Rangewell

How to Sell a Dental Practice

By Rose Brown
Content writer
Published: 10 January 2022 | Last update: 18 May 20221 minute read
Rangewell

​​​​​​​Selling your dental practice can be both exciting and nerve-wracking at the same time. It’s a decision that often follows your years of hard work in establishing, growing and maintaining your practice.

Choosing which type of buyer you’d like to sell to, setting a value and understanding the legal and regulatory requirements are all critical to your success.

Table of Contents

Many dentists who are looking to sell are doing so to fund their retirements, but finding the right type of potential buyer can not only help protect your legacy and employees, it can also help secure the right financial compensation to suit your requirements. However, it's also a market with multiple buyer types, where having good knowledge will maximise your chances of sale success - which is why selling agents are practically essential to the process. 

Even if you’re selling to a trusted professional such as an associate, the ramifications of a poorly-agreed sale can be far-reaching and can, if not properly considered, lead to financial loss long after you’ve moved on from the practice or an entirely failed sale.

Following the 2020/21 pandemic, the dental industry may have suffered but it's clear that dentists remain in high demand as they struggle to clear backlogs. This, in turn, has driven the number of private dental patients up as people are forced to choose private practice rather than waiting for NHS treatment. As a seller, you can use this demand as an opportunity - but only if you leverage it correctly. 

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Make selling easier with a sales agent

Selling a dental practice isn’t like listing your home on a property site. Instead, it requires an understanding of the complex dental market and insight into the buyer types that might be able to buy your business. Generally, advertising your business through traditional means will not be as effective as working with a selling agent who understands your business, your goals and the dental practice market as a whole. 

A good selling agent will not only help you accomplish each stage of the majority of this guide’s contents but also help find buyers who meet your specific expectations and can command the funding needed to meet your asking price. They’ll walk you through the CQC and NHS considerations you may need ahead of the sale and can guide you towards specialist solicitors and accountants so you’re as well-equipped as possible for the sale. 

Rangewell offers a free consultation to any dentist looking to sell their property. As finance brokers for dentists, pharmacists and other specialists in medical businesses, we’re well-equipped to vet and field buyers who we have purposefully matched to your goals - whether they’re purely financial or seek to protect the legacy of your business. 

So if you’re a dentist looking to sell your practice now or in the future, why not get in touch for a confidential chat? We’ll talk through your options and how you can maximise the value of your property - but we’ll also help you understand the funding process and why certain buyer types may be more suitable than others…

Buyer types for dental practices

A fundamental concept of selling your practice is in understanding that there are different types of dental practice buyer. These are, most commonly: 

  • Private individuals: dentists like you who want to take on the responsibility of owning a practice - or perhaps even an associate or someone you’re already familiar with who wants to step up to the role and take on the duties of business owners. You can consider associates as an almost unique buyer type as they carry their own considerations that we’ll discuss further down. 
  • Corporates: large corporate groups have specific expectations around practices they might want to add to their portfolios. This means your own practice may not even be one they’d consider - so you’ll need to understand how corporations operate before you can try to sell to them (and if you actually want to.) 
  • Intermediaries/small groups: a growing trend in the buying market is that of small dental groups who operate a few practices but are far from corporate-level ownership. These smaller groups blend the considerations needed for private buyers and corporates and will require unique planning if you’d like to sell to them. 

Every buyer has a specific way of working that you’ll need to understand if you’re to sell to them successfully and command the best asking price. Some, such as corporates, may indeed be able to offer a more attractive financial agreement but you may not have any say in the future of the practice. Other prospective buyers, such as smaller groups and individuals, may be more likely to offer agreements around your existing employees and the practice’s legacy but might not have the capital to facilitate the smoothest sale possible. 

In both cases, you as the seller need to be prepared to negotiate and understand the priorities of each type of buyer. Whether you’re selling with an entirely financial goal in mind or want to protect the heart of your business and ensure patients continue to visit after you’ve moved on, understanding your buyer is critical. 

Selling agents are a big help here as they’ll be an independent source of information that can help you understand each buyer type, their budgets and even how to add value to cater to specific buyers. 

Selling to associates

Dentists selling to their associates/partners is less common than most think because it carries unique benefits and risks. While you may have a good relationship with your associate and trust them to carry on your business, that same trust may also come with caveats such as disagreements over the future of the business, employee contracts, etc. This level of added personal investment can complicate the sale and warrants careful consideration. 

Remember: you have both the knowledge of owning and operating the business, as well as the dental experience, while the associate does not. They may have certain ideas for the future, but you’re in a better position than they are in terms of establishing ongoing business values. Done correctly, this can protect your legacy and keep employees and patients happy. 

Your associates can also be a big part of the value of your business. Associates likely have less capital available than other buyers and may also only be eligible for certain dental funding options that limit their ability to meet your asking price. 

Again, a selling agent is an ideal solution in this arrangement as they’ll help outside of the sentimentality that likely exists between both parties. They will also be able to help the buyer secure a funding arrangement that suits you, or at least explain options such as deferred payments for when an associate cannot raise the asking price in one round of funding.

Establishing value

Selling a practice is, fundamentally, the same as selling any other property - but has specific valuation requirements that necessitate accountants who know your industry inside and out. Like in a normal sale, you must assess the buyer’s market and see how your property compares to other competing options - but it's a dental accountant who can then help you assess the overall profitability of your business and future prospects. From there, you can start to establish a realistic valuation based on accountant-led forecasts and the advantages that you hold over other sellers. 

These advantages may include: 

  • Location/demand: is your dental practice located in a high footfall area? If not, does it have ample parking and an established list of patients who continually return for treatment?
  • Demographic: more affluent areas are better able to afford private care and other more expensive dental services - which means a dental practice in a town with a higher income level than a neighbouring one is likely to command a higher price. 
  • New patients: does your practice have many new patients? How many did you accept recently and what impact will that have on your finances? What is your retention rate, as buyers will want to know how likely it is that they’ll keep your new patients once they take over? 
  • Property assets: what type of lease do you have on your practice? What level of development has been done in the area and to the building? Do you, for example, have a larger car park than your competitors or an unused outbuilding that could be converted to add value? 
  • Marketing: is your practice established in the marketing space? Do you have a social media presence, website or any other assets that provide tangible data to show you have an advantage over other potential purchases for buyers browsing the market? If so, it can be the thing that gets you ahead when other factors are similar. 

Of course, using a selling agent will help cut down on the time required to do this research as they’ll be able to steer you towards the best possible price and even make recommendations around ways to increase that asking price during your selling journey (such as adding a cost-effective equipment upgrade before the sale to increase the overall price). 

Due diligence

Due diligence is part of the legal process that will occur when a sales agreement is reached, but it’s also worth knowing about before that happens. Due diligence will be driven by your buyer’s legal team with the support of the funding provider. It is a series of checks and requests that looks to establish a full picture of your business by working through everything from your property lease type to your patient roster. 

Don’t take due diligence personally - it’s all about protecting the investment and is absolutely essential in order for funding to be approved. To prepare in advance, try and gather whatever information you have around the following: 

  • Accounts and finances - documentation of your business loans, finances and practice accounts.
  • Property - status of lease, value etc. 
  • Contracts and trading agreements - agreements such as sale/supply of goods and equipment. 
  • Assets - existing assets your business holds such as dental equipment, but also extending to computer hardware and software. 
  • Intellectual Property & litigation - any existing issues around IP protection (such as logo theft or another business copying your name) or other litigation. 
  • Employees and pensions - a full roster of your employees, their contracts and salaries as well as any pension schemes. 

These are just a few of the aspects you might have investigated during due diligence - but most of it will be handled by your solicitors. When using a selling agent, the process becomes even more simple as they’ll help the solicitor with the due diligence process so that you don’t have to. 

Asset or share sale

Depending on your company’s structure, you offer either an asset or share sale to the buyer. In an asset sale, you sell specific assets of your business whereas a share sale involves selling your majority shares. As a seller, look to sell via a share sale whenever possible because you’ll be free of all liabilities and can move on from the sale with a ‘clean break’ as the buyer inherits any responsibilities and liabilities for the company itself. 

Pre-contract

Once this is decided you can enter into pre-contract negotiation, which is where you’ll have a meeting with the buyer and discuss your business. They’ll likely ask questions around turnover, profit, operating structure, any capitation schemes you have in place and how many employees and surgeries are in your practice. The answers you give to these questions help increase your buyer’s confidence and also help expedite the funding process. 

Once a buyer is serious about your dental practice they’ll submit a head of terms document which outlines what you discussed in the meeting and their intention to purchase it. This is drafted by a professional solicitor. Without this document, any sale you might think you have secured is not valid - so it’s vital that you receive it. 

Negotiations and sales agreements

Once you’ve done all necessary negotiations and have created an understanding between you and the buyer, you can move on to negotiations and the sales agreement. The buyer will have their own valuation, often arranged by the funding provider, which is used as a counter-offer against your own practice. Like Due Diligence, this is not a personal attack and you must understand that the funder treats the buyer as an investment that they want to make their money back on - so they can’t allow a sale to go through without a value they agree with. 

A sales purchase agreement (SPA) is drafted between both parties, which outlines the full conditions of the sale and outlines everything that you’re selling to your buyer. It also outlines key rights and regulations as well as ongoing responsibilities such as protecting existing employee contracts etc. 

The SPA should also include warranties. For a seller, these are very important - they are what you’re setting out as warranties to the buyer when they complete the sale. They are written as statements such as ‘I have no existing litigation against my business’. These statements must be clear and simple to understand so that the buyer can either agree with them and progress to the next stage or discuss changes to the warranties offered. 

Breaking warranties can force buyers into legal action, so ensure you are happy with the warranties you’re offering and have them double-checked by your selling agent and legal team. 

Employees & TUPE

Part of the agreement is governed by TUPE, or The Transfer Of Undertakings Regulations. TUPE aims to protect existing employees and means you’ll need to discuss contracts, opening hours and salaries with the buyer. If the buyer needs to change any of these aspects of an employee’s life, they may find the process difficult - so they must be aware of all employee situations before agreeing to buy the property. 

You will often add a warranty in your agreement that you’ll indemnify the buyer if you were to change anything as the seller that impacts the buyer’s purchase once completion is finished. 

As a seller, you can continue running your dental business as normal throughout the S.P.A and negotiation stages until final completion, but you must notify the buyer if you change anything that would impact the practice as an asset (such as terminating an employee or changing hours etc.). 

Associates are almost always self-employed, so their agreement will not fall under TUPE.  You must discuss and agree with the buyer on terms that will protect the associates and other self-employed roles such as hygienists. You should discuss these directly with your associates beforehand so they are aware of the terms and happy to progress. Doing this is crucial - otherwise, you, the seller, may face legal challenges from the associate should the buyer dismiss them. 

Completion

Once all parties are agreed in the SPA, your buyer needs to have their funding approved by a finance provider. A broker such as our team at Rangewell will ensure the buyer’s funding options match your expectations. The buyer’s own ability to raise funds depends on their lender’s assessment of your business as an investment. When fully satisfied following due diligence, valuations and other agreements, the lender issues funding and exchange can begin.

Your buyer must possess a CQC application grant before they can take over your practice. Once they have received a letter of comfort after around 12 weeks, they will be able to agree to the final sale. Your solicitors will swap signed and dated SPA. documents. Your solicitor will advise the NHS that you're going to practice as a partnership, or they'll advise on changes to the ltd company partnership contract. The LAT will list you and the buyer as joint names on the contract until you notify them 1-2 months after to remove you (once you’ve received funds). 

As you can tell from the length and complexity of this guide, selling a dental practice is far from simple. However, it is likely your life’s work that you’ve poured years of experience into growing - so it’s worth taking the time to get the process right and ensure you’re happy with the sale. Whether you’re looking to get maximum value to fund retirement or want to protect your legacy and patients, the way you go about selling your practice will impact either goal. 

Selling your dental practice shouldn’t be like pulling teeth… 

Dispense with the complexity and use Rangewell as your selling agent. We’re specialists in dental practice finance for buyers and dental practice sales, so we know the lender’s market inside and out. We also have an extensive history acting as selling agents, so we understand each buyer type and can help screen irrelevant offers and find the right buyers for your ambitions. Get in touch today to get started. 

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