Buying a dental practice and saying goodbye to the relatively worry-free days of being an associate is a big decision. No two dental practice purchases are ever the same; they are always complex and often daunting.
If you’re a dentist looking to buy a practice, these 5 basic tips are a useful starting point.
Tip 1: Research
You cannot do too much research! Consider the practice mix (NHS vs private), the patient profile, the location, and the practice personnel.
Think about succession planning and study the accounts. Lenders will require at least 3 years of audited accounts – be wary if they are not available.
Tip 2: Valuation
Professional valuations provide the basis for all negotiations and, ultimately, the agreed purchase price.
Even if the vendor has carried out a valuation as part of the sale process, get the practice valued by a specialist. Your lenders will insist on an independent valuation by a surveyor on their own permitted panel.
Make sure the valuation you get is a reputable, professional one. Accurate, justifiable information may well be required at a later date, particularly when it comes to calculating any capital gains tax liability when/if you sell the practice.
Tip 3: Security
Banks will often require some form of security for lending. This frequently takes the form of a “Second Charge” on equity in your own domestic property.
Not all mortgage lenders permit second charges on home loans so explore your options before you start negotiations.
Tip 4: Cover the loan
Banks will insist that there is appropriate life or critical illness cover to repay remaining debt throughout the term of the loan. This cover is particularly important where there is a second charge on your domestic property.
It’s worth noting too that a bank will often offer a lower rate of interest on a loan secured via a second charge compared to an unsecured loan.
Bank rates will and do vary so, once again, research is important. ‘Low rates’ might appear comparatively attractive but may well be dependent on all the practice’s day-to-day banking services being transferred to the ‘new’ lender. Is that something you’re prepared to do?
Tip 5: Practice agreement
Where there is more than one partner in the practice, you would expect to see evidence of a practice agreement. This agreement outlines the protocols related to sickness, death, profit, debt repayment, working expectations, retirement, and so on.
Study the practice agreement in detail; do not rely on a ‘Gentleman’s Agreement’!
What other factors would you personally have to consider if you were to buy a dental practice? Let us know by leaving a comment below.