Steps to buying a dental practice
Buying and selling a dental practice can be a complex process. But with the right support and a clear understanding of what’s involved, there’s no reason why it can’t be a smooth sale.
The first thing to know is that there are four key stages to the transaction:
- Pre-contract
- Due diligence
- Contract negotiation
- Exchange and completion
Below, you’ll find a brief guide to each of these stages.
Please note that this guide applies to those buying a dental practice in England and Wales.
Scotland has its own legal system, so the processes, terminology and documentation involved in buying a practice may differ. For further advice, get in touch with a Specialist Financial Adviser from Wesleyan Financial Services.
The pre-contract stage
The first step to buying a practice is to make an offer. As soon as you’ve had an offer accepted, you need to start thinking about your CQC (Care Quality Commission) application.
A new application will take the CQC 10 to 12 weeks to process, so it’s important to get moving – or the purchase could be delayed. The CQC process will include a written application, and most likely an interview.
If the transaction involves the transfer of the NHS contract, a joint application from both seller and buyer is required.
Transfer of the NHS contract
The NHS contract is perhaps the most important asset of any dental practice. Its transfer is done through the formation of a brief partnership between buyer and seller.
Once complete, the seller will retire from the partnership, to leave the contract solely owned by the buyer.
Due diligence
Before making an offer, you’ll already have seen basic information about the practice you’re buying. Things like profitability, turnover, the number of surgeries and the number of staff.
The due diligence phase is where you discover more about your potential new practice. After all, the decision to purchase is not yet fully made.
During this stage, the buyer’s solicitor serves a due diligence questionnaire on the seller’s solicitor. It typically includes all manner of enquiries, such as:
- A request for the last three years of accounts
- Whether or not the practice has a private capitation scheme.
- Whether there are any disputes, claims or litigation affecting the practice
Many other enquiries are often raised, to help you understand exactly what you are buying.
If possible, it can also be a good idea to spend some time shadowing dentists working at the practice you plan to buy.
This will allow you to see first-hand the quality of dentistry that is being performed, and help you to avoid inheriting a list of patients with a history of poor dental work that you will need to rectify as the new owner of the practice.
The contract negotiation
Once all enquiries have been completed, the parties then move to the drafting of the key contractual document - the Sale and Purchase Agreement (SPA).
The SPA transfers either the entire issued share capital in a dental corporate body, or the business and assets of a sole trader or partnership.
Usually, the buyer’s solicitor will draft the SPA. If the purchase is being funded through an acquisition loan, the lender will also be involved in the review and/or negotiation of these provisions.
What is the SPA?
The SPA sets out exactly what the buyer is getting and for how much. It details the rights and obligations of each party in relation to the transfer of the business and its assets.
The SPA will also outline warranties. These are effectively promises made by either the selling or buying party. An example of a warranty is where the seller warrants there are no claims or disputes currently being pursued against the practice.
The SPA also includes specific provisions found only in dental transactions. Things like:
- The performance of work in progress
- The apportionment of pre-payments and costs (such as laboratory fees)
- NHS clawback
- UDA (Units of Dental Activity) underperformance
The SPA is also likely to place restrictions on the seller. For example, the seller may be stopped from poaching staff and patients from the practice once the sale goes through.
If you’re buying a practice that has a practising dentist who holds the goodwill of their patients, it might be worth considering if you can retain them for a set period of time following the sale. This will help patients to embrace the change in ownership.
Exchange and completion
By the time due diligence has been done and the SPA created, the CQC application will hopefully be approved. The parties can then move towards exchange and completion.
Exchange is the swapping of agreed signed and dated SPAs. These SPAs create legally binding rights and obligations on the parties.
Straight after the exchange, the buyer’s solicitor can ask the LAT (Local Area Team, once known as a Primary Care Trust) to change the name on the NHS Contract. Remember, this needs to be put into the joint names of the buyer and the seller.
The LAT will have 28 days to consider and amend the contract. During this time, both buyer and seller can deal with their TUPE obligations. TUPE refers to the Transfer of Undertakings (Protection of Employment) Regulations 2016.
Completing the purchase
Once the NHS contract has been changed by the LAT, the parties can proceed to completion. Confirmation of the change usually comes in the form of a clause 295 notice.
Then, one or two months after completion, the seller’s solicitor will submit the relevant NHS notice to the LAT to retire the seller from the partnership.
This will trigger the release of a new NHS Contract in the sole name of the buyer. And just like that, the practice is all yours.
Who can buy a dental practice?
The ownership of dental practices in the UK is regulated by both the General Dental Council (GDC) and the NHS. As it currently stands, only registered dental professionals (such as dentists and orthodontists) are permitted to own a practice.
This is because regulations aim to make sure that practices are managed by people who have the clinical knowledge and expertise to ensure patient safety and quality of care.
While non-dentists may be involved in supporting the practice in a non-clinical capacity (with finance, marketing or human resources, for example), ownership is typically restricted to qualified dental professionals.
Things to consider when buying a dental practice
Buying a dental practice is a big step, and there are some key things to consider when starting the process. These include:
- Cost – The cost of buying a dental practice will depend on a number of factors, including location, patient base and profitability. When it comes to finance to buy a dental practice, there are a few options. These typically include commercial mortgages, traditional bank loans and personal savings.
- Location – Evaluating the location of any practice you plan to buy is key. It’s important to assess the demographics of the area, as well as competition from nearby practices, accessibility, parking facilities and potential for growth. All of these factors could impact the success of your business.
- Patient base – It’s also important to understand the existing patient base of the practice. Take some time to analyse demographics, retention rates and potential for attracting new patients. You should also consider the reputation of the practice within the community and its relationship with current patients.
- Staff and contracts – As well as assessing your patient base, it’s wise to review the staff structure of the practice, as well as employment contracts. As part of this process, take into consideration staff retention levels and the need for any additional hiring or training.
- Legal and regulatory compliance – Ensuring that the practice complies with all legal and regulatory requirements is one of the most important steps in the buying process. This includes licensing, health and safety regulations and adherence to GDC guidelines.
- Business protection – Once you’ve assessed these factors, it’s important to think about how you’re going to protect your business. Whether it’s key person insurance or partnership protection, you’ll need to ensure your dental surgery is adequately covered.
- Exit strategies – While leaving dentistry may not be something you're thinking about when you buy a practice, it's never too early to start planning for your exit. You may have already given some thought to your retirement, but there are other circumstances that could arise which mean you need to stop working earlier than expected - for example, ill health. Should this happen, it's important to make sure you have the right level of cover in place to protect you and your loved ones.
- Specialist advice – Seeking professional advice from a financial specialist with experience of dental practice acquisitions can take a lot of stress out of the buying process. They’ll be able to guide you through the legal and financial aspects of the purchase, ensuring compliance and protecting your interests.
Please note that commercial mortgages are not regulated by the Financial Conduct Authority (FCA).