Advising Professional Practices
Almost all of the information provided under this site’s Business Law, Business Transactions, Entity Formation, Real Estate and Commercial Lease pages also applies to professional practices. Yet there are many unique issues that apply to all professional practices as a group and also individually to each. Professionals are subject to licensing and various regulations pertaining to patient/client treatment, methods used, premises’ requirements, ethics, conflicts, continuing education and so forth. Over the years, we have worked with various types of professional practices including doctors, dentists, optometrists and accountants, but especially veterinary medicine transactions. Other issues to consider in opening, operating or selling a professional practice are discussed below.
Although most professionals must purchase specialized medical equipment, some professions, such as veterinarians, must install in their facility various animal-related tenant improvements that can make the site less inviting to different types of commercial businesses. This creates an incentive for veterinarians to own their own building and resell to another veterinarian.
Both veterinarians and dentists have experienced favorable financing for the purchase of their professional practices, often being able to borrow 100 percent of the purchase price plus working capital on very reasonable terms. Real estate loans can usually be obtained on good terms. Since the loans are often for at least 10 years, the lender requires either ownership of the facility or a lease with a term and/or option extending this period.
Each profession has a different type of interaction with patients, which can affect various aspects of the practice. For example, a large animal practice is very different than a small animal practice. A veterinarian who travels to a farm to treat horses or cattle has a much different lifestyle than one who works out of a clinic.
The following items should be considered before the purchase of any type of practice:
- Obtaining a qualified appraisal, which your lender will also require
- Comparing terms from at least two lenders, preferably a lender that specializes in your profession
- Whether the equipment is sufficient
- The future costs, if you are going to perform different or additional treatments requiring new equipment
- If the equipment is in good shape or if it will require repair or replacing in the near future
When your seller has a non-compete agreement from the person who sold to them, you should be able to assume that it will keep the prior seller from competing. If you are buying the building, a whole host of issues apply, such as:
- Condition of building
- Special built-in equipment and whether it is properly permitted
- Zoning, since it is very common to be in a zone that requires a conditional use permit; make sure you read it and determine if it covers your practice and can be extended when it expires
You’ll also want to have large enough and long enough non-compete provisions to protect the practice from future competition from the seller.