The A-Z Guide to Sucessfully Buying Your First Dental Practice
Buying a dental practice is an exciting but intimidating process that can transform your life and financial wellbeing.
Taking the first steps into dental practice ownership requires knowledge to avoid being caught out. Here's a comprehensive guide covering everything you need to know, from legal advice through to funding your dental practice.
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Becoming the owner of a dental practice can be a profitable way to secure your financial future - whether you’re trying to buy the practice you work at or want to start afresh elsewhere. While private practices tend to have slightly higher profits than NHS ones, both can offer a secure and stable platform for harnessing your experience and turning it into ownership and long-term investment.
Unfortunately, there’s a caveat to bear in mind. Compared to almost any other type of commercial property purchase, buying a dental practice is a far more complicated process. As a result, it can be intimidating for those buying their first dental practice, even if it's just a squat practice.
Buying your own practice or a different one requires navigating a series of challenges that can feel overwhelming without the right support.
Here at Rangewell, we support our clients in helping them secure funding and provide specialist financial information to help them make the right decision. With that in mind, we’ve created this definitive guide to buying a dental practice which contains everything you’ll need to know from research through to completion.
If you’re interested in owning your own dental practice, follow each step below and you’ll be well equipped to make sensible choices and secure funding packages that work for you and your lifestyle.
Researching your first purchase
If you’re planning to buy a dental practice, you need to know as much as you can about what it will mean for you. This includes assessing your own financial situation against the asking price of the practice, but it also means investigating other tangential factors that will influence the success of your investment.
Remember: even if you’re planning to take ownership of the practice you’re working in, doing research is still vital. The knowledge you hold as an employee is not equivalent to what you’d need to know as an investor.
Get involved in researching the local area to see how many competing dentists are operating nearby. Understanding wider footfall in the area can also help ascertain how many potential patients the practice is currently capitalising on and spot the opportunities to grow.
You should also look at the services offered by the practice and decide if there’s room to add new services such as cosmetic dental surgery etc - which may be more relevant if you already have experience and qualifications in that area and can bring it to the new venture without having to recruit specialist staff.
When considering a specific practice, you must also understand dental practice valuation. Where does the 'value' come from? The practice will have a customer base, a certain amount of assets and perhaps even own the property it resides in. These all influence the valuation, but there's more to it than that which we cover further on in this guide.
You should also consider patient statistics, though acquiring many of these may require speaking to the sales agent or seller to get the information:
- Does the practice receive new patients regularly? How many have they accepted in the past year and is it at capacity?
- Conversely, what’s the retention rate like: how many patients did they lose?
- Are the exam and hygiene recall rates favourable?
- How does the practice market itself? Are there opportunities the current owners are missing?
- How many new patients are received from direct referrals?
As a buyer, you have fundamental ‘housekeeping’ duties to take care of when buying a practice which includes:
- Securing CQC approval before your practice can be allowed to run once ownership is transferred to you. This means arranging a CQC check in advance of your planned ‘opening’ so there’s no disruption to services. It can take 10-12 weeks to process the application so it must be done as early as possible in the deal. Jump to the CQC section to learn more.
- Finding the right funding package. You’ll need a share of your own cash capital to use as a deposit, but will likely require third party finance in the form of a dental business loan. High street banks can be particularly hesitant about dental practice purchases and the third party lender market can be more enticing - but knowing how to maximise your application with either lender requires dedicated help from a financial broker.
- Understand the property aspects of the purchase - what type of lease is on the building, and how will it impact the business? For example, is there land included that could be used for future expansion or car parking?
- NHS contract transfers can be a long-winded process but are arguably the most essential part of buying the practice. The contract sets out how much dental activity is performed by the practice in exchange for payment by the NHS. There are approximately 28 days between exchange and completion to add to any deal that involves NHS contracts.
To buy and run a practice, you need to apply to the CQC to be able to perform regulated activities. Your application is to show that you're meeting their five key measurements for practices. They want to see that practices are:
These five areas are measured through key questions known as 'key lines of enquiry' which are used during inspections and also whenever a practice owner applies to the CQC to be permitted to provide regulated activities.
As a buyer, you'll need to complete a new provider application form, which asks for a wealth of information from a buyer such as the last 15 years of employment history. If you're a first-time buyer, expect your application to be scrutinised to a high level.
The crucial part of your application comes when explaining how you intend to provide regulated activities and satisfy their conditions. The CQC can reject an application for minor errors, so you must take the time to ensure your application is as accurate as it can possibly be.
As a first-time buyer, we'd recommend starting the CQC process as quickly as possible. As soon as a sale is agreed, you'll need to apply for a DBS check and have it countersigned by the CQC. The application itself takes between 3-10 weeks and ,once granted, is valid for 12 months.
Because the application can take awhile, most buyers will need the seller to agree to go into partnership with you to cover the application period. Once completed, the vendor will cancel their previous registration.
How to evaluate a dental practice purchase: the pre-contract stage
Assuming you’ve done the research outlined above, you’ll now be in a better position to make a judgement call over whether to go ahead with your purchase. If you are still interested, it may be worth having an independent valuation done early so you can set it against the seller’s asking price. However, valuations will also happen later during the funding process.
The foundation of any successful dental practice purchase requires an assessment of the regulations around dentists and ownership transfers. This includes ensuring a full understanding of how the NHS contract will be transferred between the seller and yourself.
During this stage, you must determine whether you’ll be buying your practice via a share sale or asset sale. Share sales mean you’re purchasing the shares of your seller’s company so that you can then obtain ownership of the practice in question. Asset sales are purchasing some or all of the seller’s assets. Each has specific liability and tax requirements so you need to agree and understand the differences.
An asset purchase means you can decide what assets you want to buy and which you want to leave to the seller. You will often be protected against liabilities that occurred prior to the sale’s completion such as former employee disputes and CQC violations.
Share purchases mean that you buy the seller’s place in the ownership of the practice - buying their controlling share. From a seller’s point of view, this is the preferred format as it means they are free of the business and liabilities. However, for you as the buyer, share purchases are riskier as they mean you’ll be taking on all practice liabilities.
To secure the right understanding between you and the seller and to really ‘begin’ the deal, a meeting must be arranged. Negotiating a purchase will involve discussions over:
- Turnover and profit.
- Transfer of the NHS contract. This involves becoming a ‘partner’ with the seller until after completion, where the seller will retire from it and leave you as the sole name on the contract.
- How the property operates.
- Share or asset purchase.
- Capitation schemes active in the practice - these are private payment plans that allow patients to pay in a fashion similar to insurance, rather than paying for each individual treatment.
- The number of employees and surgeries in the practice.
When the NHS contract is transferred, both parties will require an up-to-date DBS check (disclosure and barring service) which has to be acquired for the application to go through. You’ll also need to submit your CQC application. Regulated activities such as surgery, diagnostics and screening procedures are subject to significant fines of up to £50,000 if you fail to register.
Before you begin negotiations, you may also have to sign an exclusivity agreement. This protects both of you as it means the seller won’t field offers from other buyers for a period of time which is agreed upon between you.
The real ‘start’ of the process comes when you submit a head of terms document, which is a letter of intent that outlines the terms of the transaction agreed during your meeting. The best way to create these is through a property lawyer with experience in dental practices, or even a specialist dental lawyer, who can guide you through the process.
After all of this work is done, you can move to negotiations. Or can you?
Understanding how practices are valued
Valuations come from a combination of the seller's fixed values and an estimated valuation for the business itself. It's important to remember that valuations can be wildly different to the actual value of the business. In some cases, this can work to your advantage - if you see a practice that has been valued low but you have the experience needed to transform its financial performance, it might be an ideal purchase.
More often than not, however, you'll face a higher asking price due to an inflated valuation. Valuations are done by calculating an estimated EBITDA (earnings before interest, tax, depreciation and amortisation) from the following:
- Gross turnover
- NHS contract value
- UDA value
- Associate fees
- Deduction of costs such as salaries, rent etc
Selling agents have a vested interest in increasing the valuation and securing the highest payout for their client, as they will be receiving a commission on the sale. When applying for loans, the lender will assess the practice's valuation themselves but we'd always advise buyers to do this research first, so you can begin negotiations as early as possible and reduce the asking price.
Due diligence helps ascertain a more realistic asking price. See this section to learn more about how it works.
Realistically, third party funding options should be explored from the beginning of any purchase. By speaking to lenders early, you can likely benefit from their support in terms of valuations and can understand your budget in a way you may not have considered. For example, you may be able to leverage buy-to-let properties you own or other assets to reduce your cash deposit burden or unlock better rates.
If you’re working at the dental practice already and looking to take ownership, some lenders will offer different finance options known as partner equity loans which allow you to borrow over long repayment terms. Some specialist lenders may also help you identify and fund profit-driving renovations/extensions and improvements.
Regardless of WHEN you seek funding, you must have it agreed before you can progress to the completion of your purchase. The earlier you can begin your enquiries, the more equipped you will be.
Many lenders will want to use their own experts for valuations and can also often support you with elements of due diligence or other value-driven estimates. Essentially, your lender is concerned with protecting their investment and will generally use their own team of experts to verify it.
Business plan for buying a dental practices
As part of your purchase, you will likely need to submit a business plan to the lender. This business plan helps show the lender that you have considered every part of the purchase and will help give them the confidence needed to issue the funds you need.
It also helps in general as it will focus your approach and help you think from a business-driven perspective as opposed to that of a dentist. In your plan, you’ll need to cover:
- Executive summary - summarise the key points within the plan to give lenders an ‘at a glance’ idea of the investment opportunity. This is usually best when written last but positioned first.
- The proposition - what you intend to purchase, your own background, whether the sale is an asset or share sale. Sale details such as asking price, lease length, the inclusion of any dental equipment and other assets etc.
- You, the purchaser - who you are, your background, the structure of the business once you take it over, the experience purchasers have, other business interests etc
- Your vision for the business - what are your plans for the business once you acquire it? How will you manage it day-to-day and how will it affect the staffing structure? Do you have plans for new services or charges?
- Competition and marketing - what market competition is out there? How will you ensure you win patients over them? What marketing activities and prospective costs do you foresee?
- SWOT - the strengths, weaknesses, threats and opportunities graph is a classic marketing exercise and is useful here. Map each element out to show the lender you’ve considered every part of your business.
Whether you’ve submitted “head of terms” or want to go straight to negotiation, a crucial part of the process must begin before you actually negotiate your deal. This stage focuses solely on finding out as much information as possible to help you structure your offer.
Just as you would never buy a residential home without taking a thorough look at it and having a professional survey completed, you cannot buy a dental practice without performing due diligence.
Your solicitor will handle this stage as it is an intensive and expert-driven process. Due diligence includes collecting three years of the seller’s practice accounts, patient numbers and other data to corroborate what you have already discussed in your initial meeting.
The seller will be forced to complete a questionnaire and submit supporting documents, but their answers do not necessarily have to be comprehensive. The more detail a seller is willing to go into, the more favourable it is for your purchase - as those who are seeking to ‘hide’ information will be apparent to your solicitor.
Your solicitor will also perform due diligence on the property aspects of the purchase, including submitting the Commercial Property Standard Enquiries (CPSE) and reviewing the lease type of your property.
Ultimately, due diligence ‘arms’ you with the capacity to make more informed decisions. It shows you how financially successful/stable the practice is, how its employees fit into the structure, how rights and regulations work within the practice and also shows commercial potential within the market.
Negotiation & agreement
Negotiating the dental practice purchase can be stressful and complex, which is why having a valuation done early can help you make a more informed offer and give you some leverage against the seller. Using that, your own research and the results from due diligence put you in a stronger position.
We would recommend that you discuss your potential purchase with Rangewell first, so we can approach lenders to ascertain interest and help give you an idea of the funding options available to dental practices. For example, your offer price may change if you know you can receive a larger loan with less capital etc.
The negotiations begin with a drafted contractual agreement. This takes the form of a SPA (sales and purchase agreement) that outlines exactly what you are buying and what the prices, rights and regulations governing each element are. The SPA transfers either the entire issued share capital in a dental corporate body if buying from a business, or the entire business and assets of a sole trader or partnership.
The SPA should, at a minimum, cover the following:
- Purchase price: how the pricing is structured - will it be deferred or retained and if so, how will you pay the seller the deferred amount?
- Completion: what conditions must be met in order to complete the deal? This includes elements such as the successful transfer of the NHS contract, acquiring regulatory compliance and any other agreements.
- Provisions for specialist dental areas: when buying a practice, specific elements to dentistry such as uncompleted patient treatments, must be addressed. The SPA should outline how patient payment plans etc will function after the deal is completed. It should also outline processes to deal with any patient claims etc which arise after you become the owner but stem from when the seller was in control. It should also outline NHS clawback information and laboratory fees.
- Restrictions and non-competition: imagine if you bought your dental practice and the seller set up a competitor next door. Their reputation in the community alone would mean you’d lose many patients. The SPA creates restrictions to prevent the seller from setting up competing practices.
- Warranties: the seller will make contractual statements about the historical operations within the practice, covering the most important legal, clinical, financial and operational aspects. If a factual circumstance then arises which is contrary to the warranty, the seller must create a disclosure letter detailing them.
- Liability limitations: if you didn’t provide these in the SPA, the seller would essentially be responsible for liability ad infinitum. The limitations outline the extent of the seller’s responsibilities in terms of breaching their warranties.
At the negotiation stage, the CQC will contact you to arrange an interview. The CQC process must be started BEFORE this stage so that you can have the full process approved before completion.
Realistically, both the seller and buyer want to enjoy as smooth a process as possible. Provided the legal professionals involved are competent and experienced and provide the best legal advice, it should be a relatively straightforward process once you have the research done and the agreement signed. Remember: no dental practice is going to come with zero caveats or challenges, but many might have lucrative bonuses you never considered, such as private prepayment schemes you’ll inherit as the buyer.
Exchange and completion
With all research done, your offer accepted, CQC application approved in principle and your lender’s go-ahead in place, you can progress to completion.
As you move into exchange, the CQC should either have already contacted you with a ‘comfort letter’ which says the CQC application is approved, or you’ll be waiting for one following an interview with a CQC inspector. This letter is vital so you’ll need to wait for it - and it will state that the actual registration is subject to receipt of an effective date from both parties.
The exchange process sees the swapping of signed and dated SPAs, which places legal rights and regulations on both you and the seller. The SPA, however, is usually made conditional upon the approval of CQC and the local area team (LAT).
Your solicitor will then serve the appropriate license on the LAT to request transfer of the NHS Contract from the sole name of the seller to the joint names of you and the seller. The LAT is given 28 days of notice for this, so both parties tend to use this period to deal with the TUPE obligations - those that govern employees and changes to their working lives.
As a buyer, you need to understand the TUPE obligations you have. This means reviewing all employee’s contracts and determining what changes or measures you need to take to change their contracts. This, for example, could mean a change of working hours.
You will outline these in the TUPE measures letter and then serve it to the seller, who is jointly responsible for informing employees of the changes. During exchange but before completion, the seller will run their practice as usual, but they must present any changes that would impact the practice to you.
We’re nearly there! Once you receive your CQC comfort letter, have confirmation from the LAT of the variation of the NHS contract and have funding agreed, you can move to completion. Your solicitors will handle the issuing of funds - all that is left is for the seller’s solicitor to submit the NHS notice to the LAT to retire them from the partnership roughly 1-2 months after the completion date.
You'll now be a new practice owner and be ready to grow your business. If you need help with ongoing operating costs, remember that finance can not just help you purchase the business but also plug gaps in capital and cashflow.
Make buying your dental practice easier with Rangewell
As you can tell from the complexity of this guide, there’s no easy way to buying a dental practice. It’s a process that requires support from legal and financial professionals - but one that becomes easier with the proper guidance. At Rangewell, we have helped dentists and medical professionals from across the UK take their first steps towards ownership, as well as helping those with established practices expand into group ownership.
Whether you want to buy the practice you work in, you are actively browsing practices for sale or you're starting a new venture elsewhere, we can help. Speak to us today to see how we can assist you in structuring your funding application and approaching the most suitable lenders. We work across the whole of market to find terms that will be more favourable to dental practice purchases and offer the best terms to suit you and your goals.
Glossary of key terms
Care Quality Commission, responsible for monitoring all dental practices throughout England.
Local area team, regional body of NHS administrators who are responsible for administering the contract.
Sales and Purchase agreement which transfers the share capital of a dental corporate body or the business and assets of a sole trader or dental partnership.
The Transfer of Undertakings (Protection of Employment) Regulations 2016. A TUPE measures letter sumarises the intentions of the buyer and outlines changes related to the terms and conditions of employment such as changes to opening hours or remuneration.
NHS Contract/General Dental Service (GDS)
The contract the practice holds. Usually a General Dental Service (GDS) contract, but sometimes other contracts like the Personal Dental Service (PDS) or PDS plus contract is held. These contracts are more difficult to transfer.
The notice corresponds with the NHS Contract. These are clauses 231, 292 and 299.
Units of dental activity as stipulated by the NHS contract.