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Your DSO deal … what about deferred cash?

Nov 16, 2022 2:54:34 PM / by Everything DSO

In the previous email I talked about the ‘cash’ category of a DSO deal structure.

Cash is pretty obvious, though there are some important details to realize (so if you didn’t read the previous email, I suggest going back).

Let’s cover “deferred cash” today.

Deferred cash is in the name … cash which you’ll get later.

BUT, it’s NOT a note or a loan.

Most commonly, deferred cash is an escrowed amount held back as indemnification against your representations and warranties.

When a DSO makes a deal with you, they are going to ask you to make certain representations and warranties regarding your practice and the information you provide.

So they essentially withhold or delay some amount of cash in order to minimize their risk.

If they find there’s a problem with what you’ve represented, then they can claim back some or all of their deferred cash.

If there isn’t a claim against this cash in escrow, then you usually get those funds after 12-18 months.

This is a common feature when purchasing a business, so don’t be alarmed.

What’s important is that you understand the terms of the escrow, how much money is deferred, is there a deductible below which a claim will be absorbed by the buyer, is there a maximum established for an individual claim, and of course what the term on the escrow is and when the funds will be released.

In all the transactions I’ve been involved in with DSOs, I’ve never seen a claim against the escrowed funds, and all the money ended up with the selling dentists.

Everything DSO

Written by Everything DSO

 Stan Kinder

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