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Four key stages which influence the success of buying or selling a dental practice

Four key stages which influence the success of buying or selling a dental practice

Buying or selling a dental practice is one of the most critical financial decisions a dentist will make and can be very stressful for all parties involved. Timing is often crucial when it comes to making investments and it remains to be seen whether Brexit will affect the dental sector.

According to recently published research (for the quarter ending 30th April 2016) from The National Association of Specialist Dental Accountants and Lawyers (NASDAL), the dental practice market is currently very buoyant with NHS practices in particular attracting huge demand. NASDAL's latest figures show that the average goodwill valuation for practices leapt 124%, up almost 13% compared with the autumn of 2015 and 12% higher than the summer of 2014.

The average number of practice sales has also grown by 11% when compared with the summer of 2014.

With 2018 being the earliest a new NHS contract can begin (with 2020 mooted to be more likely), many dentists are tempted by the prospect of owning their own practice sooner rather than later. However when taking the plunge, dentists should carefully consider the following four stages to avoid unnecessary heartache.

Pre-contract

This stage is fundamental to the success of a transaction. If performed correctly by the parties, both could reap the rewards of a quick and efficient transaction. In most cases, the pre-contract stage will involve the Purchaser and the Seller being brought together by a Business Agent.

The Purchaser will have considered a small number of facts or documents containing key information such as the profitability, turnover and general information about the practice e.g. number of surgeries, number of employees and/or information about the premises.

Top tip: To avoid considerable delays, it is highly recommended that the Purchaser and the Seller engage legal practitioners who are familiar with dental transactions.

Due-diligence

This is the all-important information gathering stage and involves the Purchaser raising queries regarding the practice. Prior to parties engaging in this second stage, some transactions may benefit from the negotiation and drafting of heads of terms.

Heads of terms are a simple document setting out the intention of the parties in relation to the purchase of a dental practice. These documents really come into their own when highlighting complicated matters where fundamental deal breaker conditions (e.g. the Seller staying on at the practice post-completion) are set out and agreed at the outset.


Top tip: It is important for a Purchaser to forget what they may know, or may assume about a practice and instead formally gather information that can then be relied upon in the transaction and also after the transaction has completed.

Contract negotiation

Once the Purchaser and the Purchaser's solicitor have made all their enquiries and they are happy with the responses from the Seller and the Seller's solicitor, the parties then move to the drafting of the key contractual document - the SPA. The SPA sets out what the Purchaser is acquiring, for how much, and what the rights and obligations of each party are in relation to the transfer of the business and assets of the Seller in the dental practice.

Top tip: Make sure that the SPA includes restrictions on the Seller to refrain from competing and poaching staff and patients from the practice post-completion. It is important for a Seller to consider their intentions after completion, and whether such restrictions are commercial and proportionate to enable the Purchaser to protect the goodwill of the practice.

Exchange and completion

At this point in the transaction a Purchaser has been found for the Seller's practice, an offer has been accepted and the relevant CQC application has been served and approved in principle. Exchange involves the swapping of agreed signed and dated SPAs. These SPAs create legally binding rights and obligations on the parties. The SPA is often conditional upon the approval of the CQC and LAT in relation to the partnership.

Following receipt of the CQC Comfort Letter and confirmation from the LAT of the valuation of the NHS Contract (usually in the form of a clause 295 notice), the parties can proceed to completion.

Top tip: Following exchange, but until completion, the Seller will continue to run the practice as normal. However in many cases, the Seller will often be obliged to refer decisions affecting the practice to the Purchaser.

Buying or selling a practice comes with risks and rewards. Choosing the right financial partner with specialist knowledge of the dental sector can determine whether a dentist is able to enjoy a successful career with financial stability or makes a misinformed decision that they ultimately regret.

Wesleyan Bank can provide step-by-step support to dentists looking to acquire a dental practice, as well as providing the necessary financial solutions to help them grow long after the initial sale is over. Our comprehensive Road Map serves as a useful guide by highlighting everything you need to know about the dental transaction process.

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