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All You Need To Know About Buying or Selling a Dental Practice

All You Need To Know About Buying or Selling a Dental Practice


Expert view

This article by Alexander Hall was published in Private Dentistry Magazine in Your Guide to Buying & Selling a Dental Practice.

Let’s get right to it. The first question I’m often asked is, “How much is this going to cost?”

These days most solicitors quote a fixed fee

In order to do this, the solicitor has to know roughly how much work will be involved in completing the sale. To this end, the solicitor should make a guestimation based on the answers to the questions below:

  • Does it have an NHS contract?
  • What type of NHS contract?
  • Is it a share purchase (buying a company)?
  • Is it an asset purchase?
  • Buying the capital equipment?
  • Is the property involved?

‘I pioneered fixed fees 10 years ago’, said Alexander Hall, partner at Meade King specialist dental solicitors, adding: ‘If a solicitor calls himself a specialist, doing the same thing day in day out, they should be able to quote afixed fee based on experience.’

Dentists like this because they want to budget. Fixed fees tend to be between £5,000 and £15,000 depending on the circumstances and complexity.’

OTHER COSTS?

If you are selling and there is a third party lease, the landlord’s legal fees have to be met by the seller. Sellers must pay £500-£600 for property searches and they take several weeks to complete. If buying a company, the buyer has to pay 0.5% stamp duty on the purchase price of the shares. So a £200,000 company attracts a tax of £1,000. In a £1million transaction the tax is £5,000. Other costs include the bank’s arrangement fees, and there is, of course, the fee that the solicitor charges for his/her work.

TIMINGS

Why does it take so long to complete a transaction? ‘You can only go as fast as the slowest process. And the slowest process in recent years has been obtaining Care Quality Commission (CQC) registration’, said Alexander.

He explained that every new buyer has to be registered with the CQC for the new business/practice/property. There is a large application form and the process of assessment from the CQC takes eight to 12 weeks.

If the CQC process goes smoothly, it takes around four months. However, if buying a limited company and the company is the registered provider and it is done cleanly, it can be quicker.

Other factors that can slow the process are a poor bureaucracy – like the NHS contract in the previous person’s name, or the lease from the landlord in the wrong name.

Speaking of landlords, they can often delay the process spectacularly. They have little incentive to help. They are getting regular rent and want it to stay that way. They often delay lease transfers and can demand references before agreeing to transfer leases.

GOODWILL AND DUE DILIGENCE

If someone is spending hundreds of thousands of pounds on a practice, for which the main asset is goodwill, which is intangible, it can be no surprise that there has to be a comprehensive investigation into what is being bought and lent on. These can comprise pages and pages of questions about the business, the staff, the relationship with the NHS and so on.

The bank also insists on this comprehensive investigation – also known as due diligence. So what has this got to do with timing?

END GAME

Selling a practice is not like winning the lottery. You might be paid £1million if you get to the end, but there is a load more work to be done than just buying a ticket, but the certainty is much higher.

Obviously there is a huge amount of pressure on timings but frankly, nobody gets paid if the transaction does not get over the finish line. So we are all motivated to make this happen. Solicitors have rules and have to act in the best interests of their clients. Ethically we cannot cut corners to save time and this can cause tension and be frustrating for the vendor and buyer.

LANDLORDS

Sometimes third-party landlords scupper the deal. Sometimes a lease is not long enough, for example, less than the term of the loan. The bank always wants a lease to match the duration of the loan.

NHS

Since 2006, when the ‘new’ GDS contract came out, which is non-transferrable and non-assignable, dentists are allowed to vary the contract so it is held in one or more names or a partnership. And this is the way buyers and sellers have transferred NHS contracts. This has been subject to much challenge and scrutiny.

It does mean that NHS England does not get a chance to choose its contractors. They have no choice but to accept the buyer foisted upon them. So this process has to be done properly. It should take no longer than 28 days.

Incorporated companies owning a practice have had written into their contracts that they must get permission from NHS England to change the contract. And getting permission can take many weeks.

SUMMARY

There are plenty of hurdles and issues to overcome in order to reach completion, after all dentistry is a highly regulated (by the GDC, CQC, NHS) business.

However, the market for buying and selling practices is vibrant and busy, and we are all constantly seeking ways of safely reaching completion as quickly as possible.