Selling your practice is unbelievably stressful. You are already struggling with endless administration a difficult day job, one or two “business issues” and, dare I say it, the general slowdown that comes with advancing years. And now, on top of that, your lawyer is expecting you to do a full-time job answering a whole load of silly questions!
So what can you do to make the process less stressful? First up, hire a lawyer who understands the process. No, really understands, and has the maturity to know the difference between a pointless question and a meaningful question. You could do worse than start with one of the senior lawyers at Abrahams Dresden, dental law specialists.
Secondly, you need to prepare your practice and your paperwork for the investigations that go on to verify, for the benefit of your buyer and his lender, that your practice is worth buying and is not riddled with holes below the waterline.
One of the key contributory factors causing “stress” is delay. This is usually caused by a combination of lack of organisation and the plethora of advisers who often become involved. The corollary of this is the difficulty or inability to wade through the mire and resolve key commercial issues.
Enough of an introduction: what you actually need to do, to simplify the sale, as much as possible, is as follows:
Prepare for the Sale
Appoint an experienced practice broker. Although you will (probably) pay a commission, you are likely to achieve a sale price materially higher than a direct sale to the Associates at whatever you think it’s worth between you. The broker will also weed out the less serious prospective buyers.
Once you have found a buyer, appoint a lawyer. It is worth doing a bit of research on this. A good rule of thumb is that you pay for what you get – do not necessarily be influenced by the lowest fee.
Practical Steps
A buyer will always conduct a “due diligence” exercise to determine precisely what he is buying. Clearly, due to the nature of the business, one practice is fairly similar to another. It follows that it is possible to standardise information request forms, since the information required by experienced dental solicitors (e.g. certification papers, accounts, associate and employee details) does not vary much.
Traditionally, these requests will be sent after the point of sale. It is both possible and sensible to prepare a legal sale package in advance.
The aim is to be in a position to have a complete pack of Heads of Terms, replies to standard enquiries, supporting papers (for example, the employment contracts), a Sale Agreement,, a lease/property transfer and the NHS contract transfer papers ready pre-sale.
For this reason, it makes good sense to hire your lawyer before you find a buyer.
Property Matters
Does your Lease have 10 years or more to run? This is a basic minimum requirement for the buyer’s lender. If your Lease has less than 10 years to run, you should, before you market the Practice, extend the term of the Lease. We can help you here, if required.
On a related matter, is your practice incorporated? Have you remembered to put the Lease into the name of the Company? If not, straighten out these issues before you market the Practice.
Lawyers
Lazy, slow or inexperienced lawyers cause delays. Delays can result in the deal not proceeding. This is one of the most frustrating aspects of the job of a dental solicitor. For this reason, all parties must do whatever they can to ensure that the solicitor for each party is an experienced solicitor, with the appropriate back up.
Much time is wasted with lawyers who take polarised positions, in the mistaken belief that, for example, demanding a retention from the sale price to protect the buyer is fine when you act for the buyer but utterly unacceptable when you act for the seller! These positions do nothing but create confusion and mistrust.
Another example is a company sale of a dental practice. These typically work on the basis that the goodwill and equipment is worth say £1m and there is a £ for £ adjustment for any assets left in the pot. So if there is a £20,000 tax bill (relating to pre-completion profits), and no other assets or liabilities, the ultimate price paid is £980,000. And if there is £10,000 left in the company bank account, and no other assets or liabilities, the ultimate price paid is £1,010,000.
I was involved recently in a company sale of a dental practice where there was £100,000 left in the bank account and no other assets or liabilities. The buyer’s solicitor took the stance that the money should be left in the pot but the price should stay at £1m. I tried to explain that this is wrong and that the price should be £1.1m.
The buyer’s solicitor then telephoned his client and asked his client whether he would prefer to pay £1m or £1.1m. Naturally, the buyer said £1m. The buyer’s solicitor then said that he was sorry but that these were his clear instructions.
The point is that the position needed explanation and a neutral approach, rather than a badly explained partisan approach.
My firm uses a standard sale agreement, which is used for both sales and purchases. We try to make things fair, rather than one-sided, in favour of the party for whom we are acting. This is what our clients almost invariably require of us. In my experience, you normally end up with a fair deal. Starting from an unreasonable and entrenched standpoint merely extends the timeline for the deal and raises blood pressure and legal costs.
It has to be said that with fixed quotes for jobs becoming more the norm, solicitors are becoming more cooperative. Funny that!
CQC
CQC is up there in the top three delaying factors. The most usual type of dental sale is still the sale of an NHS/mixed practice by way of sale of assets rather than the company. The NHS Contract is transferred by way of the partnership route. This means that the buyer goes on the Contract with the seller and the seller ultimately retires from the Contract.
NHS England will not permit the buyer to go onto the Contract unless there is a partnership CQC registration.
So to speed up the process, the DBS checks for the buyer and seller should be undertaken as soon as the deal is struck. While the rest of the legal/finance process is running its course, the buyer should go on the CQC register with the seller as a partner. Most of the lawyers in the industry are up for this process now.
Finance
This is a frequent cause of delay. Have your accounts and practice profiles ready – buyers will need these for their lenders. Impress on your buyer the need to be organised and efficient. The secret is to deal with a specialised dental lending introducer.
Dental Elite offers a first-class finance broking operation under the superb management of the gorgeous and sexy Becki Barnett, becki.barnett@dentalelite.co.uk. Hopefully, your broker will introduce your buyer to Becki at an early stage.
Conclusions
Prepare in advance as full a package as possible and be proactive.
Appoint your professional advisers with care.
And remember, if the deal takes longer to do, not only will it be more stressful for you, the seller, but it will increase the risk of doubts creeping into the mind of the buyer and thus increase the risk of the deal failing.
One technique successfully practised by my firm is the calling of a meeting of the seller, the buyer and their respective advisers as soon as the paperwork has been created and the commercial issues identified. The objective should be exchanging contracts at that meeting. Obviously, you will fall short of that objective, but it does no harm to aim high!
Russell Abrahams is a Partner in Abrahams Dresden, Solicitors, Clerkenwell, London EC1, Tel: 020-7251 3663, email: russell.abrahams@ad-solicitors.co.uk web: www.ad-solicitors.co.uk. Abrahams Dresden specialises in the provision of legal services to the Dental Profession. If you wish to discuss any aspect of the law as regards dentistry, please telephone or e-mail Russell or his Partner Paul Shinwell, or any other member of the AD Dental Team: http://www.ad-solicitors.co.uk/dental-law.
