Selling your dental practice: What you need to know

Published: 17/8/2020
By Denplan & Abi Greenhough, Lily Head Dental Practice Sales

Our partners, Lily Head Dental Practice Sales, are experts in helping dentists make the best decision for them and their business. They’re providing advice to help you - our Denplan member dentists - make the right decisions, when it comes to taking you and your dental practice sale safely beyond the pandemic. This blog focuses on what you need to consider and plan for, to help you be savvy when selling your practice. 

What’s changed in the world of practice sales?

The pandemic has changed the landscape. Practice buyers have newfound confidence to drive down values. Banks are still figuring out how to manage their risk when assessing business plans.

It’s going to be a very different experience compared to before the pandemic.

But don’t worry, there’s plenty of support to guide you through your decisions and processes. An established dental broker will be all over how the market is landing as we come out of lockdown. Which is one strong reason why you should engage with a dental broker you trust.

Two main changes to be on board with.

One: Supporting the lending application

Lily Head advises, “Principals will have to actively support the lending applications for prospective buyers.  Purchasers, their finance brokers and the banks are demanding more detailed information before they approve lending.  Of course, we can advise on what that information will be.”

Two: Due diligence

“The level of information you need to prepare to get the best result and satisfy legal due diligence is detailed”, says Lily Head. “If you purchased your practice over 20 years ago, due diligence, if there was much at all, will be a fraction of what you’ll have produced today. Regardless of any frustration you may experience over compiling the due diligence, be sure to keep your eye firmly on the prize. There’s no way of avoiding this unless you wish to sell rather than simply shut the doors when you’ve had enough.”

Of course, Lily Head Dental Practice Sales can introduce you to specialist dental solicitors who can advise on the information the buyer’s legal team will need to see. Much of the due diligence can be done before you market your practice. It’s always good to get your accountants and other advisors on board with this and explain what your plans are so they know what to expect.

So, what else is there to consider and plan for?

Behave like a salesperson.

In its simplest form, remember you have an asset you want to liquidate. You want a purchaser, supported by a lender to hand over a chunk of cash, which they’ll be repaying for the next 20 years.  This cash is most likely the key that will enable you to lead the life you want.

Make sure you understand what you’re selling - and gather all the information which justifies your asking price. As a vendor, you may have a figure in mind for your dental practice. The amount your dental broker can influence the market price is set by what people are willing to pay.

Know what you want, but be prepared to be flexible - and understand that a buyer and their lender must make the numbers work too. Lily Head comments, “If there’s a significant gap between what you want and what you’re being offered you always have the option to not sell. A good dental broker will always be able to help bridge the gap between your expectation and what you’re being offered. If the gap is, in fact, a chasm they probably will not.”

The soft sell.

Buying a dental practice isn’t just about the numbers. If the buyer can create an emotional connection to your dental practice and you then that’s all good. It makes your proposition much more likely to stick.

Lily Head recommends that you pay attention to the feel and appearance of your dental practice: “Does it look like you’ve invested in the business? Are the décor and furnishings up to a good standard?”

Know your numbers.

You’ll then need to have a valuation from a specialist dental broker. Lily Head explains: “A specialist dental broker will assess the dental practice profile, location, income streams, income generators, treatment types, opportunity, reputation, patient base, premises and access.”

Financial statements will be reviewed to establish the EBITDA (Earnings, before tax, depreciation, and amortisation). It’s a multiple of this EBITDA which is one of the foundations of the sale price and what lenders review when determining if they will fund a purchase.

There are a couple of things to avoid according to Lily Head. “Don’t let a purchaser calculate a valuation for you.  Don’t get a valuation from someone who does not actively manage transactions.  You will never get a valuation which reveals the full value of your practice from someone who only looks at your numbers.”

Now you have an idea of what your practice should be worth you need to take that valuation to your IFA (Independent Financial Advisor). You can then discuss how to manage that cash and plan your future in more detail. The sale proceeds may allow an earlier exit than you thought. Pension providers understand that the vast majority hugely overestimate the amount of money they’ll need in retirement.

Hire Dental Specialists.

“Your dental broker will have a list of preferred solicitors”, Lily Head tells us. “Review their list and make some direct approaches. Brokers provide these lists, not for direct financial gain, but because experience has taught them that when clients hire non-specialist solicitors it significantly increases the risk of a deal not completing. Hiring friends or family simply because they’re a solicitor often leads to very strained relationships when deals fail or go off track.

“So, my advice is to hire a solicitor off of your broker’s recommended list. This means that you’re not only in the hands of someone who’s tried and tested, but also that your broker has a good relationship with them so they can easily work together on your behalf.”

Discuss the property with your solicitor.

Lily Head continues, “The sale price you receive is linked to the tenure. In most cases, a 15-year lease will be required under the Landlord and Tennant Act. Talk to your solicitor about what steps you may need to take to have that in place. It may be a lease extension so you can reassign the lease. Or perhaps your landlord will agree to grant a new lease to the purchaser.”

Make sure you’re clear on any building work needed by you or the landlord. If your building needs significant repairs these will probably need to be carried out before you go to market. Lily Head warns, “We had a deal which failed recently. Surveys revealed that the roof of the building needed replacing. Not just the tiles, but the joists and purlins too.”

Confide in your plan consultant.

Your plan consultant will be vested to help you manage your plan and transfer it to your new purchaser.  It pays to be transparent, as Lily Head explains: “It’s a myth to think that your intentions to sell should be kept from your plan consultant for some reason. Buyers will drill into the frequency and the validity of the patient banding, and if this has been neglected the profits will be impacted. This may cause the purchaser and their lender to be concerned about supervised neglect.  Be prepared to disclose the banding, talk about the risk assessments, and demonstrate this is regularly attended to and up to date.”

A few final words of advice from Lily Head.

• Financial information – Advise your accountant as soon as possible about your intentions.  Regardless of your expectations of them over the years they must be prepared to provide annual and management accounts which are fully up to date.
  
  You’ll need to report the financial position of the business through the pandemic and as you unwind from lockdown to purchasers and their lenders. Unexpectedly they’ll want to see a trajectory of recovery to pre-COVID-19 profits beyond breakeven point. Practices which can demonstrate financial recovery will be elevated in the market.
  
  
• Regulation – Ensure you have the correct CQC registration in place for your trading entity.  We can help you with transferring the registration.  We also help buyers with their own CQC registration requirements so this is not held up.
  
  
• Financial Performance – Work strategically with your broker and/or a business coach to identify ways of adding value to your dental practice and to attract the type of buyer you would prefer.

The good news is that a specialist dental broker will help you with all this. Just make sure they have access to everyone in the UK who is considering the purchase of a dental practice. There are those who only have a shortlist of corporate buyers and so limited options to offer you. You deserve to have plenty of choice.

If you’d like to find out more or want further information, please contact Lily Head on 0333 772 0654 or at [email protected]

Take a look at our Denplan Dentists’ Blog for more information and expert advice. 

About Abi Greenhough

Abi Greenhough is a Director at Lily Head Dental Practice Sales and leads the operations team.  Abi leads the sales and valuation team.  Abi has overall responsibility for ensuring our valuations reflect the current market and the unique characteristics of each dental practice we represent.

Abi has a deep understanding of the dental business market; the steps principals should take to maximise the value of their business and how to get the outcome they want.

Abi is a regular speaker at BDA events and hosts several events each year about retirement planning for principal dentists.