The Letter of Intent Is More Important Than You Think

Most buyers treat the LOI like a formality. Sign it, move forward, done. That's a mistake. The letter of intent is actually where the real negotiation happens, and it's the moment that determines whether you get a good deal or a bad one.

I've watched dentists fumble this part over and over. They get excited about a practice, their broker rushes them through the LOI in a couple days, and suddenly they've locked themselves into terms that cost them tens of thousands of dollars they didn't need to spend. Or worse, they've committed to contingencies that make the deal fall apart a month later.

The LOI is generally non-binding, except for certain provisions like the confidentiality clause which is binding. You're setting the rules of the game here. Get this wrong and you're paying for it for the next ten years.

What Actually Goes Into an LOI

Let me break down what you're negotiating when you sign that LOI, because this is where the money lives.

Purchase Price This is the obvious one. But here's the thing: price is just one variable. If the seller wants $800K and you think $750K is fair, you don't have to split the difference at $775K. You can keep the price higher and negotiate everything else harder. I'll come back to why this matters.

Earnest Money This is your deposit. It shows you're serious. Typical range is $5,000 to $20,000. You're going to lose this if you bail without a legitimate reason. Make sure your contingencies are solid so you have actual outs if things go sideways during due diligence.

Due Diligence Period Usually 90 days from LOI signing. This is your window to dig into the financials, review patient records, talk to staff, watch the dentist work, everything. Do not rush this. Ninety days is actually pretty tight when you're doing it right. During this time, you're verifying that what the seller told you is actually true. Spoiler: sometimes it's not.

Exclusivity This clause says the seller can't shop the practice to other buyers while you're in due diligence. Pretty important. You're spending time and money here. The seller shouldn't be running an auction behind your back.

Closing Date Usually 100+ days from signing the LOI. That gives you 90 days for due diligence plus a 10-30 day buffer to wrap up loose ends. Get clear on this date. Don't let it slip around because the seller's schedule got weird.

Non-Compete Agreement This is critical. You want the seller to sign something saying they won't practice dentistry within a certain radius for a certain period. For metro areas, I recommend 10-15 miles for about 5 years. In rural areas, that radius should be 25-50 miles. Read this carefully. You're buying the patient base, not just the equipment. If the seller opens up next door in two years, you've got a problem.

Seller Transition and Involvement How long will the seller stick around after closing? Usually 30-90 days, sometimes longer for complex practices. Are they going to introduce you to patients? Train staff? Show you the systems they've been using? Get specifics here. Don't leave this vague.

Building and Lease Terms Does the seller own the building or lease it? If they own it, is it part of the sale or separate? If they lease, can you assume the lease? What are the terms? Rent increases? Renewal options? This can make or break a deal. I've seen rent jump 30% at renewal and tank a practice's profitability.

Accounts Receivable This is a big one that trips people up. How much patient money is sitting uncollected? Most practices run AR between 20-35 days worth of production. But I look at it as a percentage. Under 30 days? That's 100% of AR value. Between 30-60 days? Maybe 90%. Over 60 days? That number drops fast. You're negotiating what percentage of AR the seller collects before closing versus what you're responsible for after. Get this in writing.

Contingencies and Conditions Financing contingency (you need to get a loan approved), environmental contingency (for older buildings), regulatory contingency (licenses and permits have to transfer smoothly), personal contingency (the seller's personal financial situation stays stable). These give you real outs.

The Back and Forth

Expect the LOI to go back and forth 3-4 times before it's final. The seller's broker will push back on your terms. That's their job. Your job is to push back on their pushback. Don't get frustrated. This is negotiation. Stay calm and stay firm on what matters.

Here's what I usually see happen: the seller's side wants a high price, short due diligence period, minimal non-compete, and they want to keep the AR. You want the opposite. You find the middle ground. That middle ground is your deal.

My Contrarian Take

If the valuation is fair, I tell buyers to offer full price. Then use that leverage to negotiate everything else. The seller's feeling good because they got their number. Now you're negotiating the non-compete terms, the transition timeline, the AR split, the lease assumption. You've got room to maneuver because you didn't nickel and dime them on price.

This approach works because sellers are emotional about the number they've got in their head. Once they hear it, they relax. Then you can actually negotiate the real details that matter. And honestly? Those details matter way more than fighting over $10K on the purchase price.

Don't Let This Drag

The LOI process should take 2-3 weeks, not 2-3 months. If you're going back and forth 10 times, you're either negotiating with someone unreasonable or you're being unreasonable. Either way, step back and reassess. Some deals aren't meant to happen.

The goal is to get something signed that protects you, protects the seller, and lays out exactly what's happening and when. When you get that right, everything that comes next is easier.