlords or sellers to do that. So I think that’s one thing that’s really important, is not only the associate agreement dynamics that I mentioned, but also making sure, acknowledging that the landlord is a big part of the deal if you’re leasing. And that they can actually stop you from selling in some instances. So it’s important to have a really good relationship there.
Are there any other things that can pop up if you own your property rather than lease?
Yeah. I mean, if you own the property and you’re planning to lease the property to the buyer, it’s important to have those terms outlined and a letter of intent so there’s no surprises down the road where you’re getting to the finish line of the sale transaction, and then the buyer doesn’t want to pay the rent that you’re asking for, right? So that’s important, but if you’re actually selling the building to the buyer, it’s important to make sure that your building is in the proper condition to be sold, because the buyer is most likely going to get an inspection and a survey done. And they’re going to do their due diligence on the property. So again, you don’t want to get to the finish line and then the buyer finds defects in the property or something, and now you have an issue and you can’t even embark on the transaction. I think those would be my advice as far as owning the building is concerned.
When a dentist is considering transitioning their practice, how quiet should they keep that. Is there a problem with too many people knowing about it?
I mean, every deal’s different, every situation is different. So this may be more impactful for some than others, but I would say one piece of advice that I just ran into in a transaction is, I was representing a buyer in a deal, and the buyer in the deal ended up not being able to get the financing to buy the practice. And they also couldn’t come to an agreement on the lease with the third-party landlord for the building. So they had to back out of the deal because they couldn’t get the financing for the deal, and also even if they could, the lease was going to be an issue. That’s pretty rare. I mean, most deals do go through, but this was sort of on the rare side that it didn’t. And the seller had told the staff in the practice about the deal, and had done so for a significant period of time, actually. Even before we even had a signed purchase agreement or had gotten that negotiated. So they made that mistake, and it’s going to probably cause them adverse effects.
They actually blamed the buyer for that. We actually see things a little bit differently in the sense that we didn’t tell them to tell their staff. If you’re on the seller’s side, it’s important to not tell the staff until you have to. Now, when you have to is going to depend on your practice and your situation. For some they have no choice, they’re going to have to tell them even before the purchase agreement is signed. For others, they can get away with making sure they have signed documents before they go and tell the staff. So that’s where you bring your team in. Andy [Edmister of DDSmatch Southwest] does a great job of that, facilitating it at the right time to make sure that they’re telling staff at the right time, and you can lean on your teammates as to when you’re supposed to do that.
What would you say to a doctor who thinks they don’t need the full team of advisors or a broker, that they can do this all themselves?
First and foremost, as I mentioned before, even if the seller is motivated and has the itch to go do all the things a broker would do, they probably don’t have the time. I would be certain they probably don’t have the expertise, but let’s just say they did, let’s say they’ve been a broker in the past before they have their own practice. They probably don’t have the time to do it properly, and when you’re selling a practice and you’re going to take in a lot of money, it’s important to do everything properly. And so it’s really important to retain a broker in the transaction if you’re selling because they are going to work really hard for you to, number one, locate a buyer. And not just locate any buyer, but locate the right buyer for your practice which is something DDSmatch does very well. They’re also going to help facilitate the transaction. There are a lot of things that go into a transaction that doctors don’t realize.
Many people think sometimes that brokers just sort of sit on the sideline, put parties together, and wait for the deal to happen, and that’s all they do. That’s not the case. Brokers work really hard to make sure that every part of the transaction is covered, and that they’re also bridging the gap between any kind of negotiations between the parties. Sometimes if attorneys are butting heads or something like that, the broker can step in and do a really good job to facilitate the deal to bridge any gaps and make sure that it goes as smoothly as it possibly can. We’ve already talked in this conversation about why it’s important to keep things very smooth in a transaction, because there is so much at stake and there are so many emotions that either, one, you don’t close a deal if you’re not able to bridge those gaps. Or two, you close the deal, but then you have problems afterward. As we know, nobody wants problems after the fact either.
Brokers are very important, not just to find the particular buyers that are good for your practice, but also to help hold your hand throughout the entire transaction.
Why would you recommend dentists use DDSmatch Southwest?
I would say that if someone came to me and said, “Hey, thinking about selling through DDSmatch. Should I do that?” I would say, “Yeah. They’re an awesome company. They have really hard working brokers.” Most of the work that I’ve done with DDSmatch has been with Andy Edmister, so that’s the person that I would talk about the most, but I’m sure the same goes for the other brokers. You want somebody who’s going to work really hard to not only get you a buyer, but get you the right buyer and cares about that, and who cares about the deal. They care about all the components that we’ve talked about on this interview, such as making it a good win-win for all parties involved. Even though the brokers represent the seller in the deal, and they do so zealously, it’s important that the buyer feels good about the deal too. Because, again, you don’t want problems that could derail the deal, you don’t want problems after the deal.
So they do a really good job at making sure that it’s a win-win and that everybody is happy, and that it’s fair and reasonable for everybody. Again, they work really hard, so certainly I would advocate their services.
We Can Help You Get What You Want from Your Dental Practice for Sale
At DDSmatch Southwest, we offer two things that will get you closer to what you want out of the sale of your dental practice. First, we have our Trusted Transition Process, a clear and consistent path to help you transition your practice while maintaining the legacy you’ve worked to establish. We put the wisdom and experience of hundreds of transitions from across the county to work for you.
https://www.ddsmatchsouthwest.com/wp-content/uploads/2018/10/1-dental-practice-for-sale_HERO.jpg6281200adminhttp://www.ddsmatchsouthwest.com/wp-content/uploads/2021/03/LOGONOTAG.jpgadmin2018-10-05 05:00:492019-03-02 00:13:53Why it Takes a Team to Put a Dental Practice for Sale