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Guide to buying a dental practice
Read time : 4 mins Added: 23/02/2023
Buying a dental practice is complex and time consuming. However, as with most things in life, careful planning at the outset can save time and expense. We’ve asked experienced dental lawyer Stephen Knowles to explain some key preparatory steps that can help you get your acquisition off to the right start.
1. Take early advice from a team of experienced dental advisers including lawyers, accountants, property surveyors and lenders. Their early advice and assistance with the following issues will save time and expense:
- Structure of transaction – If the seller trades as a sole trader or partnership the purchase will be proceeding via an asset sale and purchase. However, if the seller trades in whole or part as a limited company the purchase could also proceed via a share sale and purchase. Understanding the advantages and disadvantages of an asset purchase as opposed to a share purchase is vital.
- Vehicle used for the purchase – If you are buying alone, should you purchase as a sole trader or using a limited company in whole or part? If buying with others, should you purchase as a partnership or with a limited company? If you intend to use a limited company the earlier this is made known to your team of advisers the better. General Dental Council (GDC) rules will need to be followed to ensure the right numbers of GDC registered directors are on the company’s board of directors. Also checks will need to be made to see if permission has been obtained from the GDC to use certain prescribed terms in the company’s name including “Dental”.
- Finance and cash flow analysis – Obviously being able to afford the purchase price with the right level of security for your personal circumstances is important. However, ensuring the target dental practice can deliver the right level of income to service your loans and provide an income for you is equally important. A good financial adviser/ accountant’s help with cash flow analysis can provide peace of mind to you and reassurance to a lender.
- Structure of required Care Quality Commission (CQC) applications – CQC applications can be complex and time consuming. Ensuring the right applications are submitted at the right time is a crucial part of the purchase transaction. This is particularly the case with an NHS practice where the required applications are not always self-evident (see section on NHS contract transfer).
- Property arrangements – Have you considered and weighed up whether you are purchasing the practice freehold (if available) or you are taking a lease of the premises? It takes time, in particular, to negotiate heads of terms for a new proposed lease (particularly if there is a third party landlord) so the earlier you know how the property is to be taken the better.
- Property survey – Whether freehold or leasehold, you should consider having your own survey of condition carried out. The underlying legal principle is that the buyer of a property takes it “as seen” or put another way, “buyer beware”. Are you confident you know what condition the property is in? Hidden defects which come to light post sale can be costly.
2. Get to grips with NHS contracts transfers – Always try to establish as soon as possible what type of NHS contract the seller has. Most will be General Dental Services (GDS) contracts although some may be Personal Dental Services (PDS). Increasingly we are seeing practices with prototype contracts, so work out early what the seller has. Also check who precisely is named as a provider on the NHS contract. Sometimes a “sole trader” NHS seller has one or more partners on the contract.
If the NHS contract is held by a limited company, will the Local Area Team’s consent be required to change ownership? If so, it may require the seller to apply for permission for a change of control under the NHS contract up to three months prior to the completion date.
3. Consider the method of NHS contract transfer – If the seller has a GDS contract and trades as a sole trader or partnership then the incoming buyers will be added as partners to the NHS contract at completion. The sellers and buyers will remain in a CQC and NHS contract partnership for a short period post completion and then applications will be made to retire the sellers from these partnerships. If the buyers include people who are not registered dentists, checks should be made early on to make sure those people can legally be added to an NHS contract.
4. Prepare the CQC application – Are you fully aware of how CQC regulates dental practices and what documents will be required to ensure an application to the CQC is ready at the required time of completion? A useful starting point to consult is the Key lines of enquiry for healthcare services page on the CQC’s website (cqc.org.uk). There you will find downloadable resources to help assess how the CQC regulates against its 5 key questions of:
- Is it safe?
- Is it effective?
- Is it caring?
- Is it responsive to people’s needs?
- Is it well led? If you have not been registered with the CQC before, seek help from the seller (assuming their inspection history is good) to learn how the practice complies with CQC standards.
If you have not been registered with the CQC before, seek help from the seller (assuming their inspection history is good), to learn how the practice complies with CQC standards.
Taking all these steps will not guarantee a stress free and completely smooth purchase but following them should help you avoid the “icebergs” common in transactions. In addition, your expert team of dental specific advisers should be on hand to assist with the rest!
Stephen Knowles is a specialist dental specific lawyer at PFM Dental Legal, having more than 15 years’ experience assisting dentists with sales and purchases of practices. Stephen is the current Chair of the Association of Specialist Providers to Dentists.