Buying a Practice - Drilling into the detail
18th June 2018
You have found the practice you wish to buy. You have your surveyors’ practice goodwill/ value of the dental practice. Your accountants have given a positive viability forecast, even after factoring in changes in dental staff following the purchase. In principle, you know the lender will give you the finance needed for the practice. You’re keen to get going with the purchase. What next?
To make your purchase a success, you need to have a firm idea not just of the finances but of the other foundations of the practice. Like any other business these must be sound in order for the practice to be built up. Three fundaments stand out: the practice’s major contracts, the premises, and the employees.
If the practice does not own the practice premises, what is the basis for its occupation? It is surprising how often a practice occupies premises based on inadequate documentation or sometimes none at all (where, for example, one of the principals of the practice may have been owner). Yet, in the absence of a proper lease, the practice has no business being in the property and could be evicted at short notice. Alternatively, if a lease does exist, does it impose unacceptable conditions on the practice? What exactly are the repair liabilities? Who precisely owns the dental chairs and other equipment physically screwed into the walls or floor – the owner or the tenant?
Of all compliance issues, transfer of employees in a purchase is among the most complex. You will want to know the terms of the contracts of employment (e.g. salary, holiday entitlement, potential claims) and ensure that TUPE procedural rules are followed where employees’ contracts of employment are to transfer to you.
The above are examples as to why these fundamentals are so essential to the success of a practice. Fail to address them before the purchase and, at best, significant management time will be eaten up trying to fix them; at worst, the problems won’t go away and the practice has in-built instabilities and liabilities.
Fortunately, most of these issues, if identified early enough, can be resolved before the purchase goes ahead. They are generally also easier to fix before, not after – for example, the goodwill between the seller and employees may mean s/he can fix an employment issue more readily than the incoming purchaser. Or the seller may be able to persuade the landlord to enter a new lease, using the argument that unless the landlord agrees to this, the dental practice may cease to occupy the premises.
A good dental practice lawyer familiar with this sector can help achieve genuine value for a purchaser.
Michael Dewar, Partner, Healthcare Sector Team, Wright, Johnston & Mackenzie LLP (Published 18.6.18)