An Associates guide – 2015 style
The majority of the Associates that we speak with aspire to ultimately become practice owners – possibly as a result of logical career progression or increasingly nowadays to protect their own position.
With most Associates being self-employed they have very little protection under employment law, they see their income share reducing year on year and ultimately could be asked to leave if the practice is sold and/or their principal decides to change their terms.
To own your own practice is the only way to be in control of their financial future.
How they must look enviously at their colleagues who purchased practices in the early to mid 2000’s. There then seemed to be a ready supply of practices at sensible prices and it the banks would lend to anyone simply because they were a dentist; asking very few questions and making available the full asking purchase price by way of loan – quite often at rock bottom rates!
As we all know the financial world has now changed somewhat and the banks are now taking a much more critical approach to any finance requests and will review in depth all aspects of any proposal.
This is coupled with a marked increase in Practice Goodwill values and sizable competition (quite often from fellow Associates) to acquire the practices which do come to the market and it is not uncommon to have 30 potential purchasers seeking to acquire the same practice.
Key therefore is to set yourself apart from the rest – and here are a few tips which should help and enhance your chances of securing the practice of your dreams:
How much can I borrow ?
Can you purchase a practice for £200,000, £500,000 or £1,000,000….. Before you start your search you really do need an idea as to how much you could potentially borrow. Suggestion is always that you arrange for a financial pre-assessment to be undertaken. By asking a few straightforward questions about your clinical and employment background together with a summary of your personal financial position we should be able to provide a clear guide as to the level of bank support you can expect.
Essential though to ensure you work with an Independent Adviser who works with all of the banks (there are currently 14 who will lend to the dental profession on goodwill purchase) – rather than just approaching one bank direct who will only outline what their lending guidelines will permit and which not be the most flexible – all of the banks are different and there are currently some very favourable and flexible terms available but only if you approach the right lenders.
Sales agents and vendors will always look favourably on any offer which is accompanied by a financial pre-assessment certificate – this is the important starting point.
Viewing the Practice
With so many potential purchasers you need to stand out from the crowd and do remember the vendor may also be keeping notes on you. Firstly – I know it sounds obvious but do turn up on time – then endeavour to establish a rapport with the vendor – evidence has shown that owners prefer to sell to someone they like and believe their patients will be comfortable with. It would be wise to prepare a verbal CV in advance – as very likely the vendor will be asking you questions as well.
Do demonstrate also a level of understanding of the CQC registration and overall purchase process – your business adviser should be able to provide you with a list of the right questions to ask.
Offering on the Practice
Very rarely is price raised during the initial viewing process which of course can be a very emotive subject.
This discussion is in most cases held later with the sales agent and the process will differ from agent to agent – again your business adviser should be able to advise and can provide confirmation to the vendor or agent of your ability to fulfil any offer you make.
BEFORE you offer though, it is essential to ensure the practice is affordable for you and to offer accordingly – not to get carried away in the frenzy simply to acquire ‘any’ practice.
Whilst a Financial Pre-Assessment may demonstrate that a bank could lend you £xxxx (whatever x may be), however this will still depend on the financial strength of the subject practice. The next essential step would be to prepare a forecast Profit & Loss forecast based on YOU as the owner – using vendors prior year accounts as a guide and building in any changes you propose (perhaps you replacing the Associate would be one of these) as well as your own personal costs (of which your loan repayments will probably be the largest).
This P&L projection will dictate if you will be better or worse off buying the practice and most importantly the maximum level at which you can offer – based on available savings and future profitability. Again, your business adviser should provide you with support in preparing these forecasts.
Working with experts
It is vital that you work with a solicitor who has a true understanding of the dental conveyancing process – and to let both vendor and sales agents know you are working with such an expert. Increasingly we are seeing firms offering a fixed price tariff which helps when it comes to budgeting for purchase costs.
Key also to have an accountant who is used to working with practice owners – essential to ensure the most tax efficient purchase structure is in place not just to facilitate the purchase but also on an ongoing basis.
Working with an independent business adviser will not only give you the peace of mind of a whole of banking market overview – they will help you prepare your business plan and forecasts (which the banks will want to see), they should negotiate with the banks to ensure you secure best terms and then ultimately hold your hand to the very end liaising with accountants, solicitors, sales agent, the bank and the bank valuer to ensure a smooth and seamless purchase.
2015 is a tough time for a first time buyer to acquire a dental practice – however it IS possible and hoping these few useful tips will assist you achieving your dream of practice ownership.
Author – David Brewer, Managing Director, FT&A Finance