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Home CB > Articles > Managing Your Finances > Buying a dental practice or a toothbrush, the principles are always the same

Buying a dental practice or a toothbrush, the principles are always the same

in Managing your finances

Buying a dental practice or a toothbrush, the principles are always the same

Recently I needed a new toothbrush.

I walked into a high street healthcare shop and began to peruse the extensive collection of brushes on offer.

After looking for nearly 20 minutes and clearly looking ever more confused by the choices laid out on the shelves before me, a shop assistant came over to offer a helping hand. She asked me if I would prefer an electric or manual brush, how firm do I like the bristles and even what colour I wanted. After careful consideration and with the assistant's kind help, I walked away with a brand new, top of the range electronic toothbrush, which despite the cost is excellent.

Looking back and at the process that took place, I realised that there were a number of similarities between my job and that of the sales assistant. What is it that I do? I am a legal assistant in the Dental Team at Cohen Cramer Solicitors.

Now I appreciate at first that the similarities may not be that clear, I may not be too concerned about the firmness of people's toothbrush bristles or whether somebody has a purple or blue brush, however the assistant's role was to answer my questions and to make sure that the toothbrush I bought was the right one for me. In my role, I make sure that my client knows everything about the dental practice he intends to buy and more importantly, that it is the right practice for him. How is this done? It is done through the process known as due diligence.

What is Due Diligence?

The due diligence process involves the Buyer's solicitors raising extensive questions about the practice and the property and without a doubt is one of the most crucial parts of a dental practice sale or purchase.

These enquiries are sent out by the Buyer's solicitors at the initial stages of a sale or purchase and ask for written replies along with supporting documentation from the Seller. The completed set of documents can often fill two folders! These folders are then scrutinised by the Buyer's solicitors. If they aren't satisfied they will then raise further questions and requests for documentation.

From your point of view, 'due diligence' can seem quite daunting; therefore it is important to look at the process from both perspectives. During this article I shall explain what you need to do if you are buying or selling a dental practice and also touch upon the issues of choosing a bargain solicitor.

If you are selling a dental practice

If you are selling your practice the 'due diligence' process is time consuming. The key however, is to be thorough. Over time I have dealt with seller's who have tackled the task methodically and with great care, providing detailed replies and every supporting document the buyer's solicitors would ever need. These transactions often run smoothly.

I have also encountered the complete opposite. I have carried out due diligence where the seller has supplied limited replies and almost no supporting documentation. These transactions are often delayed, drag-on and result in spiralling costs.

When you receive these extensive enquiries, the key thing to remember is not to panic. From experience, the best way to tackle these enquiries is to break it down. Most solicitors prefer to receive your replies and supporting documentation in one go but if you carry out the enquiries in sections and send to your solicitor in one go once you have worked your way through it, you are more likely to be thorough and detailed.

Your enquiries will consist of two parts: property enquiries & business enquiries.

The property enquiries:
These take the form of Commercial Property Standard Enquiries (or CPSE's as we like to call them). These enquiries are used by many solicitors for commercial property transactions. You will usually receive draft replies to these enquiries from your solicitor. You should read these replies and inform your solicitor of any changes you wish to make. They will then be sent onto the buyer's solicitor.

The business enquiries:
These are much more straightforward than the property enquiries but are much more extensive.

In every set of business enquiries the buyer's solicitor will require an inventory of items included in the practice. For this, you should be detailed but not nit-picky.

For instance, the best inventories that I have seen simply list the equipment (including the name, model and serial number), furniture, computers and fixtures and fittings. It is not necessary to list every item in your stock room or even the kitchen sink. The inventory will however be included in the Sale Purchase Agreement so it is important that you are happy with it.

As part of the inventory you will be expected to list all of the items which are not included in the sale, for instance that Van Gogh hanging in reception or the new intraoral camera you have just purchased.

If your dental practice is NHS, then you will need to provide up to date UDA figures, pay and activity statements (usually for the past six months) and a copy of the entire NHS contract. It is very important that copies of any contract variations are also provided. If your dental practice runs a capitation scheme then the buyer's solicitors will request sight of at least six months' reports. By far one of the most extensive sections of the enquiries relates to the staff. Under the Transfer of Undertakings (Protection of Employment) Regulations or TUPE as it is more commonly known, the transfer of staff goes hand in hand with the transfer of your business. In most cases, you will be asked to supply copies of the signed contracts of employment and attendance records for all staff and GDC registration certificates and vaccination records were applicable.

Yes, these enquiries are extensive and may be considered a monotonous task, but failing to provide full and accurate replies will not only cause delay but can, in the worst case scenario, jeopardise a sale! Although you are ultimately the best placed person to answer these enquiries, any good solicitor should be on hand to guide you through the process.

If you are buying a dental practice

If you are buying a practice the due diligence stage is nowhere near as daunting, in fact it can be quite exciting! For you it is the chance to find out everything about the practice you are going to own. If you have instructed "dentally aware" solicitors then you can simply relax and let them do the hard work. Once the enquiries have been fully answered they should report back to you with any issues that may be of concern.

As with a dental practice sale, the inventory is an important document. You should scrutinise this list and ensure that everything you thought you were buying is included in the sale. If a specific item is not listed then let your solicitor know.

The seller should disclose their accounts for the last three financial years and although it may seem obvious, it is crucial that you analyse these documents and seek the advice of your accountant. You do not want any nasty surprises once the purchase is completed and the practice is yours.

Along with checking the inventory and the accounts the importance of inspecting the UDA figure cannot be stressed enough. There would be nothing worse than months into your new role as the owner of a dental practice; you receive a letter from the PCT demanding a claw back as a result of the seller's underperformance prior to completion!

It is very important that you follow your solicitor's advice and work with them during the due diligence exercise so that you have a clear picture of what exactly it is that you are buying.

Beware the Bargain Brush

When I was buying my toothbrush, I was advised that the bargain brush from the unknown manufacturer would undoubtedly leave me unsatisfied. Take the same care to select a quality solicitor with experience.

In recent years a number of commercial property solicitors have branched out into the dental market. Yes, they may offer you that bargain quote but like the bargain toothbrush, it could turn out to be a big mistake. A solicitor with no previous experience in dealing with the sale or purchase of a dental practice may soon find themselves out of their depth, unable to ask the right questions, with time rolling on, costs increasing and a frightfully unsatisfied client.

In the end I opted for the toothbrush by a well established manufacturer with a history of quality, and I must admit that I am pleased with my choice. Similarly, if you instruct a solicitor with a well established reputation and a rich history in dealing with dental practice sales and purchases, your transaction will be much less stressful. A specialist solicitor will ask if your practice is NHS, private or carries out work for a capitation scheme. They will enquire about the number of associates and the type of contract you hold such as a PDS or GDS contract and will be completely aware of CQC requirements and matters with your PCT.

So what to remember...

It is certainly true that due diligence is one of the most crucial parts of any dental practice sale or purchase. Like the purchase of that toothbrush, finding out all that you can before you hand over the money is very important. You need to know that it is right for you.

For the seller, a speedy, detailed and satisfactory response to the enquiries will ultimately speed up your sale.

For a buyer, you should instruct a solicitor who is an expert in the field. A solicitor who knows the right questions, who will persevere to get the right replies and appropriate documents and who will provide you with as much detail as possible on your prospective purchase.

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