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!
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
Buying a Dental Practice FAQs
Why Should You Use A Dental Practice Broker And Dental Sales Expert Such As Samera When Buying A Practice?
We have a personable and sustainable relationship with our registered buyers, and we always strive to match the right practice with the right buyer. We listen to each buyer and discuss their selection criteria, sourcing the right practice.
What is EBITDA?
EBITDA is (E)arnings (B)efore (I)nterest, (T)axes, (D)epreciation and (A)mortisation it is an industry-standard way of determining a business’s profit and overall financial performance.
It is one of the key metrics we use to valuate dental practices.
What Is Due Diligence?
Due diligence is a very important exercise carried out during any dental practice sales and acquisitions process.
It is divided into legal and financial due diligence. It is an exercise to confirm that all information provided at the time of discussing and agreeing to offers is accurate and precise.
Information such as accounts, management accounts, patients number, staff contracts, NHS contracts and any legal issues such as change of control clauses, lease and property contracts, are just some of the documents to be checked and diligently controlled.
An expert legal and financial team will know what to look for in a professional and time-effective way.
Why Should I Carry Out The Due Diligence Exercise?
After you visit the practice and check the property and surrounding areas, have a good look at the last 3 years’ financial statements. Find out if the turnover is steadily increasing or decreasing and check if the private revenue is made up of fee-per-item or capitation scheme.
You also want to check if the number of full-time equivalent dentists is less than the number of surgeries, so that there is an opportunity to increase the workload and the revenue.
If the practice is incorporated, make sure that there is not a ‘change of control clause’ in the NHS contract and, if you are buying halfway through the year, check the performance of the UDAs delivery to avoid any unwanted clawback in the next financial year.
Do I Need A Specialist Dental Lawyer?
Never consider the services of a solicitor or a firm with no experience with dental practice sales.
It’s that simple. But occasionally we experience some dental principals going down the route of a solicitor who may be brilliant dealing with purchasing houses, but could slow down the process of selling or buying a practice, potentially increasing your legal fees or asking unnecessary or more than necessary due diligence documentation to complete, ending up wasting precious time.
How Do You Value A Dental Practice?
Every practice is unique and every single dental practice has a price range of value, dictated by many factors and many variables.
It is important to look at the last 3 years’ set of accounts as well as the latest and up-to-date management account to see any upward or downward income trend. The surgery percentage of utilisation and opportunity to expand are also factors that can potentially increase value and marketability.
How Long Does The Dental Practice Sales Process Take?
The average timescale for a dental practice sales deal to complete is approximately 5 or 6 months.
However, there are many factors, such as the type of practice and the legal and financial support team selected, that can influence the timeframe and speed up or slow down the process of buying a practice.
What If I Buy A Practice With NHS Contract?
If you’re buying a dental practice with an NHS contract, ask for the electronic copy of the GDS or PDS contract, checking all variations and any potential change of control clauses.
Regarding the sale of the dental practice with the NHS contracts, there will be 28 days’ notice between exchange and completion to add to the NHS element of the deal.
What Is The Dental Practice Sales Process?
We like to simplify the process of buying and selling a dental practice to 8 major steps.
Initial enquiry – the vendor sends the completed data collection form to Samera and initial discussion with our team takes place.
Valuation and practice visit – this is when we confirm the key variables and arrange a visit at the practice and our report is discussed with the vendor(s). Phase one of Samera marketing process is explained and begins straight after the meeting.
Viewings – Phase 2 of Samera marketing process. This consists of arranging appointments with potential buyers that have already been screened and viewing the property.
Offer stage – we negotiate the best financial package and best terms, then Heads of Terms are negotiated and agreed.
Due diligence – key information and documents are reviewed by legal teams.
Ongoing Support – we are there at every step of the way, supporting sellers during the financial and legal due diligence for a smooth completion.
Completion – sales and transfer of funds to the vendor’s bank account.
Does The Practice Need To Have A Partnership Structure?
No, not necessary. A buyer will always consider private limited companies and sole traders. Each one is treated differently from a legal perspective and the way in which NHS England is informed is different depending on whether the vendor decides to sell the dental practice via assets sale or shares sales.
What Issues Do You Come Across When Dealing With Dental Practice Sales?
We have never encountered an issue that we can’t resolve.
No practice is the same, but we have never encountered an issue that we can’t resolve; sometimes it just takes a little longer. Any problems usually come to light at the due diligence stage when all documents are thoroughly inspected.
The most frequent time delaying issues are regarding the property or the lease negotiations.
What Type Of Deal Structures Are Available On The Market?
We are experts in the buying and selling of dental practices and we will help all dentists to structure a deal to suit them.
Each dentist has specific expectations, tax situations and desires.
Payments usually take the form of upfront transfer on completion for NHS-driven profits, deferred payments for performance-based criteria, earn-out for private revenue, and negotiated UDA rates for vendors working at the practice after completion, who may prefer to have a higher on-going salary rather than an upfront payment depending on their individual tax position.
Why Do Dentists Sell Their Dental Practices?
Investing in alternative businesses and retirement. The most common reasons for selling a dental practice are investing in alternative businesses, to add to a retirement fund or to gain freedom from all of the administration and regulations of running a practice, allowing the vendor to once again focus on the things they enjoy.
How Much Money Is Needed For Buying A Dental Practice?
You should always discuss your financial position with an expert broker and usually have at least a 10% deposit when thinking of buying a practice.
Most lenders will offer a maximum of £500,000 unsecured loan per dentist, depending on the practice and personal situation so if you are thinking of buying a practice worth £1,500,000 with a partner, you must have a minimum of £500,000 deposit.
If you place an offer and don’t have available funds or a finance agreement already in place, you risk being unable to buy a practice and, of course, losing credibility in the dental world, where news travels at the speed of light.
Who Is Selling And Their Reasons For Selling?
More often than not we come across sellers wishing to take the practice to the next level with a new buyer, whilst relinquishing the responsibility of running the practice, as they have done this for many years.
Having a seller deciding to stay at the practice to help with the transaction time is most valuable for any buyer, especially a young dentist buying a practice for a long-term project.
So, have a good conversation with the seller and explain your idea, as money is not the only driver for a seller.
Why Should I Check The CQC Inspection Report?
Once your offer is accepted and you are in the process of the due diligence, check the quality of the equipment, cabinetry, compressors, floor or anything that could perhaps cost you money from day one.
You also need to ask the details and date of the last CQC inspection and DDA compliance to make sure that any potential requests outlined in the report have been satisfactorily covered. Your solicitor will help you with checking all equipment certificates, as well as indemnity insurance for the staff.
What If The Seller Is Becoming An Associate?
The seller may wish to stay at the practice for a number of years. Make sure you discuss and agree on an associate contract with the seller and agree on the number of UDAs to be performed, pay per UDA and working hours.
Of course, if the seller is not staying at the practice, make sure that there are some restrictive covenants preventing the seller to work near the practice that you have just bought.
A minimum of 2.5 miles in a rural area and 0.5 miles in a city should apply.
What If I Wish To Buy The Property?
For a vendor, the options are either selling the property or have a lease in place with the buyer.
The property will be valued as a commercial property and not on a residential basis so this is a point to consider when thinking about buying it or not.
What If There Is A Lease On The Property?
If there is a lease on the property and the lease is less than 15 years to the expiry date, it is advisable to talk to the landlord about a potential extension and engage the landlord at an early stage.
Any buyer would want at least 15 years lease or more if possible and the likelihood is that the landlord would ask for his legal costs to be covered.
Do I Need To Have All My Certificates Ready And Available?
During the due diligence process, you will be asked to provide and show your certificates such as the GDC registration.
Have all those ready and will save you time and during the selling process.
Do I Need To Ask For An Inventory?
Yes most certainly so, it takes some time and is boring but it will create clarity with regards to the items purchased at the practice and the items that are taking away. Also it will avoid any potential arguments and dispute further down the dental practice sales process.
Will The Dental Practice Sales Process Trigger A New CQC Inspection?
Care Quality Commission is another potential reason for a delay in buying a dental practice. Sometimes even 3 months delays if either the buyer or the seller don’t have their DBS check ready and available to submit, or the practice has not been inspected lately.
The process of selling the dental practice will involve deregistration of the seller and registration of the buyer to work at the practice. This process will likely trigger a new CQC inspection, unless one was carried out recently. So, have everything ready and DBS not older than 6 months.
What Happens To The Equipment Still Leased?
If all, or part, of your equipment is leased, sellers could either transfer the arrangements to the buyer or pay it off, which is usually most buyers’ preferred choice.
What Are The Legal Warranties?
Most solicitors acting on behalf of their clients as buyers will advise their client to include in the Standard Purchase Agreement ( SPA ) document, a warrant from you as a seller that all information provided including any financial and contractual aspect of the practice is true and accurate.
On the other hand, the seller’s solicitors should negotiate and deal with the warranties in a way that protects the vendor and minimise their risks against potential claims in the future.
What is a deferred payment structure?
When buying or selling a dental practice, a deferred payment deal is one where part of the agreed-upon price of the practice is withheld and paid over a series of months or years.
These deferred payments are often tied to the performance of the practice. In other words, if the practice underperforms in certain key areas, some of the deferred payment is reduced.
Sign up for one of our business training events
Sign up now for one of our events and webinars, designed to teach dentists how to build a better business.
We run free webinars twice a month, covering everything from compliance to raising finance. We also host live events across the UK, like our Setting up in Practice Bootcamp, which has been running for over 10 years and the first step for 100’s of the UK’s practices.
Check out our events calendar to see which of our webinars, courses or bootcamps are right for you.
Join the Samera Alliance Buying Group
The Samera Alliance is our growing network of dentists, practices and leading industry suppliers, designed to help you save money, grow your profits and build a better dental business.
Join today for free to be a part of our dental buying group, which gives you access to exclusive discounts and offers on the consumables, equipment and products you need in dentistry.
Further Information on Buying a Dental Practice
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 nearly 20 years, we are dental practice owners ourselves!
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.
Find Out More
For more information please check out the articles and webinars in the buying a dental practice section of our Learning Center.