Due diligence is a phrase that is so often used by agents, solicitors and the like when it comes to buying and selling a dental practice, yet for many buyers and sellers it can sometimes be quite daunting to understand what due diligence is and why it is then so important.
The simple answer is that due diligence is the investigation by the buyer into the dental practice that they are interested in purchasing.
Due Diligence when buying a dental practice
It will probably surprise most buyers to hear that the due diligence starts from the very moment you obtain details of the practice. The sales particulars are normally the first item of due diligence, giving you an insight into the basic information about the practice – the type of practice, its financial position and its potential for growth. For most buyers, there is an assumption that due diligence is merely a legal process that their solicitor engages in, but this is incorrect. For our buyers, we always recommend that they view the practice as many times as they can after their offer has been accepted (with the agreement of the seller) – to test that the equipment works – and after exchange of contracts, to meet the staff. It also enables the buyer to view the seller’s existing policies and the procedures that are in place, about which the buyer will need to know for their CQC interview.
Due Diligence when selling a dental practice
Due diligence isn’t just a buyer process, though, it is also incredibly important for a seller. When selling a dental practice, a buyer will ask the seller to give a number of warranties about the practice they are selling. Warranties are assurances about the practice that the buyer then relies on, and it is these which then give the buyer the ability to sue the seller after the sale has completed, if there was a breach of those warranties. The best form of defence for a seller, in such circumstances, is to show that the buyer was made aware of the issue, and one of the ways of doing this is to show the buyer the evidence from the due diligence. If a seller fails to supply the due diligence, then they are effectively selling the practice without any form of protection should there be any comeback by the buyer.
For sellers, however, due diligence can sometimes be a laborious task, and the best advice is to simply answer the buyer’s questions honestly and with as much information as possible, in an efficient manner. It never surprises me that, so often, a seller who wants a quick sale then takes upwards of three months to answer the due diligence questions, and cannot then understand why a quick sale is not possible! A seller should also think about how they present their answers, as a lot of the information that is required is usually copies of documents that are within the practice and the office, yet I have often received due diligence that has been photocopied at a slant or even been covered in toothpaste! If the due diligence is presented in that way to a buyer, then it can often give a poor impression of the practice, which might not necessarily be fair view.
Whilst due diligence is an early part of the sale and purchase process, it is – for both buyer and seller – a continuing task. For sellers, they often ask when will the process of asking questions ever end. In short, the buyer is very much entitled to carry out due diligence, asking questions up until exchange of contracts and – in some cases – up until the sale has gone through and completed. This is because things may change. Staff, for example, may leave, or an electrical report may need updating, and for the seller it is also important that they ensure that they have given the buyer the most up-to-date information. There is no point, for example, in providing an out-of-date electrical report and hoping that the buyer will not notice!
One of the key elements of due diligence is to know what to look for and therefore, it is vitally important to engage dental specialists from the outset. Goodman Grant focus entirely on dentistry, and as such can provide an expert service, making the due diligence involved in buying and selling a practice far simpler.
When buying or selling a practice, don’t make the mistake of neglecting your due diligence. Following the advice of experts will help you avoid potential pitfalls and make the buying or selling of your practice a smoother process.
For more information please contact Kate Beech on 0151 707 0090 or email [email protected]