The six-year rule. First, due diligence requests often reach several years back. In the healthcare industry, it isn’t uncommon to receive requests for information from the previous six years, as that’s the look-back period covered by many federal healthcare laws. Depending on the structure of the transaction, the buyer may be inheriting issues your business has had in the past, so they’ll want to know everything they’re taking on.
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October 2022The sooner you start fixing any issues, the better. If you recently made a procedure change to fix an issue, for example, a due diligence request asking for six years of information could still reveal that the practice went for several years without a fix in place.
Lowered costs. Second, the actual process of due diligence is expensive. During a sale, your lawyers must review your diligence materials for any issues they may need to address with opposing counsel. You and your employees will also need to spend valuable time compiling materials for diligence requests. If your records are orderly and accessible, this can significantly decrease the billable hours spent by lawyers and your staff. Additionally, if records are kept and presented to buyers in an organized manner, there will be fewer additional requests from potential buyers.
A better business. Finally, by always running your business like it’s up for sale, you create efficiencies, produce better output, and hone your and your staff’s expertise. Sellers aim to get the best price for their business. If you build preparation into your business culture, you will reap the rewards well before you ever put your practice up for sale.
The prospect of preparing for due diligence can be overwhelming, but you don’t have to do it alone. In addition to key stakeholders within your business, involving an attorney with preparation can be a smart move. Attorneys will be able to identify the types of materials that are frequently requested as part of due diligence and can help identify high-risk areas within your specific practice area. Armed with a plan and some strong partners, you could be well on your way to a successful sale.
Emily A. Johnson, JD, is a healthcare attorney with McDonald Hopkins LLC. Contact her at ejohnson@mcdonaldhopkins.com or through mcdonaldhopkins.com.
Reprinted with permission from the American College of Rheumatology.
Letters of Intent
Not quite a contract but more than a handshake, letters of intent outline the basic terms that two or more parties intend to use when they do eventually enter into binding agreements. A letter of intent generally isn’t binding.