Buying a dental practice is one of the most important financial decisions you will ever make. Ensuring you purchase the right practice for the right price, could make all the difference to your future financial security.
Every industry has its own set of regulations, but these can be particularly complex and hard to navigate within dentistry.
What does Due Diligence Mean and Why Is It Important?
Due diligence is a process to find out as much information as possible prior to buying a dental practice. This document helps to highlight issues that must be dealt with before the buyer becomes legally committed to the purchase.
Choosing the right legal team to help you navigate due diligence will help you avoid potential pitfalls that could otherwise delay the sale or which could mean you will incur additional and unexpected costs. Our legal team is familiar with all the paperwork required to ensure your dental practice purchase agreement proceeds smoothly.
What is the Due Diligence Document?
As the buyer, you have very little real information about the practice you wish to purchase, which is the purpose of due diligence. Hopefully, your seller will use a solicitor who is experienced in preparing the documentation required by the purchaser. You will need information about the accounts, compliance licences and certificates, NHS contract performance levels and patient information. An experienced dental solicitor will be able to make sure you have all the necessary documentation and can ask the correct questions, so a thorough assessment of the business is performed before drawing up any contracts.
Due diligence can be split into several sections, some of which you will be able to carry out, while other sections will need to be carried out by your legal team or by professional experts.
These sections are:
Financial due diligence
Physical due diligence
A valuation of the practice
Due diligence on the property
Dental practice due diligence
Corporate due diligence for incorporated practices
Taking a Closer Look at the Process of Due Diligence?
1. Financial Due Diligence
For this part of the procedure, you will need to employ a specialist dental accountant to look through financial records and to make sure the practice is a viable business. Your accountant will inspect the practice income and overheads, taking into account any debts. This due diligence is particularly important as it will determine factors such as salaries paid to staff and will highlight higher than normal outgoings that you may be unable to change once you acquire the practice.
2. Physical Due Diligence
You will need to employ a chartered surveyor to check the property is structurally sound. If it is leased, a surveyor will be able to ensure all repairs have been correctly carried out and that the property is well maintained.
3. A Valuation of the Practice
This will ensure the practice is worth the asking price. To assess this, it is necessary to look at the financial figures and the future prospects of the business by assessing the demographic specialist area. Again, this is an area where specialised advice could save you money or even prevent you from purchasing a practice for more than its true worth.
4. Property Due Diligence
This part of the process is very similar to buying a residential property and concerns the searches required to be sent to official bodies such as the environment agency, local authority and water and drainage companies. These searches provide critical information on the maintenance of the property and should disclose any major works due to take place. Additionally, standard pre-contact enquiries require access to the title deeds. The due diligence questions required for this part of the process are mostly specific to a dental practice, which is why it’s important to employ a dental solicitor.
5. Dental Practice Property Due Diligence
The due diligence required for this stage is extremely detailed. A dental solicitor can ensure that everything related to the practice is extensively examined and this is where in-depth knowledge can really come into its own. A good example would be asking for the most recent inspection certificate relating to a specialised piece of dental equipment. An ordinary solicitor would be unlikely to even know this piece of equipment existed, let alone that a certificate is required. A specialist solicitor will request a complete inventory that includes up to date inspection certificates for every piece of equipment in the practice that requires one.
Other documentation that must be examined includes:
The NHS contract and the UDA / UOA performance of the practice
Copies of policies and procedures
The compliance of regulations such as CQC and HTM-01-05
Details of any claims from patients or staff
6. Corporate Due Diligence for Incorporated Practices
A limited company is a separate legal entity and in acquiring a company you will take it “warts and all”. It is important that the structure and standing of the company are checked in detail.
This list is by no means exhaustive and it’s likely a proper due diligence enquiry will result in a large number of dental specific questions that could easily be overlooked by a solicitor who doesn’t routinely deal with the dental industry.
Completing Your Own Due Diligence
It’s important to carry out your own due diligence, and this will also allow you to get a better feel for the practice. Take a look at the way the patient records are maintained and make sure there hasn’t been any clinical neglect. You do not want to inherit problems with failed treatments or a badly kept bookkeeping system. Spending time in the practice will allow you to see how the staff interacts with patients and to judge the overall atmosphere. Another thing to think about is the goodwill of the practice as you need to maximise this during the transfer. A letter of introduction from the current principal can go a long way towards smoothing the transition.
An experienced legal team will help you navigate the process of due diligence smoothly and efficiently. This can help to speed up your dental practice acquisition. Alternatively, the process of due diligence may mean you decide not to buy a dental practice, helping you to avoid what could be a very costly mistake.