Are members of staff at your practice employed or self-employed (and why it matters when you come to sell your dental practice)
Tuesday 7th February 2017
The typical model you would expect to find in a dental practice is for the practice owner to employ nurses and receptionists, but for other dentists and hygienists to be self-employeed.
The question of the legal employment status of each member of staff within the business is unlikely to cause you many sleepless nights during the ongoing running of your business. But this can become an issue if a dispute arises, if you want to dismiss a member of staff or change their terms and conditions, or if you are looking to sell your business.
Associate dentists often have their own list of patients and supply their services to the practice as an independent practitioner. In turn, the practice owner provides the associate with the use of a surgery, dental materials and a nurse. The issue of dental laboratory services can be variable, with some practices allowing the associates to choose a lab of their own preference, whilst other practices require that all laboratory services are sent to one location.
The associate agreement is usually drawn up on the basis that the associate pays the practice owner a percentage of fee income.
Where the associate is carrying out NHS treatment, there are two possible scenarios: firstly, the associate holds their own NHS contract and pays the practice owner a fee for the use of the practice facilities; or, more commonly, the practice owner holds the NHS contract and allocates to the associate a number of UDAs to perform, for which they should receive a set value per unit.
However, practice owners should be certain as to the true employment status of all members of staff within their practice. Some legal rights apply only to employees, such as the rights not to be unfairly dismissed or rights in a redundancy situation. There are also tax and national insurance implications dependant on the employment status of the individual.
A practice owner is also liable for the acts of all employees during their employment at the practice, but not usually for the acts of self-employed persons.
Where individuals are ‘employees’, they have a right to a written statement of their terms and conditions. Self-employed persons do not have the same rights, although it is certainly sensible to make arrangements to formally document the agreement that you have with self-employed individuals.
To qualify as an employee, there are three minimum requirements. Firstly, the individual must have agreed to provide their work and skill personally. They are not entitled to substitute someone else to do the job. Secondly, there should be a mutuality of obligation, the employer must provide the work and the individual must accept it. Thirdly, there must be a degree of control by the employer. For example, the employer would usually be able to apply disciplinary procedures and the employee can me closely controlled in the way that they carry out tasks, their working hours and days of work. A self-employed individual would typically have a greater degree of freedom and work more independently.
You should seek legal advice if you are concerned about the arrangements you have in place in your practice, particularly where you are considering selling your business, if you have tax concerns or if a dispute arises.
When selling a practice, it is important to ascertain the legal status of each member of staff. This is because all employees will automatically transfer on to a new practice owner, under the same terms and conditions (including the same length of service) under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (which are commonly referred to as TUPE). Where individuals are self-employed, they will not automatically transfer to the buyer unless you put in place arrangements with the member of staff and new practice owner. Self-employed staff will often have a notice period of three months within their terms and conditions and it is often therefore important to ascertain their legal status at an early stage to ensure that you have given them sufficient notice of the sale. Whether an individual is engaged as a self-employed person or an employee may also have a bearing upon the attractiveness of the practice to a buyer, who may wish to make changes to the structure following their acquisition.
If you are unsure of the legal status of your staff, or concerned as to how this might affect a practice sale, it is sensible to discuss the situation with a specialist dental lawyer.
Author: Nicola Lomas
Brabners reacts to Government’s Industrial Strategy
Wednesday 25th January 2017
The Government has launched its Industrial Strategy which is designed to drive economic growth by making it easier for businesses to work across the UK. Central to the strategy are big investments in broadband, transport and energy as well as a £556 million boost for the Northern Powerhouse.
The strategy contains a 10 point plan, including upgrading infrastructure, encouraging trade and inward investment and driving growth across the whole country. Improvements to infrastructure are badly needed if the North West region is to become a true economic powerhouse so this is a welcome announcement.
The Government also pledged to take a more active role in supporting businesses that want to target opportunities in new industries and sectors. It is an acknowledgment that regions across the UK can bring different strengths to the economy and the additional funding of initiatives like the Northern Powerhouse will help support business and encourage economic growth.
Last year Brabners released its North West Ambitions report which highlighted how a strong and efficient world class supply chain hub in the North West of England will not only be a draw to the large distribution warehouses and logistics businesses, but also a compelling reason for manufacturers and industry to locate in the North West.
To download a copy of the report click here.
Author: Matthew Yates
North West Private Equity and Venture Capital Predictions for 2017
Thursday 12th January 2017
Following a turbulent year of surprises in 2016 (from Brexit to Trump), Brabners Private Equity and Venture Capital specialists looks to the future with their key predictions for 2017.
There will be a continued increase in interest from SMEs in crowdfunding and other alternative finance options
Throughout 2016 we saw an increase in interest in crowdfunding as a source of finance for SMEs (even though such interest has still led to only limited completions outside of London and the South East). The momentum behind the crowdfunding sector is likely to continue into 2017, particular buoyed by new requirements on high street lenders to refer SMEs who do not meet their requirements to alternative finance platforms.
Momentum behind the crowdfunding sector continues to draw the interest of the FCA and we predict that 2017 will see the instruction of further crowdfunding regulation, particularly in relation to the level of information required to be disclosed to investors and a tightening of regulation of debt crowdfunding in general.
Private Equity will continue to be one of the key drivers of M&A in 2017
2016 was a strong year for private equity backed transactions and we predict that this trend will continue into 2017. While confidence among domestic trade acquirers is likely to be affected by Brexit for the foreseeable future, we foresee that private equity houses with available capital will continue to be a keen buyer through 2017.
The sub-£2millon buyout market will remaining challenging for management teams
The sub-£2 million buyout funding market has still not fully adjusted to restrictions introduced by the Government in 2015, barring Venture Capital Trust and EIS funds from backing management buyouts. While several houses (notably Foresight and YFM) have since launched new, unrestricted, funds, we forecast that management teams will continue to struggle to raise equity funding for lower-mid market buyouts.
Vendor assistance will continue to be a prominent feature in lower-mid market buyouts
In response to the tightening of the lower-mid market funding market, we have seen an increase in vendor assistance in buyout transactions, with vendors showing flexibility in consideration structures to assist management teams in bridging funding gaps. We expect that vendors’ willingness to provide assistance in the form of deferred consideration, earn-outs and equity rollovers will continue to be a trend in buyout transactions through the course of 2017.
The ‘Northern Powerhouse Investment Fund’ will provide welcome additional funding for SMEs
The £400 million Northern Powerhouse Investment Fund, which is expected to be in a position to start investing in the first quarter of 2017, will provide a welcome additional funding option for SMEs looking to raise up to £2 million. The Fund will look to provide micro, debt and equity finance to businesses which are currently under served by the existing funding market and will plug the gap left by the closure of the North West Fund in 2016.
Angel Clubs will continue to be an important source of development capital for SMEs
Over recent years, we have seen a growth in activity from business angel clubs in the region. While often difficult for companies and management teams to initially locate and access, such clubs have provided an important source of development capital funding for growing SMEs. We predict that angel clubs will continue to be an important part of the funding market through 2017 and that we will see a growth in angel clubs co-investing alongside traditional venture capitalists and private equity houses, specialist co-investment funds (such as the government backed angel co-fund) and crowdfunding platforms (particularly the co-investment focused Syndicate Room platform).
Author: Daniel Hayhurst
What is the difference between a dental expense sharing agreement and a partnership agreement?
Friday 9th December 2016
Do you have more than one principal dentist operating within the same building? If so, we would expect them usually to be operating either as ‘expense sharers’, or a ‘partnership’.
The fundamental difference between the two is that expense sharers are independent businesses, operating separately but sharing some of the costs (such as the costs of a cleaner for common areas, or heating). Traditional partnerships, on the other hand, more often means that the income and outgoings of the practice are shared and the partners each take their slice of the overall profits.
A partnership is defined legally under the Partnership Act 1890 as
“the relation which subsists between persons carrying on a business in common with a view of profit”.
If you fall within that definition, you are legally considered to be a partnership for the purpose of the legislation, regardless of your intention.
From a legal perspective, an expense sharing arrangement is actually just a type of partnership. It is governed by the same laws and regulations as the more traditional model. One effect of this is that each of the partners is jointly and severally liable for all of the liabilities of the practice. This means that someone wishing to pursue a claim against the practice can sue any or all of the partners for the whole amount regardless of which partner was at fault.
There can be advantages to structuring your personal relationship with the dentists you work with as an expense share, rather than as a traditional partnership. You are unlikely to ever disagree over who is working harder. Provided you each pay your share of the joint costs, you can then determine your own level of commitment and be remunerated accordingly. You will gain the independence of running your own practice and business, but your overheads will be considerably lower, as they can be shared with other businesses.
Often a colleague’s practice operating within the same building can be a reliable source of ongoing business, particularly if you have a specialism and receive referrals from them. Running your practice alongside another dentist also allows the opportunity for interaction with another professional, someone with whom you can share experiences and discuss problems.
Whether you choose to run your business as an expense share or as a more traditional partnership, it is vital that you document what has been agreed. Where there is no general agreement as to how the practice should be run, disputes can arise. This can be avoided by drawing up a formal expense sharing or partnership agreement.
Such a document can cover most eventualities, including dealing with what happens if one of the parties wishes to sell, what happens in the event of one party being off work long term due to illness, or perhaps even what would happen in the event of the death of one of the partners.
An expense sharing agreement will also cover exactly which expenses are to be shared, and which are to be considered independent.
A specialist dental lawyer, such as members of our healthcare team at Brabners, can assist in preparing a bespoke agreement that will fit in with your particular needs and circumstances. Our extensive background knowledge of the industry will allow us to pre-empt issues that could arise in the future, and plan your business to ensure sustainability.
Author: Nicola Lomas
What options are available to the purchase of a dental practice if a problem materialises between exchange and completion?
Monday 5th December 2016
The answer to this question is, on the face of it, very simple. If you look at the contract, it should give you your options as to the next course of action.
However, the reality is (as always) slightly more complicated.
Firstly, it depends on the nature of the problem that you have encountered. Many problems could occur in the period between exchange (i.e. the date on which you formally commit to buying the practice) and completion (i.e. the date on which you pay for the practice and take over).
It is important to establish whether the issue constitutes a breach of any of the warranties that the buyer was given in the sale contract. If your issue is that you have just met the staff and you don’t like them, such an issue is unlikely to be a breach of a promise that the seller has made to you. Alternatively, if you discover that substantial financial information missing from the accounts the seller has provided, your chances of establishing that a breach of a warranty has occurred are much greater. This is very much dependant on the scope of the warranties that have been negotiated on your behalf prior to exchange of contracts.
A contract will also usually specify the remedies available to you should a material breach of warranty occur between exchange and completion. These can (but do not always) include being able to: i) withdraw from the transaction and have your deposit returned; ii) have the purchase price re-valued before proceeding to completion; iii) proceeding to completion but keeping the claim open to you; and/or iv) proceeding to completion and giving up the claims that you have for the breach. It is important that you consider before exchanging contracts, both when buying and selling, which of the remedies you feel comfortable with.
It is also possible that problems could arise between exchange and completion, which mean that completion may never happen. Where an NHS practice changes hands, a sale agreement will often be conditional upon the NHS accepting partnership notices and CQC registration occuring. In the event that either of these things becomes impossible for one reason or another, the trigger for completion will effectively never be pulled. In those instances, the contract may also contain a longstop date, allowing either party to walk away from the deal and for deposits to be returned if they are not met within a set timescale (often 4 months).
Where either the seller or the buyer breaches a term of the sale agreement between exchange and completion the remedies available to the effected party often depend on the seriousness of the breach. Remedies for breach of contract could include getting a formal court order requiring them to comply with the contract, damages or rescission (i.e. walking away).
Your options tend to be more limited if something of a personal nature affects the attitude and behaviour of the purchaser between exchange and completion. For example, the purchaser could meet the staff and dislike them, they could suffer a bereavement of a close family member or could sustain an injury which would make it difficult or impossible for them to continue to practice dentistry. If a buyer withdraws from the transaction in such circumstances after exchange of contracts, but before completion, he or she could lose any deposit paid (which might need to be topped up to a full 10% of the price if the initial deposit was lower than this). Further, they would be required to put the seller back into the position they would have been had the contract been completed, meaning that you may need to cover their extra losses. If you are a seller and want to pull out, you could face action from a buyer at court to force you to honour your obligation to sell the practice
Author: Nicola Lomas
High Court judgment considers “close of business"
Thursday 1st December 2016
A recent High Court judgment has reflected on the meaning of the phrase “close of business”, a commonly used phrase in commercial contracts (often in connection with the service of notices under the contract).
In this case, Lehman Brothers received a default notice from ExxonMobil at 6:02pm, relating to an outstanding contract. Lehman Brothers claimed that “close of business” – which was not defined within the contract – meant 5pm. As a result the notice should be deemed received the following morning which would affect the validity of the notice. ExxonMobil claimed that 7pm was a more representative closing time, given the commercial nature of the parties.
The court found that the reasonable person would be “surprised to hear” that a major investment bank would close at 5pm and as Lehman Brothers provided no evidence to show that 5pm was a reasonable closing time, the judge found in favour of ExxonMobil’s submission of 7pm.
The case throws up interesting considerations for commercial clients:
- It highlights the delicate trade-off between flexibility and certainty of terms, the imbalance of which can lead to expensive contractual disputes. In this case, use of an uncertain term provided “useful flexibility” for ExxonMobil to the detriment of Lehman Brothers.
- Therefore, one man’s “useful flexibility” is another man’s “lack of certainty”. That lack of certainty gave rise to the dispute and the attendant costs.
- However, the judge made it clear that whilst 7pm was correct for this case, people should not generally assume that “close of business” now means 7pm; it will change depending upon the facts of each case.
- A tightly drafted definition of terms - such as “close of business” - should go some way to ensuring a satisfactory level of contractual clarity, which will in turn help prevent costly disputes and maintain healthy and long lasting commercial relationships.
Author: Rupert Gill
Retentions in dental practice sales
Thursday 24th November 2016
In an ideal scenario, when a buyer purchases a dental practice, they hand over the money to the seller and, following the transfer of the business, the seller takes their cash and walks away.
However, occasionally things are not quite as simple and part of the purchase price is held back from the seller for a period of time as a “retention”. This means that the seller will not have access to the full purchase price on the date of completion, but the parties have agreed, that a proportion of the price will be retained, which may be passed to either the seller or the buyer depending on future events.
The most common scenario in which this occurs is when the practice that is being sold has patients with Denplan Care contracts. Denplan actually recommend to its members that when dental practices change hands, a retention is kept aside for 10% of annual Denplan turnover. The nature of Denplan Care contracts means that a set amount of money is received on a monthly basis to cover all of the treatment that a patient may need. However, if a selling dentist has been poorly performing for some time (which may have been the reason why they are choosing to sell in the first place), an incoming practitioner may discover that the patients either need extensive treatment or that they have been incorrectly banded. As only a set amount of money is received per month, regardless of the work that will be undertaken, this could lead to an incoming dentist struggling with the demands of the business before they have even started.
Denplan recommend a retention is set aside to cover any defective work that has been undertaken to the Denplan Care patients, or work that should have been undertaken by the outgoing dentist prior to the practice sale completing. The intention is that, if extra work is required over and above what would usually be expected month to month, there is a pot of money available to allow the buyer or one of the associates to undertake such work. It may also be that all of the Denplan patients have been correctly treated prior to completion and the retention monies returned to the seller at the end of the retention period.
Another common scenario in which a retention is required is in the event that previous breach notices have been served on the seller by the NHS in relation to the GDS contract. In these situations, a buyer may be purchasing the practice but a huge element of the buyer’s future income stream is at risk due to the actions of the seller. From the seller’s perspective, they still want to receive the full value of the goodwill for the practice on the basis that the contract will be continuing but, from the buyer’s perspective, they may wish for some assurances that, if the contract is withdrawn due to the actions of the seller prior to completion, they will not be out of pocket.
Retentions are also often used where it is considered that the seller has been significantly underperforming on his/her NHS contract and clawback is anticipated but the figures are not yet known. Retentions are also used where it is likely that one or more of the warranties given in the sale contract may be breached, so sums are kept aside until the full extent and cost of such breach is known.
Where a retention is necessary and agreed between the parties, provisions governing how this will be dealt with are inserted into the sale contract. These provisions will lay down how much is to be held, who holds the funds, how long they are to hold the funds for, what would constitute a potential claim on the retention and how such claims are to be dealt with and how the funds are to be dealt with if no claims are received within the retention period.
The retention funds will often be held by solicitors. Whether it is the seller’s solicitor or the buyer’s solicitor really makes little difference as both will be governed by the rules that have been set down in the sale agreement and the parties will have agreed that neither solicitor can release the funds except in accordance with the terms of the contract.
Retentions are commonly held by the solicitors for periods of around 12 months, but what is reasonable in the circumstances will depend on the reason why the retention was held in the first place. For example, a Denplan retention may be held for enough time for the incoming dentists to see and review all of the patients, whilst a retention in anticipation of clawback may only be needed until the end of year figures for the seller’s last financial year are known.
Author: Nicola Lomas
Is your dental practice lease fit for your requirements? Things to consider before a dental practice sale.
Friday 18th November 2016
When it comes to buying and selling dental practices, the lease can often be unexpectedly problematic
As a seller, if you are occupying your surgery under the terms of a lease (whether this is a written document or an informal arrangement with your landlord), it is sensible to ensure that your documentation is up to scratch. On countless occasions, we have seen practice sales stall due to problems with property documentation. Considering the issues before you sell could avoid problems later down the line.
First and foremost, you need to establish whether you have a written lease in place. Property is usually occupied by a tenant on the terms of either a lease or a licence and technically, neither has to be a written document. The difference between the two is that a licence will not give the tenant ‘exclusive possession’ of the property. A licence arrangement can also usually be terminated by notice. A lease, on the other hand, will allow the tenant, in most circumstances, to lock the door and keep the landlord and others out (although the landlord will often have limited rights of access for inspections etc). Commercial leases have a starting point of ‘security of tenure’, which means that at the end of the lease term, the tenant is usually entitled to a new lease on similar terms provided the landlord is not able to prove one of a limited number of grounds, such as if the tenant has failed to pay the rent or the landlord wants to redevelop the site. Unless you have signed a declaration giving up the security of tenure rights they will be available to you, whether your lease is in writing or is informal.
Although you may still have security of tenure, informal unwritten leases should be avoided wherever possible. If you have not set out the landlord’s and tenant’s obligations in writing, you have nothing to prove who has responsibility for repair or insurance of the property. You also have nothing to establish procedures for getting approvals for transferring the property on, or carrying out alterations. A formal lease sets out the landlord’s and tenant’s obligations and makes it clear what can and can’t be done in or with the property.
An informal lease is also unlikely to be acceptable to a practice buyer, particularly if they are raising bank finance for their acquisition. If you are considering selling your practice be aware that any buyer who needs bank finance is likely to need a term of at least 15 years on a formal lease.
Also bear in mind that for leases in excess of 7 years, it is compulsory to register the document at the Land Registry. Leases for 7 years or longer will involve a stamp duty land tax return being submitted to the HMRC (even if no tax is payable). If you fail to fulfil either of these two requirements the lease may be invalid and a buyer is likely to insist on this being done retrospectively before proceeding.
From a dental practice perspective, it is also worth considering that there are certain issues that will be peculiar to your industry that should be taken into account in your lease. For example, a dentist is unlikely to be registered for VAT. However, for most commercial properties, the landlord would have the option to elect the property for VAT at any time. This means that the landlord can charge VAT on top of the rent. For most dentists this would have the effect of a 20% increase in their rent. It is possible in a lease for the landlord and the tenant to agree that, during the term of the lease, the landlord will not make any VAT election, or alternatively if an election is made that the rent payment shall instead be deemed to be inclusive of VAT, rather than exclusive.
Leases also frequently contain provisions which prevent the tenant from sharing occupation with any third party or subletting. On the face of it you might not think this to be an issue. However, when you bear in mind that your associate is self-employed, if you allow them to use your building may be a breach of your lease. This can be easily avoided if, when you are negotiating your lease, you ensure the document doesn’t contain provisions which would prevent you from sharing possession with another self-employed healthcare professional.
It is also not uncommon to encounter within a commercial lease provisions which prevent you from storing any noxious or flammable substances on site. By its very nature, the running of a dental practice from a property is likely to involve the storage of drugs, oxygen cylinders, heavy metals and x-ray machines. Careful consideration of what can be stored on site and your permitted use of the property could avoid problems further down the line.
Finally, it is important that the permitted use within your lease is correct. The obvious starting point might be that you are permitted to use the property as a dental practice- however, should you wish to add to the business in the future offering cosmetic treatments or complimentary therapies then this could be a breach. As an alternative you could set your permitted use as anything within use class D1- this covers medical centres and dental practices- it would give you a wider ability to carry out healthcare related activities in the building. However, when it comes to reviewing the rent it may be that this increases the desirability of the building and increases rent at future rent review dates.
A specialist dental solicitor will be able to assist in making the decisions and negotiating the document that is right for you and your business- whether you are taking the new lease upon purchasing a surgery or reviewing your arrangements in order to ensure that you are getting the best deal.
Author: Nicola Lomas
Dental Practice Equipment Warranties - What is reasonable to expect
Friday 11th November 2016
If you are buying a dental practice a major part of the work that a specialist dental lawyer will undertake on your behalf will be to negotiate the ‘warranties’. These warranties are a series of promises made by a seller that give you some assurances that the business you are acquiring is what you think it is.
The warranties will cover a wide range of issues and will be tailored to the specific practice and your personal requirements. A breach of one of the warranties given in the sale contract could allow you to make a claim against the seller following completion.
One area which is often in dispute between a seller and a buyer is the area of equipment warranties. Buying an operational practice will usually include a purchase of all of the equipment within that practice. However, don’t expect the type of warranty you get in Curry’s for your dishwasher!
The warranties given by the seller will apply on the date of exchange of contracts- which if you are buying an NHS practice is likely to be at least 28 days before the date you take over. It is wise to seek a provision in the contract to say that the warranties are repeated on the date of completion.
You are very unlikely to get a promise that something is going to continue to work for a year or two following the purchase. It is possible that you will get a promise that something will work on the date the warranty is given; although even this is not a given, as the seller may say that they are not sufficiently qualified to make such an assurance.
As a buyer you might seek warranties not only that the equipment is in working order on the date of completion, but further that the equipment that you are being sold is adequate for both the continuation of the practice in the same way that the seller operates it (i.e. that the seller isn’t going to remove a vital item of equipment prior to the sale and leave you unable to practice). It is also reasonable to seek a warranty that the equipment available is sufficient and adequate to ensure that the practice complies with current GDC and CQC guidelines. A dental lawyer will also seek to give you protection that the equipment has been properly maintained- partially by making enquiries relating to certain statutory inspection and maintenance regimes (such as for the pressure vessels and X-ray machines)- and partially by seeking warranties in relation to servicing and maintenance.
Finally, a sensible buyer would seek a warranty that the equipment within the practice is actually owned by the seller free from any finance or lease agreement.
A seller will look to limit the warranties in relation to equipment as much as possible. Firstly by ‘disclosing’ against the warranty. If information is disclosed to you prior to completion then you are usually prevented from making a warranty claim relating to that information.
A seller might also look to make a disclosure that you have had an opportunity to inspect the equipment and that any issues that would be reasonably apparent on such an inspection are deemed to be disclosed. This means that you would be prevented from making a claim for breach of warranty in relation to anything that would be apparent from an inspection of the equipment. The question is what sort of inspection would this cover- a qualified technician who inspects the equipment might find a fault in an item that a cursory glance around the practice would fail to bring to light. A sensible approach if a seller seeks to disclose anything that would be apparent on inspection is to ensure that this is limited to a brief visual inspection by a lay person.
Warranties will also be limited in terms of both value and time. You will have a limited amount of time to bring a claim for breach of warranty following a practice acquisition- it is important that you are aware of the timescales for bringing a claim. A seller will also seek to place a minimum value on any claim- for example the contract may stipulate that any claim under the warranties must be worth at least £500 as a single claim or if you have a large number of small claims at least £10,000 added together (although the exact figures would be negotiable and will depend on the practice and circumstances).
It is important that both the seller and the buyer understand the warranties that are being offered in any sale agreement. Equipment warranties should offer the buyer some assurance that what they are buying will be fit for their requirements even if they don’t purport to promise that things won’t break in the weeks, months or years following your acquisition.
Author: Nicola Lomas
Demand and supply when it comes to dental practice sales
Friday 4th November 2016
All of the evidence suggests that the demand is far outstripping supply when it comes to dental practice sales. Anecdotal reports indicate that when thriving practices in good areas come to the market potentially hundreds of ‘would be buyers’ will register an interest. Practices on the market often receive multiple offers and the goodwill valuations appear to increase year on year.
It hardly seems surprising given concurrent reports of stagnant associate salaries and downward pressure on associate UDA rates. Associates nationwide are looking to get their foot onto the ladder and become practice owners. However, goodwill values often seem to be driven by demand rather than their prospects as a good and profitable business. A practice in a handily commutable location, near to good schools and public amenities, is often sold at a higher price than for more profitable practices in less desirable areas.
The trick for a buyer is to know what you are looking for in a business. Do they want to work on a nice leafy suburban road, near a high street or nice restaurants? Or are they willing to work somewhere less appealing in order to fund living in that nicer location? A smart buyer will consider the problems and opportunities available to a practice on the market and do their homework before formally committing.
A specialist dental lawyer will help a buyer make enquiries, guiding them through the paperwork that a well-run practice should have to hand. A solicitor will ask the right questions and report back to a buyer in relation to any problems. A problem arising doesn’t necessarily mean a buyer will chose not to proceed with a purchase, but if they use the right lawyer they will at least go into the deal with their eyes open.
Dental lawyers will also represent the parties in ensuring that the contract that is prepared is a fair and reasonable balance between the interests of the seller and the buyer. The knowledge that there are other people interested shouldn’t prevent the parties from reaching a fair and reasonable compromise in terms of a sale contract.
It is important for both a seller and a buyer to understand that despite a buoyant market, a practice coming onto the market is a business. Sellers and buyers would be wise to establish a good understanding of the transaction process, particularly where the practice in question has an NHS contract. Delays in the transaction timescales are often a result of one party or another not being aware that everyone is waiting on them. The most common reason we see for a seller looking to remarket a practice is delays on the part of a proposed buyer. Significant delays are also often costly; in a simplified example, if a practice has a profit of £120,000 per annum, delays of just a month mean a potential loss of earnings to a buyer of £10,000. Scale it up for a larger, more profitable, practice.
Ensuring a firm understanding of the buying process, doing the due diligence homework via a specialist lawyer and having that lawyer ensure that a sale contract reaches a fair compromise between the needs and desires of a seller and a buyer, makes for an excellent start for a young dentist acquiring their first practice.
Author: Nicola Lomas