Top tips for selling your dental practice

TOP TIPS FOR SELLING YOUR DENTAL PRACTICE

In this article, we explain our top tips for selling your dental practice.

Selling your dental practice will require the involvement of specialist advisors such as accountants, brokers and solicitors. Your team of advisors will ensure that you are receiving the best advice, that the process runs as smoothly as possible and give you the ability to continue running the business until it is sold (thereby avoiding unintended value erosion).

We understand that operating a dental practice involves a number of legal and regulatory considerations, and that these need to be managed before and during the sale process. In particular, we know that both sellers and buyers want the smoothest transition possible.

Birdi & Co Solicitors recently acted on the acquisition of a dental practice in North London. As part of the transaction, we also acted for Lloyds Bank plc who provided funding towards the acquisition.

1. CHOOSE THE RIGHT DEAL STRUCTURE

You will need to decide how you wish to structure your proposed sale. You may even need to negotiate this with the proposed buyer. Usually, you will either be selling the dentist’s assets and goodwill (known as an ‘asset sale’) or the shares in a limited company (known as a ‘share sale’). If the dental practice is operated via a limited company, a seller will normally want to structure the transaction as a share sale because this involves the buyer acquiring the entire business entity – with all its assets and liabilities relating to the dental practice. There are also potential tax advantages of structuring the sale in this way. However, there may be reasons why a buyer is not prepared to acquire the business as a share sale and requires an asset sale.

To find our more about the differences between an asset sale and a share sale, please follow us here.

You should consult with your accountants and solicitors at an early stage to negotiate the right deal for you.

2. BE PREPARED FOR A DETAILED DUE DILIGENCE PROCESS

Once the basis terms for the sale are agreed via the “heads of terms” document, one of the first things the buyer’s advisors will do is send an extensive set of due diligence questionnaires. Dealing with these questionnaires is a time-consuming exercise, and will involve you having to answer very detailed questions about the dental practice. You will also need to disclose an array of documentation to support the buyer’s due diligence process.

The information to be disclosed will include things like contracts with associate dentists / employees, proof of registration of practicing dentists with the General Dental Council and their indemnity insurance documents, ownership and maintenance information for equipment such as x-ray machines, stock lists, supplier contracts and more.

In addition, if your practice has an NHS dental contract in place, the buyer will want to know that you have fully complied with the terms before they decide to buy the practice.

If you own the commercial property from which the dental practice operates, you will need to decide whether the property is included as part of the sale or if you wish to retain ownership of the property and to lease it to the buyer post-sale. This requires careful planning and, if you wish to retain the property, may involve a minor change to your business structure prior to or on the same day as the sale.

If your practice lets the building from a third party landlord, the buyer will need to know how about the remaining lease term, whether the lease is “protected” or not. If the buyer will need a new lease or an extension to the existing lease, this should be factored into the equation fromthe outset.

3. OPTIMISE YOUR “FINANCIALS”

Your accountant should be one of the first people that you tell about your proposals to sell your dental practice. It will be important to start reviewing your accounting, tax and financial information at an early stage and ensuring that good quality information, including reliable management accounts, are put together.

Your buyer may be funding its acquisition using bank or investment funding. The lender or investor will undertake their own due diligence on your dental practice. They will want to test the cash and profit levels of the practice.

Having your numbers in order and available for inspection can help to justify your asking price, and ultimately increase the probability of achieving your desired financial outcome.

4. CONSIDER THE CARE QUALITY COMMISSION (CQC) REQUIREMENTS

Although the CQC are helpful in our experience, they can be strict about a buyer’s application to be the new provider of the practice. This can be a stressful part of the transaction process due to their being outside scrutiny by the CQC, and the difficulty in predicting what they may or may not ask for.

The process will be much simpler if you are selling your dental practice to an experienced and existing provider. However, if you are selling to a new entrant in the market, then it can be more nerve-wracking as the buyer will need to jump through additional hoops with the CQC.

Where the practice has an NHS dental contract, additional considerations apply due to what is known as the “bridging partnership” issue.

We are familiar with negotiating workable solutions to the CQC transitional requirements, and can advise on the best way forward for you.

5. CONFIDENTIALITY AGREEMENTS

Remember, you will be holding sensitive personal data about associates, employees and patients (and, in some cases, about children). It is imperative to process this personal data with care and in accordance with data protection laws. A confidentiality agreement (or non-disclosure agreement) should be put in place with potential buyers of the business at an early stage. In addition, personal data can be supplied in anonymised format so that they are protected from misuse of the information by the buyer.

6. ENGAGE SOLICITORS AT AN EARLY STAGE

Involving a specialist solicitor – such as us – at an early stage will be highly advantageous if you are proposing to sell your dental practice. We are used to negotiating the common issues that tend to arise, and will looking to negotiate terms which are fair and usual in dental sales. We can advise you if anything the buyer suggests is unusual or unfair to you. This will help you make a well-planned and informed decision before committing to the main legal phase of the sale, and incurring legal costs which could have been avoided by taking advice at an earlier stage.

For more information, please call us on 020 4571 8633 or email us at hello@birdilaw.com. Alternatively, please take a moment to complete our free enquiry form.

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