Asking the right questions

Having worked on a large number of dental practice sales and purchases over the last seven years, I have gained a comprehensive understanding of the common issues that can arise during the transaction process.

On occasions, these issues can end up becoming so contentious that they result in the two parties not being able to agree and, ultimately, the transaction falls through. I am always staggered at how individuals are so driven by reaching an early completion date that they do not stop to consider the important questions that should be addressed at the outset.

With this in mind, I have set out below a list of points that are, by no means exhaustive, but worth discussing at the beginning of a dental practice purchase, and perhaps even before solicitors are instructed.

Seller associateship

The seller may have decided they no longer want to run the practice, but might be willing to stay on as an associate. This could be an ideal working relationship, as you will have direct contact with someone who has the requisite knowledge and experience of the local area, as well as the practice’s history with other companies, staff and patients. However, there are factors – such as the hours and remuneration the seller may be seeking – that you will need to include as part of a bespoke, written associate agreement, which is vital for the protection of your practice. It would be worth considering setting out the basic terms of the seller’s associate agreement at the beginning of the transaction, if the retention of the seller is a key part of your proposed business plan.

Deferred payment

This is when part of the agreed price is paid over a specific period of time and is usually subject to either targets achieved in terms of personal income, practice turnover, or based on the seller staying on at the practice for a certain period following completion (This is more common in private dental practice purchases). Some corporates and individual buyers defer payment if there is an element of risk associated with the agreed price of the dental practice. In order to minimise the risk when purchasing a practice, deferred payment may be an option for you, but this should be negotiated with the seller and all terms clearly set out at an early stage.  

CQC application

You will need to liaise with the seller in submitting a CQC application for registration at the practice. It will more often than not be a pre-condition of funding that the CQC provides written confirmation that it will register you once the transaction has been completed. The CQC application process is labour intensive and you should consider who will be handling this on your behalf and who will be accounting for the cost. It is worth bearing in mind that the whole CQC process can take up to 12 weeks to complete from the date of submission, so if time is of the essence, this should be an important discussion point at the outset.

Stock, hire purchase agreements and commercial contracts

As part of the acquisition process, your solicitor will hopefully be asking details regarding the stock, hire purchase agreements and commercial contracts linked to the dental practice. It is worth asking a couple of questions direct with the seller at the start of the transaction in regard to stock – specifically, whether it is included in the purchase price.

In regard to hire purchase agreements, it is important to know whether the seller expects you to take over any hire purchase agreements on completion. You would be surprised at how many transactions get to the midway stage and it comes to light that a number of the equipment items are on Braemer Finance, Siemens etc., much to the surprise of the buyer. The key here is to ensure that – before you even make an offer – you are clear on what the position is regarding all the equipment. If there are dental brokers involved, then this should be detailed in the marketing material, but if it is not clear, ask the question.

Any commercial contracts must also be taken into consideration, as you will need to discuss with the seller which are to be transferred or terminated on the completion of the purchase.

Restraint of trade

As a purchaser, you will want to reduce the risk that the seller immediately opens a competing dental practice nearby once the sale has concluded. Consequently, it is important that there are provisions in the written sale agreement restricting the seller from working as a dentist within a specific timeframe and area around the practice following completion. The agreement should also detail restrictions on the seller attempting to contact existing patients and employees of the practice, and soliciting their business/employment for the benefit of any alternative dental practice. These terms are generally negotiated as part of the sale agreement. However, this often becomes a point of contention, which is why I would suggest a conversation is conducted at an early stage as to what both parties would be agreeable to in terms of a restricted area and period.

Website

If the practice you are purchasing has a website, then be sure that the transfer of the domain name is included in the purchase price and the seller is not expecting any additional consideration.

With so many other elements to consider, understanding the business you are looking to purchase is essential to the successful purchase of a dental practice. It is also important that you ask the right questions prior to any transactions pressing too far ahead. By seeking the professional services of a reliable dento-legal firm like Goodman Grant, you can benefit from the expertise of a team that will guide you through the purchase process and help you avoid any conflicts.

If you would like further information after reading this article please contact me, Paul Harris, at ph@goodmangrant.co.uk or call me on 0151 707 0090.

 

Ray Goodman
Managing Director
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John Grant
Director
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Paul Harris
Director
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Ifath Khan
Director
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Paul Edels
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Hewi Ma
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Director
Heather Meakin
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