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Your own dental practice – the pros and cons

in Business and Dentistry

Your own dental practice – the pros and cons

Thomas Coates is a Partner and Head of The Dental Team at LCF Law.  In this article he explains the steps you should take if you are considering buying a dental practice.

It’s no secret that salaries for associate dentists are being squeezed downwards. This is a direct result of the greater financial cost of running a dental practice. When a dental practice owner sees their bottom line being eroded, they look to making cost cuts and sadly, one of the few things in the practice that is easy for the practice owner to reduce is the salary paid to their associates. Whilst previously the expected norm was that an associate would be paid 50% of their fees generated, this has been eroded to the stage where we are now drafting Associate Agreements that on average pay only 42% of fees generated. It’s no surprise therefore that there are an ever increasing number of associates looking to practice ownership rather than working as associate for someone else.


Demand for dental practices has never been higher and the common myth is that this demand is driven by the corporates who are prepared to wade in and pay large sums for every practice that comes on the market. This is not the case and the real driving force in the market at the moment is the associate dentist looking to acquire their first practice. I deal with a significant number of new enquires per month from dentists wanting to buy dental practices and many of these will be first time buyers with no previous experience of the process involved in buying a practice.  The first question is often “How do I buy a practice?” 
The first thing to do is to register with all of the specialist dental practice sales agents if you haven’t already done so. They will take a list of your key requirements for a practice and send you regular updates as to the new practices that are coming to market. Given the stiff competition for practices at the moment, it is very much a “Seller’s market” and many of the practices we deal with are actually selling for sums in excess of the asking price such is the level of competition amongst prospective buyers.


You will need to consider how you intend to finance the purchase. There are currently eleven banks all with dedicated Healthcare lending teams who specialise in providing finance for dental practice purchases. It’s important that you explore all of your options in regard to funding rather than simply going along to your local bank manager and taking the first offer that’s put in front of you. You’ll secure the best deal by speaking to each of the specialist lending teams at each of the banks and the best way to do this is to use a broker who will scour the market to find you the best deal. They shouldn’t charge you anything at all to discuss your options with you, to explain how much you are likely to be able to borrow and find you the best deal amongst the lenders and their payment should come from the bank directly, if you take out a product through them. You need to do this at the very beginning if you are considering a practice purchase so that you know the kind of practices you’re able to afford. If there is the possibility of acquiring a practice with the help of money from family members then this also is something to consider, as is pooling your resources and borrowing power with some trusted friends or colleagues with whom you’d like to go into business and own a practice together. 


Once you’ve identified your ideal practice and you know how much you can borrow, the next step is to make an offer on the dental practice in question. Your solicitor and the agent marketing the practice should guide you through that process hopefully to a successful outcome and your offer being accepted. 


Your solicitor should make full enquiries into all aspects of the practice and report to you on their findings. This is a process known as “due diligence” and it involves your solicitor raising significant enquiries into everything about the practice. They should look into the financial performance of the practice, whether or not there is an underperformance of units of dental activity’s (UDA’s) or outstanding clawback. They should ask the appropriate questions to ensure that the practice is fully compliant. You should be advised upon the terms and conditions of all the employees and the associates. Remember that the Employees will all automatically pass to you on their existing terms and conditions when you buy the practice! 


Your solicitor should also have knowledge of the care quality commission (CQC) registration process and guide you through this to ensure that at the point you acquire the practice, the seller is deregistered for CQC and you become registered. 


The key terms of the practice purchase will be contained in the business sale agreement. This is the contract of sale that will be used to buy the practice. It should contain all the key elements that are needed to protect you such as provisions in respect of UDA underperformance or the position in regard to defective treatments that come to light after you’ve bought the practice. It should cover transfer of the NHS contract or capitation patients if applicable. It should also contain a comprehensive set or warranties upon which you can rely. Warranties are promises made by the seller about the position at the practice. The more warranties, the better protected you are. If it later turns out the Seller has breached a warranty or not divulged information that you should have known about, you can potentially claim against the seller under the warranties. 
If the practice has an NHS element, your solicitor should also know how to deal with that NHS contract in order to ensure that you take the benefit of it from the point you buy the practice. I have seen horror stories of dentists acquiring practices yet their solicitor has paid no attention to what happens with the NHS contract! There are different rules governing what you can and can’t do with NHS contracts depending on whether they are general dental services or private dental services and who the contract holder is. You need to make sure you are advised about this before you commit too heavily to buying the practice. If you’re looking to buy an NHS practice, speak to a dental specialist lawyer very early in the process to check the procedure involved for the particular type of contract. 


If the practice has a capitation scheme then your solicitor will need to ensure that the patients of the scheme are properly re-registered with you and should know the procedure for ensuring this all takes place at the appropriate time. 


Your solicitor will also need to deal with the practice premises to make sure that the freehold is properly transferred into your name or alternatively that you have the benefit of a lease of the premises from the point you take over. 


Always choose a solicitor who can demonstrate significant experience in dealing with dental practices and ensure that they will offer you a fixed fee for dealing with the practice purchase for you. The days of lawyers charging you every time they pick the phone up to you are numbered and you should push for them to fix their fees so that you have absolute clarity as to how much it is going to cost you to buy the practice. Provided your instructions don’t change, neither should their price! Similarly, you should expect your solicitor to make an investment in you at the very beginning by talking to you or even meeting up with you on a no cost or obligation basis. It’s only through taking the time to get to know your advisers that you’ll build up a relationship of trust and ultimately decide to instruct them to act for you in your practice purchase. If your solicitor isn’t prepared to work with you at the beginning, why should you place your trust in them? 


The best piece of advice I could give any aspiring practice owner would be to surround yourself with as much knowledge and expertise of your industry as possible. The dental industry is incredibly well served by specialist dental accountants, lawyers, sales brokers, finance brokers, independent financial advisers and valuers, all of whom know the particular intricacies of the dental industry and what is involved in acquiring a dental practice. Make the best use you can of the specialist advice available to you and you’ll be well on the way to a successful and stress-free practice purchase.

Thomas Coates
tcoates@lcf.co.uk

 

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