The long road to owning a dental practice: The Probe

It goes without saying that purchasing your own dental practice can be a challenging time, as there are many issues that could potentially arise.

From both the buyer and the vendor perspective, ensuring that all the relevant steps are taken will reduce the chance of challenges occurring. Enlisting the help of a specialist is another way to make sure that the process is as simple and smooth as possible.

 Heads of Terms Agreement

The Heads of Terms Agreement sets out all of the key commercial points, to ensure the vendor and the buyer have agreed to them at the outset. While the Head of Terms document is not always a requirement, it is vastly important as deals without it have a significantly higher abortive rate. This agreement will show that the buyer is morally committed and serious about proceeding with the purchase.

As soon as the Heads of Terms have been agreed, it’s crucial to get the Care Quality Commission (CQC) application underway as it can be an arduous part of the buying process. Both the buyer and the vendor must apply for a countersigned disclosure and barring service (DBS) check.

The CQC measures dental practices on different key areas, relating to whether they are safe, effective, caring, responsive and well-led. Both the buyer and the vendor must satisfy the CQC in various ways and, due to the complexity of this process, delays are common.

For dentists purchasing their first dental practice, the ‘new provider’ application form is incredibly detailed and long, requiring information on: the last fifteen years of job history, reasons for gaps in employment and how they will provide the regulated activities, satisfy the key lines of enquiry (KLOE) and confirm whether the service is safe, effective, caring, responsive and well-led.

This process can be stressful, however, if you procure the right advice and help, it can be made much simpler.

The legal process

Once the relevant enquiries have been completed, both parties can then move on to the drafting of the key contractual document, the Sale and Purchase Agreement (SPA). This will usually be done by the buyer’s solicitor. The SPA outlines exactly what the buyer will be receiving and for how much. The rights and obligations of each party, relating to the transfer of the business and its assets, will also be detailed.

 The due diligence process is arguably the most challenging aspect of a dental practice transaction. However, it can help ensure that the buyer is able to proceed with the purchase from a financial perspective. It also allows the buyer to acquire all the necessary information regarding the business and gain insight into the economic, legal, fiscal and financial circumstances of the business. This could include anything from:

  • Asset and equipment
  • Exterior bricks and mortar
  • Practice inspection records
  • Employee contracts
  • Supplier contracts
  • Associates
  • Patients
  • UDAs

The due diligence process will scrutinise these areas in further detail, and this process may take several months to complete. However, it is in the interests of the buyer to be well-prepared and comfortable with the affairs of the dental practice they wish to purchase, so they can recognise whether the investment they’re making will be worthwhile. Working with a solicitor with a background in dental practice due diligence will be hugely beneficial, as they will be able to handle the process on your behalf and manage any issues that may arise.

Alongside the sale contract, there will be several smaller documents, such as the NHS partnership documents, that require agreement. Another includes the disclosure letter; if the vendor believes they may be in breach of one of the indemnities or warranties in the sale agreement, they can disclose this in the letter, which means they are not liable to be sued for it.

 The finance process

 When buying a dental practice, a deposit of at least 10% is standard. The remaining amount can be financed from the bank. The lender will be interested in a variety of factors when assessing your loan application: your earning history, how you manage your personal finances, your current living situation, your management experience, your ability to repay the loan should the interest rates rise and if you possess the available funds.

In order for the vendor to receive a full credit approval, the buyer’s offer will need to be accepted. This is because, for the bank, writing a credit paper can be time-consuming and should the offer not be accepted, this time will have been wasted. Additionally, the buyer’s bank will want their own opinion on the dental practice’s valuation. This usually costs around £2000 for the buyer, so it is a considerable investment on their part. The bank will send a surveyor to value both the business and the property, to ensure the practice is worth what the buyer will be paying. It can take between two to four weeks after the visit for the report to be issued. Once this has been completed and there are no changes to be made, the bank will then send instructions to the buyer’s solicitor, who will need to report on the title of the property. The bank will then make the decision whether to allow the drawdown of funds to allow the purchase to complete.

It’s all yours…

 The exchange of contracts may take place at the same time as completion, or it might be weeks in advance. Regardless, it is at this point that both the buyer and the vendor are legally committed, and stand to lose up to 5 to 10% of the purchase price should they withdraw.

Purchasing a dental practice is usually a very long process, and with the possibility of delays and long-stretches of waiting, it can be a stressful time. However, with specialist help, the buyer will be supported throughout this process. Dental Elite operates DE Finance, who are dental specialist finance brokers… one of the busiest in the UK! Regardless of the buyer’s goals, DE Finance will help them achieve their ambitions and simplify the journey to purchasing their dream dental practice.

Purchasing a dental practice is a monumental achievement, and with the right help and support, the long road to reaching this goal can be made smoother and more straightforward.

Medical Elite Recruitment and Practice Sales Ltd t/a Dental Elite and DE Finance is authorised and regulated by the Financial Conduct Authority, reference number 703384. Medical Elite Recruitment and Practice Sales Ltd t/a Dental Elite and DE Finance is a credit broker and not a lender. All finance is subject to status and income. Written Quotation will be provided on request. Medical Elite Recruitment and Practice Sales Ltd t/a Dental Elite and DE Finance can introduce you to a limited number of finance providers and may receive a commission for such introductions. Company Reg No. 07345687

Please note that if you do not make loan repayments in accordance with the terms and conditions of the loan provided to you, your assets may be at risk of seizure and sale, and/or all of the funds lent to you may become repayable immediately.