Buying a practice? What to consider

Jayne Clifford from Martin Aitken & Co explains that when it comes to purchasing a practice, preparation is key

04 August, 2017 / management
 

Buying a dental practice is exciting and potentially stressful. However, with careful planning, your advisers can help you to appraise the economics and keep you on the right track.

Marketing the practice

The first stage of the process concerns the marketing of the practice by the vendor or the selling agents. If you do contemplate a purchase, it is important to register with the agents who operate in the sector. Their knowledge of your requirements (locality, size, price, etc.) will help prioritise opportunities for you.

Appoint the right team

Having your advisers ready to assist is crucial, as they can assess the proposition and advise on the key information that is needed for the viewing process. By discussing the proposal early and carrying out initial due diligence, you will be better placed to make the right decision at your own pace rather than, perhaps, in haste.

How much can you afford to pay?

Knowledge of your own resources from your accounts and what might be available from a lender will be key to purchase negotiations and paying the right price for the practice. If a property is included in the assets being acquired, then the early use of a surveyor is vital.

What’s it worth?

You will need to examine the thoroughness of the vendor’s valuation model and the credentials of the preparer. Dental practice valuation calculations could consider various methodologies along with turnover and profits, but much can depend on the reason for the sale: retirement/illness, relocation and, of course, financial distress.

Agree Heads of Terms

If negotiations continue, the next stage is agreeing Heads of Terms (HoTs). This is a summary of the terms that the buyer and seller have agreed in principle and you need to have them checked by your solicitor.

Get clarity on exactly what you are buying

The next stages are financial and legal due diligence, following which the Sale and Purchase Agreement (SPA) will be available. A lot of this depends on whether the practice-owning company and its share capital is for sale or whether an asset sale is taking place. It is vital that this is clarified as early as possible by both sides and their advisers.

The SPA

This should address a range of issues:

  • It will ensure that information about the business, including its accounts, is reliable. It is essential to view up-to-date management accounts for the practice you wish to buy as the financial health of a practice may have deteriorated since the annual accounts were produced
  • Confirmation of the number of active patients, insurance patients and hygienist patients
  • Damaged/old stock should be excluded from the valuation which should be carried out by an external valuer
  • On purchasing a company, you inherit its liabilities, and therefore care needs to be taken to negotiate the necessary warranties and indemnities from the seller to protect your interests
  • Restrict the seller from directly competing with you after completion
  • Property issues such as transfer of ownership, lease provisions, planning consents and repairs
  • Equipment specifications, age, insurance and any software contracts
  • All employee information (pay rates, benefits, pensions, holidays, etc) must be disclosed so that the buyer knows what the responsibilities are going forward under the Transfer of Undertakings (Protection of Employment) regulations (TUPE).

Raising finance to fund the purchase

If you are involving a lender in the practice acquisition, make sure that you deal with representatives who specialise in healthcare. Your solicitor should advise you on the loan agreement obligations such as security over assets. You should also ask your accountant to prepare financial projections for three years both for the bank’s requirements and to see how the new practice will fit into your existing financial modelling.

About the author

Jayne Clifford is a director at Martin Aitken & Co. To contact Jayne, email jfc@maco.co.uk 

Tags: Buying / Martin Aitken

Categories: Magazine

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