The Most Exciting Time of Your Life
Buying a dental practice is the most thrilling, and the most difficult, aspect of your professional life. Providing vital oral healthcare and cosmetic treatments to the public both rewards you and helps local communities.
Whether you are buying your first practice or you are building a dental group, Samera Business Advisors are here to help you to achieve your goals and build your future.
We’ve been helping the UK’s dentists start their own dental practices for nearly 20 years and, as dental practice owners ourselves, we’ve learned a thing or two about buying dental practices.
For our friends and colleagues who are looking to embark on the journey of dental practice ownership, we hope this guide helps to start you on the path to your future in dentistry!
Click here to read more about why dentists want their own practices.
How Long Does it Take to Buy a Dental Practice?
The short answer to this question is: it takes as long as the buyer and seller allow it to take.
Like any important transaction, buying a dental practice hinges on whether or not the buyer and seller can agree upon a price and contract terms. As the buyer, you are expected to make the initial offer on the practice, with negotiations to follow.
However, there are many tasks that you, or a representative like Samera Business Advisors, must perform in order to make sure that your transaction is legal and your resources are secure. These include:
- Care Quality Commission (CQC): The timing and execution of your CQC application is crucial to ensure that you are ready to begin operation of your practice after ownership is transferred; without CQC approval you won’t be able to trade.
Click here to find out more about registering with CQC
- Funding: Unless you plan on financing your transaction in cash, you will likely be using your bank for funding. Banks are notoriously cautious. Both parties will need to agree the terms of borrowing with a business manager, and the contract will need to be approved by the bank’s Securities Department. Using a finance broker will help you ensure you consider all the funding options available in the market.
Click here to watch our free webinar and find out more about financing your first dental practice
- Property and Leases: Often, the property side of the transaction can slow the deal down. It’s important you have a property lawyer that can assist in ensuring any lease in place can be assigned to you as new owner.
Click here to find out more leasehold vs. freehold.
Dental Practice Valuations
You must get a valuation from an established provider to receive an accurate purchase price of the dental practice for sale. Always remember, the valuation from the seller needs independent assessing. Do your own homework and employ your own valuer to ascertain if the dental practice for sale is really worth what the seller is asking for!
Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) is currently used as part of the dental practice valuation process.
It’s important to remember that every practice is different. There are several factors that can form part of the value of a practice, including the accounts over the previous three years, the potential for development and expansion and whether a time limited (PDS) NHS contract is in place or an open ended (GDS) NHS contract.
Read our article on dental practice valuations to find out more.
Due Diligence
Keep in mind you are not just buying real estate, you are buying a business. This may be the foundation of the next 30 years of your professional life! You must take the time to learn every facet of the dental practice for sale.
Once you know which dental practice you would like to purchase, it’s essential to know that you are investing in the right one. It’s too late to have regrets and doubts after you have signed contracts. This is an investment in the following years of a dental professional’s life, so it’s important to make sure everything is in order.
Click here to listen to our podcast episode on the 7 legal pitfalls of buying a dental practice.
From the accounting to the exterior bricks and mortar, a magnifying glass must be applied everywhere. A specialist dental lawyer will know the right questions to ask so you can assess the business and plan for its growth.
You will also want to ask an experienced accountancy firm to review the financials and check the numbers for validity now and potential in the future. Management information, details from the software system and other important financial information will help you get a much better picture of the health of the business too.
Click here to find out more about what to look for in a dental accountant.
As part of the due diligence process, your solicitor must request the seller to guarantee that the supplied information is correct in order to protect against any loss caused by misrepresentation.
There are certain aspects of due diligence that dentists themselves are best placed to examine, such as the way the practice operates and the treatments that are provided. However, when it comes to legal and financial considerations, a specialist dental solicitor and dental accountants should be part of the team.
It’s never a good idea to proceed without this expert help. Professionals know what questions to ask and what to look for in accounts and financial records. I have worked with many clients to co-ordinate the due diligence process, during the dental practice acquisition process, so I know how important an expert eye is.
What is Included in the Due Diligence Process when Buying a Dental Practice?
“Due diligence is the process of evaluating a business from all aspects before making a purchase decision…It includes specific elements that can vary based on the situation and the nature of the business. Due diligence protects both parties but primarily the purchaser. It can uncover potential liabilities and financial matters and make sure nothing is hidden.”
Jean Murray, The Balance, 2018 (4)
Include everything that pertains to the viability of the business in due diligence. Do not leave anything to chance. From the building itself, to treatment lists, accounts and software, everything needs to be checked in microscopic detail. Too often I have seen clients getting ahead of themselves. Take a step back from the buying edge and make sure every aspect of the practice is viable, before taking the leap into purchasing.
There are several different points to consider when checking documentation during the due diligence process; too many to list here. However, I have found that some of the most important checks to complete include:
- Are the services currently provided at the practice a good match to the services that can be provided should the sale progress?
- Is the ethos of the seller similar to the ethos which will continue?
- Does billing match procedures that were carried out?
- Does cash recorded match what is reflected in tax returns?
- What are the current wage demands of the practice?
- What are the property rental terms?
This is only a fraction of what should be considered as part of due diligence when buying a dental surgery. Take time to make sure that every detail has been scrutinised. This is an important business and life decision that is being made, so do not take any chances. Remember to obtain a guarantee from the seller, as to the accuracy of the information provided. This provides protection against any future financial or legal issues caused by misrepresentation.
Raising the Finance to Purchase a Dental Practice
A deposit of at least 10-20% is standard when buying a dental practice, whilst the remainder can be financed from a bank. The minimum cash deposit will usually be 5%.
It’s important to remember that when the lenders use their estimate of 80% of the value, they’re only estimating that value on goodwill. They do not include the fixtures and fittings in that. This is especially important to remember if the fixtures and fittings figure it quite high.
Click here to watch our webinar on the fees and costs of buying a dental practice.
When a lender assesses your loan application they will be looking at a variety of factors. These include:
- Your earning history as an Associate Dentist
- Your financial track record and how you have managed your personal finances e.g. do you have high credit card balances is always a bad time to apply for a loan.
- Your current living situation i.e. do you own your own house or rent?
- Your management experience and number of years you have from leaving Dental School
- Your ability to repay the loan with a comfortable margin of error if interest rates rise
- If you place an offer for a practice and do not have available funds (or a finance agreement in place) you risk being unable to buy a practice whilst losing credibility with a seller.
Click here to read more about financing a dental practice.
Check the Ratios and Find the Potential Profit
It’s important to chart the potential profit of your new dental practice. How much of an opportunity for growth do you see?
Make sure you ask how many active (seen in the last 10 months) patients the practice has. Out of those active patients, what are the ratios between check-ups versus treatments? That will give you a birds-eye-view of the type of work and, therefore, cash flow you are inheriting.
Ask the seller for a short (3-5 examples) list of their most outstanding treatments to gauge the effectiveness of their follow up system. If the seller is a member of a local business referral group or association, follow up with other members. After all, you are entering their community and early networking prevents many headaches.
Click here to watch our webinar on the top 10 mistakes to avoid when buying a dental practice.
Key Performance Indicators (KPIs) like these reveal the day-to-day work being done to maximize the practice’s earning potential. There are a number of dental KPIs, but let’s look at a few basic numbers you must ask for:
- How many new patients have they generated in the last 12 months? Is this rate on the rise?
- What are the exam and hygiene recall rates? Are they rising?
- What marketing is working the best for the practice and which marketing avenues are exhausted?
- What’s the level of new patients received from direct referrals?
- What is the patient retention rate? How many patients did the practice lose over the last 12 months?
This will help you to understand how good the patient experience is and what you can do to improve it.
Click here to find out more about patient retention.
Why You’re Buying Their Dental Practice
Many dentists who are selling their practice factor in a sense of legacy to the transaction, and may be more willing to negotiate with someone who can show respect for their accomplishments – while also being conscious of their own ambitions.
A good relationship with the seller is really help keep the process smooth. Not only that, some sellers may wish to remain working in the practice for some time. Others may still have close connections in the practice’s staff. Keeping the seller happy and onside will really make things easier for you.
Click here to find out more about selling a dental practice.
Keep the Dental Team
We think it is important to retain the team when you buy a new practice. Think of them as one of the assets of the business. They already have the trust of and their own loyalty to your patients, they are more loyal to each other and the practice (in most cases) and they have the knowledge of the business.
If you buy a dental practice and start getting rid of staff, you’re also getting rid of knowledge and experience. Not just in dentistry in general, but in your practice in particular.
If you want to build that loyalty and trust between yourself and your team as the new owner, consider holding one-to-one meetings, or group meetings with different teams, like your nursing or orthodontic teams.
Also, look at their pay. Make sure they are at least in line with national averages and include performances bonuses – there aren’t many better ways to get a team onside!
Enrol the whole team in your vision for the practice, it’ll make it easier to realise.
Click here to read more about building a dental team.
Dental Practice Marketing
Make sure to ask the seller about the marketing relationships they’ve forged during their time at the practice. Ask them what ways they’ve advertised in the past, and if there were any open accounts with dental marketing specialists that you could utilize.
It is important to check what their online presence is at the moment. How high does their practice rank in google in their area among dentists? Do they already have brand-awareness online? Do they have a large following on Facebook or Instagram that you can leverage?
If there currently is no marketing in place, that might be a point for contract negotiations further down the road.
Click here to find out more about marketing a dental practice.
Using a Specialist Dental Solicitor
Placing an attractive offer on your future dental practice is one of the most essential elements in completing a successful purchase. After all, if the seller doesn’t like your proposal, they will simply move on to the next buyer – there is no prize for second place.
To ensure that your offer is fair (to both you and the seller) we always recommend enlisting the services of a professional dental solicitor. A good solicitor will carry out due diligence, negotiate the property aspect of the deal and look at the NHS contract with you. In essence, they make sure all of the t’s are crossed and i’s are dotted, so you don’t have to.
It is important to research the right solicitor for your transaction. Check in with colleagues to see if they have any firms that they’ve used in the past, do your research, and interview several providers until you find the “right fit” for you.
By joining the Samera Alliance, we can put you in contact with our legal partners for their help in buying a dental practice.
Click here to find out more about the Samera Alliance.
Buying a Dental Practice: Get Started
When buying a dental practice (especially if it’s for the first time), you need the competent hands of qualified professionals. Not only have we been helping the UK’s dentists to buy, start and sell dental practices for over 20 years, we are dental practice owners ourselves! We know what it takes to buy the right dental practice, we can help you find it, buy it and get it up and running.
Book a free, no-obligation consultation with one of our team at a time that suits you (including evenings). We’ll call you back and have a chat about how we can help buy your dream practice.
With Samera Business Advisors you can rest easy knowing that your investment is secure and your future is brighter. Contact us today so we can help plan for your tomorrow.
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Buy a dental practice advice.
Learn More: Buying a Dental Practice
For more information please check out the articles and webinars in the buying a dental practice section of our Learning Centre like the Guide to Buying a Dental Practice.
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