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7 Things you MUST consider when Buying a Dental Practice

  1. Available funding
  2. Financials andNHS Contract checks
  3. Reasons for selling
  4. Offer and Due Diligence
  5. Equipment and CQC
  6. Seller becomes an associate
  7. Final due diligence and completion

In the highly competitive Dental Practice Sale environment, it is imperative to get ahead of the game, especially if you are deciding to purchase a dental practice.FACT: For every well -priced practice available on the market, there will be an average of 6 buyers ready and waiting to fight for it.You will be competing against deep Dental Corporate pockets with a green light firmly fixed on spending, and you will be just another fish in a very busy pond. It is imperative that you know exactly where and what you want to buy, and how much you are prepared to pay for it.But buying a practice is not simple. There are certain criteria which must be fulfilled, otherwise you can potentially land yourself in deep water.These are not an exhaustive list of things you should do, but time and again we see these issues arise, so if you can address these seven you will be well on your way to successfully buying a Dental Practice.

Available funding

You must havea deposit of at least 10%when thinking of buying a dental practice.Most lenders will offer a maximum of £500,000 of an unsecured loan per dentist (depending on the practice and your personal situation).

When a lender assesses your loan application they will be looking at a variety of factors. These include:

  • Your earning history as an Associate Dentist
  • Your financial track record and how you have managed your personal finances e.g. do you have high credit card balances is always a bad time to apply for a loan.
  • Your current living situation i.e do you own your own house or rent?
  • Your management experience and number of years you have from leaving Dental School
  • Your ability to repay the loan with a comfortable margin of error if interest rates rise

If you place an offer for a practice and do not have available funds (or a finance agreement in place) you risk being unable to buy a practice whilst losing credibility with a seller.

Financials and NHS Contract checks

Upon visiting the practice check the property and surrounding areas.

Study the previous 3-year’s financial statements to find out if the turnover is steadily increasing or decreasing. Furthermore, check to see if the private revenue is made up of fee per item ora capitation scheme. If the number of full time equivalent dentists is less than the number of surgeries, there will be an opportunity to increase the work load and revenue which is always an opportunity where you can add value in buying a practice

For incorporated practices make sure that there is not a ‘change of control clause’ in the NHS contract,and if you are buying half way through the year, look over the performance of the UDAs delivery to avoid any unwanted clawback in the next financial year.

Once you have a basic understanding of the business from the initial information received, we would always recommend you put a financial model together to see if the practice makes sense for you to buy. Only if you can add value and the financial model stacks up then consider making an offer for the practice.

Reasons for selling

More often than not, sellers sometimes involve new buyers,whilst relinquishing the responsibility of running the practice themselves (mainly because they have done this for many years). Having a seller deciding to stay at the practice for a specific period of time is most valuable for any buyer, especially a young dentist buying a practice for a long-term project. This can help with ensuring patients and the existing team settle comfortably with the new owners

So, have a good conversation with the vendor and explain your idea, as money is often not the only driver for them, but to ensure patients and the existing team are looked after appropriately too.

Offer and Due Diligence

Placing your offer and making sure it’s attractive is essential if you really want a specific practice. After all -if you don’t, someone else will, and there’s no prize for second place!

Once and offer is accepted,ensure you do your research regarding solicitors. Listen to others that have been through the process, and talk to 4 or 5 solicit or firms with the relevant amount of experience in dental transactions.

This is not negotiable if you want to succeed in buying a practice and preserve your mental health.

A good solicit or will carry out due diligence, negotiate the property aspect of the deal and look at the NHS contract in great detail with you.

The message here:don’t choose the cheapest solicitor, this could prove costly in the long term.

In addition, at this stage you will also want to ensure an experienced accountancy firm is hired to review the financials to check that the numbers you were provided at the outset stack up. Management information, details from the software system and other important financial information will help you get a much better picture of the health of the business too.

Equipment and CQC

Once an offer is accepted and you are in the process of due diligence, proceed to check the quality of the equipment, from the cabinetry through to compressors; the floor or anything else that could perhaps cost you money from day one.

It is also prudent to ask for the details and date of the last CQC inspection and DDA compliance. Your solicitor will help you with checking all equipment certificates and indemnity insurance for staff.

Seller becomes an associate

Earlier on we discussed that the seller may wish to stay at the practice for a number of years. Make sure you discuss and agree an associate contract with the seller and agree on the number of UDAs to be performed, pay per UDA and working hours.

Of course, if the seller is not staying at the practice, make sure that there are some restrictive covenants preventing the seller to work near the practice that you have just bought.

A minimum of 2.5 miles in a rural area and 0.5 mile in a city should apply

Final due diligence and completion

As part of the due diligence process, your solicitor must request the seller to guarantee that the supplied information is correct in order to protect against any loss caused by misrepresentation (Warrantees).

Finally, you can enjoy being the proud owner of your own dental practice, now the hard work really begins…