Purchasing your first dental practice – Key insights from the Corporate team

Transcript Caitlin Batty: Welcome to our first podcast in a series from our primary care sector. To start the year, we are focusing on the dental industry with a piece about buying a dental practice, which we hope you will enjoy. Our dental team have a wealth of experience in advising dentists in relation to their businesses. My name is Caitlin Batty, a chartered legal executive in our primary care sector, and I'll be the host of this series talking about considerations relating to acquiring and running a dental practice. Over the next four weeks, I'll be speaking with four guests here at Weightmans in our corporate, real estate, employment and regulatory health care departments about their top tips for purchasing a dental practice. This week on the podcast, I'm talking with Abigail McGarry, a solicitor in our corporate department who has years of dental experience. We will talk about Abigail's top tips for purchasing a dental practice, covering different deals on dental practices, NHS contracts, delays in transactions, and why it's important to have specialist health care lawyer deal with your transaction. Hi, Abby. Abigail McGarry: Hi, Caitlin. Caitlin Batty: Thanks for joining us this week, Abby. So you've been involved in countless dental transactions, so no doubt you can offer plenty of insight here. Do you have a set of key considerations to share with our listeners? Abigail McGarry: So I think when you're first purchasing a dental practice, and I imagine it can be quite daunting. I think the first step you want to be thinking about and it it may seem obvious, but, you know, what can you afford and what's on the market right now? My first step with that would be was to speak to an accountant. Accountants can be so helpful, and offer a wealth of experience throughout your career as a dentist and business owner. They aren't just going to be there for the transaction. They are going to be there on a yearly basis helping you file those all important accounts by those all important deadlines. So having them there from the start is fantastic. My advice would be find someone that knows the dental industry, has dental specialism. There are even different accountants out there that work in bigger practices who have, a bit of everything under one roof, but obviously make sure as well they have that dental experience. And that comes down to really there's some nuances, particularly where you've got an NHS contract. You you are going to have to consider where that that money sits because, there are certain restrictions on who can hold an NHS contract, how the income can be derived from that in NHS contract. So you want to make sure you've got someone that knows what they're doing. For example, if you are subcontracting your income from a limited company, there are certain restrictions and requirements that the NHS have in respect of doing that. So you just want to make sure your accountant knows that, they know when the time comes to say oh actually you might need an agreement in place to, to make sure you're complying with that, and they'll send you back to us. And it's always, you know, it's a good back and forth relationship there. And I think the important thing to remember is as of day of completion, your accountant is the going to help you with lots of other things. So for example, you're going from being self employed where you'll file a set of accounts every year. And, I believe the date  is upcoming for all the self employed people and they'll assist you with that. But now you're going to be responsible for other things like paying people's wages, paying suppliers, putting money aside if you've not made your UDAs that month. You know, a good accountant is gonna help you with what you can afford when buying, help you with the buying process, and then help you with your, you know, your lifelong career after that as a as a practice owner. And then understanding the business you're purchasing. So, for example, you know, what do the financials of this practice look like? Is it an associate run practice? So, for example, if you're an implantologist and you want to keep up doing your visiting days at your practices, and you want this practice to essentially have its a full set of dental associates doing the day to day, then you're looking for an associate at that practice. If you want to go in and be the principal dentist and work there full time, then you want a practice where there's currently a principal dentist and they're looking to retire. You'll probably want a little bit of overlap to pass over that goodwill, but these are the sort of factors you're considering. So go and speak to a dental, you know, agency that, you know, that are selling dental practices. There's quite a few out there. They, you know, they they'll know the dental industry inside out, but just make sure you know your key, most important requirements is what I'd say. Be that staff, be that the turnover of the practice, important to you. Caitlin Batty: Yeah. That's really interesting, particularly on the, you know, the accountant front and the key requirements. You know, getting someone that you really trust sounds important there as well. So when a buyer has put an offer in and it's been accepted, what generally are the next steps thereafter? Abigail McGarry: So at that point, will you probably come and speak to us? You're more than welcome to speak to us before. We can offer, some advice leading up to it. What I would say is then I'll what I will do is I'll have a call with you. There's a bit of a misconception with the legal industry that the minute you pick up the phone to us, we are charging you for every minute you speak to us. In the first instance, what we will do is have a free phone call. Look, but please be assured that we're not charging you for our time. What we're going to do in this in this phone call or Teams meeting, or if you're local to me out, you need to come into our offices, passing through your town, we can speak. Most of the time it's over Teams because that's just the way the world operates at the moment. But we'll have a Teams call, and we will I will get to the bottom of what this transaction looks like. And then based on what that transaction looks like, I can then quote accordingly. So we're gonna look, you know, what's the purchase price? Is it five hundred thousand? Is it one point five million? And it gives me a better idea. The purchase price will give me an idea of what work is involved because the likelihood is if it's one point five million, it's multiple surgeries. If it's five hundred thousand, it might be less surgeries. There might be less due diligence to do. You know, there's method to our madness, let's just say. So then the other thing I'll ask you is, you know, are you taking bank lending? Again, not a problem. More than equipped under this this one roof of Weightmans to deal with all of this, but there's just different steps involved for each. So I need to know, are you taking bank lending so I can know are we going to need to also satisfy the bank's requirements? Next, you know, who is the client? So are you buying as a limited company? Are you buying your individual name? Are you buying as a partnership? These different things will mean there's different steps. Again, not an issue. There's just different steps involved. So then I can quote from my time, and my colleague's time accordingly. So for any, I'll, what I'll give you is, is an example. If you're buying with a limited company, there it is governed by the companies act two thousand and six, bit of boring legal knowledge there. That means that you have to do certain authorizations to approve the purchase. So that's just an extra step. Stuff that I can draft for you. Just need to know I'm doing it. And if things change during the deal, just let me know and we can adjust accordingly. But these are the sort of things I'm asking you. Property, are you purchasing the freehold leasehold? But what I will, caveat this with is, I will leave this with our real estate team, which is, I believe is Matthew will be speaking to you on this matter. And they will quote you separately because that that's their area of expertise. And then finally, and there is other nuances, but kind of the big ones, is it an asset or share deal, is what I just need to know. Because, again, different structures, different type of deal. So it's really important then that the client gives you all of the information so you know what you have to deal with, the steps you need to take, and then you can quote them accordingly as well for that. Caitlin Batty: That's really interesting. You mentioned needing to know whether it's an asset deal, or a share deal. So what what's the difference between them? Abigail McGarry: So an asset deal, which used to be the most common, actually, but I am seeing the way around now where share deals are more common. But asset deal is where you are purchasing the assets and goodwill of a dental practice in this instance. It can be any business, but generally of a dental practice, with what we're discussing. The so the goodwill, for example, is, the reputation, the patient list, that the thing, the stuff that brings the value to the practice. And then the assets are the dental chairs, the x-ray machines, the chairs and reception, they're all classed as an asset. So they're you're buying that separately. So that's that's a deal in itself. And you might be doing that by using your own trading entity. Like, so for example, you might buy the assets using your existing limited company or a new one. The seller may have hold this in a limited company, but you might not want to buy the shares in this limited company. You just may want from them the assets and the goodwill. And so these transactions are different, slightly simpler from a legal perspective, just slightly more complicated from a regulatory perspective. So from a legal perspective, it will be a straightforward asset purchase agreement where the and then you the liability from both the seller and the buyer are severed at the point of completion. So you are kind of taking all that off of the seller's hands, but because it's not, it’s because they belong to them before and now belongs to you, then the liability's severed at completion, and they know that there were different owners in place. And when that I'll explain why that's important when I come to what a shared deal is. So the CQC registration is going to be slightly different because you are going to need a new provider registration, which will affect the time scale. So that will mean that we've got a minimum of twelve weeks ish depending on where the CQC is at the moment. But again, we've got a speaker on the regulatory side, so I'll let them expand on that, but it just affects time scales slightly. And then the kind of other key point of an asset deal is so the transfer of undertakings, protection of employment will apply, which is commonly referred to as TUPE depending on your colloquialism. But I know Ian, will be talking about this in a later podcast. But that essentially means that when you inherit employees, their employer is changing, and they are protected. Their employment is protected back under this purchase. There is much more detail for that spot, like I say, I'll let Ian mention that. And so the difference comes with the share deal, which, like I said, is actually is more common these days, because people are from due to certain tax perspectives, people are seeing the benefits in running a business for a limited company. And, again, it will depend it will differ from practice to practice and deal to deal, but this is more common, these days. So a share deal is when you purchase the shares in a company. So the company itself, how I like to describe this is it's like a living, breathing entity. So the, the company itself that you are buying the shares in will be the employer. It will be the provider on CQC. It will have its own assets, its own liabilities. It encompasses everything. And all that is changing when you buy shares, so you can either buy the entire share capital, you might only buy fifty percent. It's the control is changing. So there's just different steps to take. But where it becomes a little bit more oh, and it's not complicated because from a legal perspective, we do this day to day. But there is a lot more to do from a legal perspective is because you are inheriting those liabilities. Now what we do as lawyers is build in protections that allow you to kind of get compensation back from the seller, for things that may have gone wrong. Oh, you know, let's say a few months leading up to completion. There's ways we can protect you. But, ultimately, if someone wants to sue the company for something that went wrong before you bought it, let's say two months before, they're suing the company. And you are now in control of the company. So the company's going to suffer that loss, and then you are going to have to try and recoup that loss from the seller if you can and if it relates to and due to lots of other nuances and due diligence that might go into it. But essentially, yes, you are inheriting a fully functioning entity. And what fully functioning entity. And what comes with that is it has its own accounts. It has and as I said, it has its own assets. It has its own liabilities. So what we need to do on the on completion or post completion, should I say, is a completion accounts exercise, which is, again, where your account comes back into it. We'll draft the provisions with their assistance, and then there will be, in the weeks following completion, an exercise which establishes exactly what the financial position on the day of completion looks like. Now what you want it to look like is agreed. So if you basically like this, sometimes referred to as an asset position, sometimes it's referred to as working capital. You agree a figure. And we also explain this in much more detail when you get to that stage, but you agree a figure. And if that figure transpire and both parties will want this figure to be as close to what's being agreed as possible. But obviously, because things change and it's a trading entity and they're getting cash in every day because they're a dental practice and people are being seen and they've got, you know, the, waste removals coming in, so they need to pay them. So things change from a day to day. So you try to get as close as possible. But what will happen is usually, if the figure is higher than what's been agreed to more positive, then the purchase price will be increased by that amount. And if it's less than what was agreed, then the purchase price will be decreased. And then, you know, depending on which way that falls, it will go to either party. Now I don't want to scare people with that because it like I said, it is in everyone's best interest to get that figure as close to what's agreed as possible because no one wants to be messing about post completion, transferring lots of money or not knowing what they are, buying. The kind of and, and I come back to it again. The best way to kind of protect yourself in these situations is, again, have a good accountant. They're going to do so we're going to collate all the financial due diligence, and we can send that onto them then, and then they can see, you know, they have a much better idea then on what we're working for and what we're aiming for. So you don't come to this, you know, this shock two weeks after completion that you now have to pay another twenty thousand pounds. It shouldn't work like that. You should be well prepared with it, and your accountant should have a good idea of what the day to day finances are looking like. And, again, we can build provisions in. But this is where I say, like, it makes it more complicated. So, you know, when we, you know, when we're asking you as a sharer asset, these are the reasons we like to know. And there are what we do to protect you because of this is we put lots and lots of financial provisions into the share purchase agreement, which, again, means that the document's longer, the work that goes into it is longer. There are some you know, in terms of time scales, it can be faster to do a share deal because, the CQC provider doesn't change. But, again, there is certain things that we'll have to change. So for example, we you will need a new registered manager. You will have to notify them of the control change, but, I'm sure our regulatory team will explain that in a bit more detail. What we'll just finalize that bit off with is that I explained them as a solely asset and solely share, but also in the dental industry, it's very common to see both. So people may buy the entire share capsule of a company that runs the private element, owns the property, and then they may buy the assets and goodwill in a asset purchase from the NHS perspective because the NHS contract might sit in their individual name. So all deals are different, and they are that's why I will kind of stress in our first phone call of just trying to get down to the nitty gritty. And if you don't know the answer, it's absolutely fine. If you give me the details of whoever you're buying the practice through, we've probably spoken before and I could actually just, we, I can have a good conversation with them. I can have a look at the sales perspective. Sale prospectus, and go from there. So don't panic too much, but these are the reasons I'll probably ask you a million and one questions when you first come to me. Caitlin Batty: It sounds like, obviously, you need to know a lot of lot of information for what type of sale they're wanting to go down. But just in terms of the different avenues that they could go down here, why would a deal go one way or another? Do they choose whether they want an asset share asset deal, sorry, or a share deal? What's the decision process? Abigail McGarry: So it's usually down it's already been decided. Usually, when this the practice is put on the market, there's a lot of tax benefits to either way. And it will depend on how the seller has taken advice on how it's best to sell the practice. And they will take advice from an accountant from a sales, tax perspective, and then they'll take advice from the sales agent who will give them a general idea of what they can get for it as a shared deal, what they can get for it as an asset deal. Like I say, you will see a lot of asset deals where there's an NHS contract set outside of the limited company because you can't sell your NHS contract. And if you incorporate it, then the NHS rules will be triggered and, that there are certain provisions in there that they might be able to put out to tender. But these are all different little things depending on your NHS contract, and I'd have to look at the NHS contract specifically. But, yeah, the general gist is you don't because you can't sell your NHS contract. That will dictate that that element of the transaction is an asset transaction, because it can't be then put into a limited company name. It has to be put into another individual's name. Caitlin Batty: Right. Okay. So over the over the course of your experience, it sounds like you've come across a lot of NHS contracts here as well then. So you've got experience here. For these practices, what do they need to look out for? How will that alter the structure of their transaction? Abigail McGarry: So the following quite nice actually is that the first bit is it inside or outside of the limited company? So if it's inside the limited company and you're buying the shares in the limited company, happy days. You literally just need to know, is there a change of control pause in the GDS contract? Again, I can check that for you. That's absolutely fine. And then, again, it's just it's just a notification process, so it's much more quicker. If it's outside of limited company, what we'll need to be doing is putting you onto the seller's contract, and we can't do that without the correct CQC registration in place. What we need is what's called in the industry either a comfort letter or position statement. Once we've got this, we can serve notice on the NHS. So for example, I got the position statement today for the new CQC registration. I would serve notice on it on the NHS at the end of this month, adding you as the buyer to the NHS contract. And then we would get contract variation, which varies the NHS contract by the first of March. And just because that's there's like a twenty eight day notice period you have to do and the certain dates you have to do it within. Mhmm. So you do it like that. And then it comes into effect from the first of, the following month. Then that just dictates time scales. So you need to have a good a good idea of, whether it's this case because then you want to know you're ringing me up and saying I need to complete this in in six weeks. And I say, well, if the NHS notice needs serving, well, have you applied for your CQC? That sort of thing. Then I can manage your expectations and say, no. It's probably going to be four months. But what we'll do is make sure we get everything ready and good to go, and we're just waiting on the NHS. So these are reasons that you kind of need to know. It will dictate your financial position where you put that, income through. If you've got and then for example, if you've got dental associates, they will need a associate agreement between you as the practice owner with the you as the practice owner as the NHS provider. But then if you're also running the good the private goodwill for your limited company, they're going to need a separate agreement or some form of agreement in place that shows that you also engage them as an associate from the limited company. So the NHS contract can dictate lots of different things, and there's lots of pension implications that, again, I defer to my employment colleagues. But, yeah, there's lots of different implications that we need to know. And I suppose the final thing I will be looking out for in an NHS contract is, and probably most importantly, have they been performing their NHS contracts so large for part of the due diligence I will perform is looking at their pay and activity statements, finding out, are they performing? Have they been issued with what's called a breach notice for underperformance or any other reason historically? We want to know these things, and we'll be looking into these things to make sure, you know, because last thing you want is to buy a practice. They've received two consecutive breach notices because they've not performed this contract properly by a long mile for two years. And then you've bought this practice for a certain value. And then the NHS said, oh, well, we're taking X amount and claw back off you. And, we're taking the contract off you. Obviously that's a horror story that doesn't happen very regularly, but that's the reason you have a solicitor. That's the reason you have solicitor that knows what they're looking into from a dental perspective. And that's the reason we do due diligence and why due diligence is so important. Caitlin Batty: Yeah. It definitely sounds like having someone who knows who knows this niche area is really important. Obviously, you've touched on, some delays that can happen in transactions such as the NHS and the CQC registration. Is is there anything else that that buyers should be aware of what might delay their transaction so they can prepare enough time? Abigail McGarry: Yeah. So I think the other things are, and I wouldn't always say that delays. I just think they're matters that must be factored in. So for example, a third party landlord, they will have a million and one other things going on in their life as a landlord. So your transaction may not always take priority. And they're gonna they might have to instruct their own separate solicitors to do the, to do to deal with, the you taking occupation in the building. Again, I think Matthew will expand on that, but that's kind of a common one where I see where people have not considered it, and are very disappointed then when, the transaction's taking slightly longer than, obviously, they wanted it to. But if we know at the outset, there's a third party landlord, we can manage expectations. Are you taking bank lending? We can manage your expectations. They may, depending on the value of money they're lending you, they may want to instruct their own solicitor. So then we've got to get sign off on these documents by two separate sets of well, three technically of the seller's solicitor, three separate sets of solicitors, adding a landlord of his own solicitor. We're talking four sets of solicitors working. All necessary because we've got conflict, considerations that we have to have to consider as solicitors. So we can't always, Act for everyone in the transaction. So they are necessary, but you do have to consider this that that's an extra set of requirements. I have a lot of clients say to me, why do banks need their own solicitors? And I say to them, if you lent your friend a million pounds, you would want some security there. You would want some reassurance. We, as your solicitors, that sometimes we can act for the bank solicitors, and it entirely depends on their preference or the amount of money lent or their risk or panel solicitors. But you can appreciate that they might want an independent set of solicitors acting for them because they're about to give you millions of pounds. So they want to make sure that millions of pounds is being lent for the right reasons. It's secured. And then, you know, two sets of eyes sometimes better than one. So they might just feel that if the chairperson's agreement or the lease or the, the legal charge has gone through two sets of solicitors, it might just give them a better peace of mind. I think the misconception comes where, you know, most people before they buy a business have only really, maybe only dealt with buying a house. Now the value you've got, I think what you've got to appreciate is the value is very different and that that's why it can just add time. And it's nothing that we can't deal with. It just it's just management of people's expectations. And again, CQC, which I've touched on, and NHS, which I've touched on, they're just it's all about managing expectations and timescales. It's nothing we can't deal with. I mean, we've got a full house of people to deal with these things. It's just we need to know so we can manage expectations. So I guess throughout the entirety of the process from the start all the way through to the end, it's just vitally important that you've, you know, got an accountant that you can really trust and can deal with the process throughout, but also that you've got a specialist lawyer who can deal with this all this transaction and really knows this niche area. Caitlin Batty: How important is it in your opinion? Do you think that that you have someone who knows what they're talking about in terms of these transactions? Abigail McGarry: Immensely. Immensely important. And I have you know, it it it's not to say, you know, at the end of the day, it is a corporate transaction. It is buying and selling of a business. That is something that most corporate lawyers are very, you know, can do day in, day out. The importance of a dental solicitor comes in with all these nuances. It's knowing your GDC requirements. It's knowing your NHS contract. It's knowing the CQC requirements. We are so lucky here at Weightmans to have a full primary care team. One of the biggest healthcare teams generally in the in the country that deal with, like, healthcare regulatory things, the NHS, NHS matters, CQC matters. So we have the benefit of you know, for example, I know this is about buyers, but, you know, the sellers that can be having, you know, issues with the GDC or, you know, being investigated, which I really have said before because it must be awful to go through that as a professional professionals ourselves. We know that, you know, we that our professional, qualification, means the world to us. We spent a long time getting that, and these practice owners spend a long time getting to be a dentist and own a practice running their own business. If they're going for the GDC proceedings, it can be, you know, a very difficult time. What's amazing for us is I work in the same office, and we have a firm wide full of people that, you know, are very, experienced in health care. But I can go up to them and say, you know, I've got this client. They're looking to sell their practice. They're currently going through this, you know, this really difficult time. You know, what time scales am I looking at? Like, do I need to get this through fast so they can focus on, you know, maintaining their professional career and get rid of the, you know, or, or are we looking. Or they need someone to help them with their, their, their GDC stuff. We've, we've just got that all under one roof and it's so helpful for the client because I I think the important thing to remember is as well, you know, we have healthcare real estate lawyers, because that's got a nuance to it. You know, it's a type of a different type of property, area of property that Matthew will expand on. We've got the regulator at the employment side. There's a lot of nuances. There's a lot of self employed people in the dental industry. You know, we need all these people to work on your deal and then to work with you for your lifelong career because I think people probably, what I see the most of is I work with other types of business and solicitors are very much there on the hand all the time for someone to run stuff by. But I think there's sometimes a slight misunderstanding that we are just for the transaction. We're not. We can, we can support you through your entire raw life as a business owner, a retired business owner, you know, prac succession, that sort of thing. We are so lucky that we have all of this under one roof that it means that you as a business owner or potential business owner when you're working nine, ten hours a day, getting through all of your patients, You're not having to ring all these different people. We are all in one place and we know what we're doing and we know the nuances. So I  just can't stress enough how just how important it is to make your life as a dentist and as a business owner just so much easier. Caitlin Batty: Yeah. I totally agree. Thanks, Abby. As you've touched upon during this episode, you know, we're gonna be speaking with Matthew Jones in our in our real estate team. We've got employment experts speaking and, obviously, from a regulatory point of view as well. So, join us on our next upcoming episode with our property expert, Matthew Jones. He's a principal in our real estate a principal associate, sorry, in our real estate team to discuss his top tips on buying a dental practice. He will be covering all things freehold and leasehold property, bank lending impacts, and common disbursements and costs that can arise in transactions like this. So I think it'd be really insightful to see what he's got to say off of the back of what you've brought to us today. So thank you for joining us. Abigail McGarry: Thank you, Caitlin.