We can picture the scene right now; you’ve been working as a dentist for some time, and you’re ready to make the next step. You want to take your career to the next level by actually owning a dental practice.
If this is the case, then you’ve likely spent a lot of time asking this question; how do I buy a dental practice?!
Naturally, this is a very complex procedure that has to be taken seriously. We’ve found that there are lots of questions that are commonly asked by dentists looking to buy a dental practice. So, we’ve compiled some of your main questions in this guide, and we’ll answer them for you now!
Do I need help buying a dental practice?
The short answer is yes, you do. Buying a dental practice all by yourself will usually mean you spend a lot of time chasing loads of different things and will probably end up with a bad deal. Instead, you should get professional help from experts that can assist you with different things. You need dental accountants like The Peloton as we can help you with the whole financial side of buying a dental practice. Not only that, but you need solicitors to help with the sale, a broker, and so on. The bottom line is that you can’t go at it alone!
How do I know how much a dental practice is worth?
Of course, one of your key concerns when buying a dental practice is ensuring you buy it for the right price. You don’t want to pay more than the actual market value of the practice! So how do you know how much one is worth? There are many variables to take into account, but most people will focus on EBITDA.
For those that don’t know, EBITDA is essentially the easiest way of measuring the profitability of a dental practice. It stands for Earnings Before Interest Taxation Depreciation Amortisation. The more profitable a dental practice is, the higher its value will be. So, before you rush into buying one, make sure you know the EBITDA to figure out the market value!
Typically, we look at the last 3 years or so of accounts when working out the profitability. There’s no real point going any further back as it doesn’t make much of a difference in the way the business is run today.
By assessing the accounts and looking at the income and other factors, we can see if the dental practice is on an upward trend – or if things are progressively declining. So, this prevents instances where you see a dental practice with decent profits, but these profits are way down on what they were three years ago, which shows a persistent decline that could continue.
What’s the typical process of buying a practice?
While your experience buying a dental practice can vary, there are usually some clear stages that you move through during the process. These are:
Step 1: Initial Enquiry – you find a dental practice that you like the look of, and your team can make an initial enquiry with the current owners. Essentially, it’s a way of registering your interest.
Step 2: Valuation – the dental practice needs to be valued, so you know how much it will roughly cost for you to buy it. The best way to do this is by visiting the practice to see the physical state of it, how operational it is, and also so you can request financial records to figure out the EBITDA.
Step 3: Offer – if you’re satisfied with what you’ve seen, then you can negotiate an offer for the dental practice. Get help from people with experience to do this! You might make numerous visits to the practice before this, just to ensure it’s the right one for you. Then, make your offer based on the valuation.
Step 4: Agreeing on the Heads of Terms – the Heads of Terms are essentially the terms of the sale. This is where both parties agree on the sale price, and it’s put in writing. You negotiate these terms, then sign the contract, which means the sale will go through at this price, provided everything else falls into place.
Step 5: Due Diligence – this is a job for your legal team as they assess critical areas of the dental practice to ensure that you’re getting exactly what you’re paying for and there are no hidden issues.
Step 6: Completion – once due diligence is carried out, you can complete the buying process. Transfer your funds to the other party’s bank account, and you are the official owner of a new dental practice.
How long does it take to buy a dental practice?
It depends on a range of different factors, but we can say that the average is anywhere between 5-6 months. It’s rare for a sale to go through quicker than that, but there are instances where it takes longer.
What is due diligence & why is it important when buying a dental practice?
We mentioned in the buying process that due diligence has to be carried out. This is a critical part of buying a dental practice as it helps you figure out if all the info you’ve been given is actually accurate. It prevents instances where an owner can give you false account figures or records, just to try and sell their practice for more money. There is also lots of other information you’ll look at, and it’s usually split into legal, clinical, and financial due diligence.
It’s essential that you have a solicitor and financial team with experience in the dental industry looking at all of this. They know what to search for, they know the signs of red flags, so they can handle this and ensure you get the desired results.
Do I need to check the CQC inspection report of the dental practice that I am buying?
Yes, and this will be part of the clinical due diligence tasks. As well as this, you’ll assess the health of all the clinical equipment, cabinets, and anything else that might need to be upgraded or replaced. Checking the CQC inspection is vital – along with DDA compliance – as this shows if the previous owners actually followed any requests in this report. If they didn’t, then that’s a red flag as it means more work for you.
Don’t worry, your solicitor will help you with this!
Will I need a CQC inspection after buying the practice?
That’s an excellent question, and the answer is yes, you will. When the sale goes through, you’ll be registered to work at this practice, which is automatically flagged up by the CQC. As such, they’ll demand a new inspection – unless there was one carried out very recently.
Should I request a dental practice inventory when I buy it?
Definitely! This helps you understand when items were purchased by the practice, which ones were removed, and so on. It ensures you know exactly what should be in the practice, so the owners can’t claim they never had a specific piece of kit when it says they bought it on the inventory.
Speaking of equipment and inventory, if the items are still leased, then you have to work on getting the lease transferred over to you.
How much does it cost to buy a dental practice?
Well, this will depend on the value of the dental practice, but it’s highly recommended you have at least a 10% deposit when you’re looking to buy. Typically, lenders offer unsecured loans up to £500,000 per dentist.
Basically, our advice is to work out the value of a dental practice, then ensure you have the money for the deposit. If you don’t have the funds, then there’s less chance of a seller accepting any bids as they can’t trust that you can gain the money needed to buy the practice. So, never place offers without having the financial capacity to pay for the deposit.
Is it worth getting a specialist dental solicitor?
Absolutely. In fact, we strongly suggest you only hire solicitors/lawyers with dental experience. Buying a dental practice is significantly different from buying a home or another business. They need to know what goes on during the process, or else they can’t help you appropriately.
Can you buy a dental practice with an NHS contract?
Yes, nothing is stopping you from buying a practice that has an existing NHS contract. We suggest that you seek out a copy of the PDS/GDS contract just so you can check everything in it and see if there are possible change of control clauses.
If you buy a practice with an NHS contract, then there’s a 28-day period between the exchange and completion that adds to the NHS side of the deal.
Why do dentists sell their dental practices?
There are numerous reasons for selling a dental practice, so don’t assume it’s because the business is going south! Some dentists are getting ready for retirement and won’t have any need for the practice anymore. Or, they might want to move into a new area of business – it can vary from person to person.
In some cases, the seller actually wants to continue working there as a dentist, they just don’t want to take on all the control and responsibility needed to run the practice. They’re looking for a buyer that can breathe some new life and investment into the practice, which takes it to a new level.
It’s always important to talk to the seller directly when buying a dental practice. Understand why they’re selling, and this can help you gain the upper hand during the buying process.
Should I buy a dental practice with a partner?
You could buy a practice with a fellow dentist, and this is a good idea if you want to split the costs. However, it also means splitting everything else, such as profits. It’s not essential, so weigh up the pros and cons before deciding if you want your own dental practice or one with a partner.
What can disrupt the buying process?
There are plenty of things that can interfere with you buying a dental practice. Some of these are caused by the seller and tend to revolve around negotiations and due diligence. They may try stalling tactics while you negotiate, but due diligence is usually the longest aspect of buying a dental practice and can take a long time.
But, if things aren’t in order on your end, then this can disrupt the process as well. Ensure you have all your relevant certificates like your GDC registration. If everything is primed and ready, then it’s much easier to move the process along.
Hopefully, some of your burning questions have been answered in this blog! If you need help buying a dental practice and managing the financial side of your new business, then The Peleton can help you out. We offer accounting services for dentists and can help you with issues revolving around tax, funding your dental practice, and so on. Get in touch with us today, and you can learn more about what we’ll do for you!