Guide to Purchasing a Dental Practice
DENTAL BULLETIN, ISSUE 66
You may be one of the dentists that has worked as an associate for a number of years and have now decided that purchasing a dental practice and become a practice owner is a great idea. You may have spent some time looking at a number of practices and now wonder how to proceed with the acquisition of one of those practices. This article sets out the steps that you should take to ensure a successful purchase.
Always seek professional advice when planning purchasing a dental practice in order to ensure that the process is as quick and stress free as possible. The time and money invested in seeking expert advice at the outset can save a huge amount of time and money in the long run. Professionals will also be in a better position to advise whether or not it is sensible to proceed with the transaction, or whether you are paying too much. You will require the help of a solicitor and accountant at the minimum.
The time required when purchasing a dental practice can greatly vary dependent upon the complexity of the business set up and the time it takes for parties to agree a price and/or terms. It will also depend on how soon you as a buyer can raise the funds or how thorough the due diligence needs to be that your solicitors will have to carry out. Practice purchases ca take anything from 5-12 months to complete.
Needless to say, owning and running a dental practice comes with a whole host of responsibilities that you would not have had to deal with as an associate. You will be responsible for staff wages and welfare, for health and safety and any regulations that the practice needs to comply with. You will also be responsible for other financial aspects such as filing accounts and paying taxes. Be prepared, and understand that running a dental practice will take you away from dedicating all of your time to treating patients. Make sure you fully understand the impact that this change will have on your professional lifestyle.
The purchasing process is complex and can take several months to complete. This guide will briefly highlight some of the aspects of acquiring a dental practice.
Finding the right business
Find a dental practice that is suitable for you. You may be considering the location of the practice because of the proximity of it from your home. You may know the area and potentially be able to attract patients and add value to the business. You may like how it looks or you like the way it is being managed.
Consider the makeup of the existing business. Does it currently offer NHS or private work? Is there any capacity to increase footfall or the value of the contract itself? If the practice currently relies solely on an NHS contract, you will need to find out who the contracting party is and whether it will be possible to transfer the contract with the sale of the business. NHS contracts cannot be bought and sold and can only be transferred with the consent of the NHS area team. For more guidance on how to transfer a NHS contract click here.
Enquire at the outset as to the practice’s performance of the contract, how many UDAs the practice is allocated under the agreement and if these have been achieved in the past. The NHS can reduce the number of units if it finds the practice is underachieving.
Valuation
Obtain a formal valuation of the dental practice. You want to make sure that you get what you pay for. To ensure you are not paying more than its market value you should assess the profitability of the practice by considering its Earnings Before Interest Taxation Depreciation Amortisation or EBITDA. Naturally the higher the profitability of the practice, the higher its value will be. It is therefore vital to get a clear picture of the EBITDA of the practice from the outset.
To get an idea of the practice’s EBITDA it is common to examine accounts going back up to around three years. By examining historic accounts of that timeframe you will get an indication as to how the practice has been performing and if profits have increased or decreased over this period. If you see a decline in profitability then you may want to question the reason for this. Consider if it is something that could cause problems in the future or if you think you can turn the business around and increase profitability by adding value.
Bidding
When you have an idea of the value of the practice, it is time for you to make an offer. No doubt you will want to try and negotiate on the purchase price. Once you have an indication of the practice’s profitability you need to ensure you have funds in place. You will require a deposit of at least 10% before you make an offer as this will help secure the transaction. You will then need to consider how you wish to fund the rest of the purchase. If you are borrowing from a lender you want to make sure a loan agreement is in place before making an offer to buy.
During the bidding process parties also agree the terms of the sale. The buyer and seller agree the price and this is then put in writing along with the terms of the agreed price. Like the price, the terms are negotiated. Once agreed both parties sign the contract. Signing the contract ensures the transaction will take place at the agreed price so long all the elements of the sale come together.
Due Diligence
When you have agreed the price and the terms your solicitor will carry out what is called a due diligence exercise. This exercise would usually flush out any issues with the practice or areas that you may not have considered when viewing the practice. Part of the due diligence will involve reading the CQC inspection report. Due diligence is a very important exercise as it ensures the information you have been given about the practice is accurate and there are no hidden surprises after you have concluded purchasing a dental practice. You will want to ensure that the current owner has complied with any requests. You will also want to know if the owner complied with their obligations as an employer, such as requirements under the disability discrimination act.
Completion
When your solicitor confirms that the due diligence has not flagged any concerns you are in a position to conclude purchasing a dental practice. Typically you will have your funds with your solicitors by this time who will arrange for these to be transferred to the seller’s solicitor.
Once you have purchased the practice you may have to arrange for a further CQC inspection to ensure the regulators are satisfied that the condition of the practice is in order.
We hope the above has given you an idea as to what you can expect from your practice purchase. If you need assistance with a transaction you are considering, then please contact Fazl Buhcari by email at fbuchari@jfhlaw.co.uk.
Please note that the information contained in this article was correct at the time of writing. There may have been updates to the law since the article was written which may affect the information and advice given therein.
