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How to Buy a Dental Practice

Practical advice and useful guidance to help protect you from the ground up when buying a dental practice.

  • Ensuring your investment is viable
  • Funding your purchase
  • The financial and legal aspects of buying a dental practice

How to Buy a Dental Practice

Whilst buying a dental practice can be a lucrative move, it can often prove to be challenging. It is imperative to take time to carry out extensive research; that you know all the right questions to ask; that you engage the very best help possible to ensure the decisions you make are the right ones; that the investment is a viable one and that you are protected from the ground up in every respect, both legal and financial.

In this guide we will be looking at the many considerations that need to be made when you wish to buy a dental practice. We will discuss the questions you need to be asking, and talk about the best ways of getting the right advice. But to start with, we will go from the beginning by taking a look at how to get your search for a suitable dental practice moving along.How do I find out which dental practices are for sale?

There are numerous brokers, agents and online resources dedicated to listing dental practices for sale. Look for agents that offer a personal service and guarantee that they have personally examined the practice in order to gain a comprehensive understanding of it, so that they can answer your questions efficiently and accurately. It will no doubt be tricky for you to undertake viewings inside of practice hours, so look for an agent that offers extended hours.

Probably the most important piece of advice is to look for an agent that specialises only in dental practices, and one that has an established reputation and plenty of niche experience. This way you are better assured of receiving the specialist attention you need to make the choices that are right for you when buying a dental practice. UK wide you will find a number of agents and brokers, so ensure you do your homework and due diligence before deciding which one(s) are best primed to assist you. An experienced dental lawyer will have a network of contacts such as these, so it is worth asking for a recommendation.

How do I value the dental practice?

When you have sourced what you believe to be a dental practice that has the potential you are seeking, you will need to arrange a valuation. You should approach a number of professional independent valuers and satisfy yourself that they have the experience and knowledge necessary to provide you with an accurate and reliable valuation.

A thorough valuation service will include a practice visit; a comprehensive financial review; a detailed equipment, fixtures and fittings inventory and of course, highly accurate pricing. Do not be afraid to ask a potential valuer about their valuation methods, and try and look for valuers that are the preferred choice for banks, solicitors and accountants. Ask for recommendations wherever possible.

How can I fund the purchase of the dental practice?

In the majority of cases, when you wish to buy a dental practice, you will need some sort of funding. Even if you do find yourself in the rare position where a cash purchase is possible, it may not make financial sense to proceed on that basis.

There are two main methods of raising finance when buying a dental practice. One is to borrow from a financial institution, and the other is equity funding, where an investor or consortium of investors inject capital in return for shares in the practice.

Banks have continued to fund the purchase of dental practices up to and even over 100 per cent of the purchase price, even during the economic downturn. Of course, how willing a bank would be to lend depends on individual circumstances and risk levels. Partnership purchases are considered a lower risk, as the joint borrowers own a greater number of assets collectively, which the bank would view as an advantage should a default on repayments occur.

It is very important when considering your funding options to remember that purchases of practices with NHS contracts will often involve a bank requesting information from the buyer as to how the transfer of the NHS contract will be managed, or that the Primary Care Trust has consented to the transfer.What questions should I ask when buying a dental practice?

You should ask as many questions as you can possibly think of when you are intending to buy a dental practice, and never consider any one of them a ‘silly’ one.

Your questions should not only pertain to the business, but also to the property. This is where a specialist dental solicitor will be able to guide you, because there are bound to be things you never thought to ask. Here are some of the key questions you will need to be asking, either directly, or through your legal representative:

What is included in the sale price?

A detailed inventory should be provided as part of the valuation and you should scrutinise it, because it will form part of the sale purchase agreement. If there is anything missing, bring it to the attention of your solicitor straight away.

Is the NHS contract suitable for your needs?

It is crucial to inspect the NHS contract to make sure that the Primary Care Trust has not tried to amend the template by varying the terms. If there are any variations, you will need to find out how this may affect the practice, and whether the contract is at risk.

Is the UDA figure correct?

If the Units of Dentistry (UDA) figure is incorrect (perhaps because the seller received more UDAs so as to top-up their contract, but did not obtain a written variation from the Primary Care Trust) it could transpire that a few months down the line you receive a notification from the PCT demanding a claw back due to the seller having underperformed before the sale was completed.

What is the cashflow of the practice?

Profit is one thing, but cashflow is the very element that can make or break a business, because every business needs cash at hand to be able to operate. As part of your cashflow enquiries, you will need to look at the expenses of the business and this should include lease terms and costs, as rental rates could have the potential to increase each year, and there may be additional unexpected lease related expenses that could affect cashflow, such as maintenance and insurance.

It is essential to engage professional guidance when looking at the trading figures of a practice that you are considering purchasing, and we will discuss this further on in this guide.

What else should I be asking?

Here are some more of the many questions you should include in your enquiries when buying a dental practice:

  • What are the employees like?
  • How are staff remunerated and what incentives do they get?
  • How many new patients are acquired annually?
  • What is the patient retention rate?
  • How is the dental practice marketed?
  • Who owns the goodwill of the practice, and is it transferable?
  • What are the terms and conditions of your agreement with any other practice owners?
  • Will there be a need to invest in new equipment?
  • Who owns the existing equipment?
  • Is the seller to be contracted to the practice after the sale to assist in maintaining patient loyalty?
  • Where to find the right advice when buying a dental practice

In order to ensure your enquiries and due diligence are well-grounded, engaging professional assistance is vital. As we said, a specialist dental solicitor will be able to use their experience to guide you, and you will also benefit from the advice of an accountant with niche expertise in the dental sector.

There are numerous financial and legal aspects to be taken care of. Aside from due diligence, your solicitor will assist you with your CQC registration, which needs to be in place by your completion date; they will draw up all the necessary contracts and agreements, including any necessary partnership agreement between you and other buyers of the practice. The solicitor will also make the standard commercial property enquiries, including inspecting any lease agreement.

Your appointed accountant will analyse the practice accounts to ensure the figures are consistent with the purchase price and whether there will be good enough potential profit for you. They will look at factors such as the ratio of turnover to employee salaries, and turnover to materials and lab costs, so as to discover how well the practice is being managed, and whether there is room for improvement. They will also report back to you on any potential cashflow issues.

If you are seeking a specialist dental lawyer or dental accountant, the registers of members of the Specialist Dental Accountants and Lawyers (NASDAL), and the Association of Specialist Providers to Dentists (ASPD), will list firms that follow their strict codes of conduct.

The assistance you need, from respected dental sector specialists

If you are seeking advice on how to buy a dental practice, HCB Network has a dedicated team of specialist dental lawyers who are ready to assist you both in your purchase, and ongoing as your practice develops. Buying a dental practice UK wide can be a challenge, but with the right professionals on your side, you will have the best possible chance of the transaction proving to be a lucrative one.

 

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