Dentistry is an ever-evolving profession. You may be successfully meeting the needs of your clients with the dental services you provide today, but what about the future?
You need to ensure your business can cope with change, so you remain ahead of the curve. One way of achieving this is by purchasing an established competing practice or an existing practice in another area.
That’s a lot easier said than done. Buying a dental practice isn’t a simple process. It requires careful planning, thorough research and access to enough capital.
However, if you’re committed and determined there’s no reason why you won’t succeed in owning a dental clinic. Here’s what you need to consider when buying a dental practice.
Why are the current owners selling their practice?
When you have found a dental practice for sale, always ask the current owners why they’re selling up. It might be due to personal reasons. They may have achieved their goals or just want to move on.
If it’s because the practice is making a loss, you need to reconsider carefully. Are you confident you can turn the situation around and, perhaps more importantly, how much will it cost you to do so?
Don’t be swayed by unsubstantiated claims about the potential of the practice. If it exists, why hasn’t it been realised?
How well is the dental practice performing?
The asking price of a practice is partly calculated on how well it is performing financially but be prepared to exercise due diligence. The current owner may make bold claims, so you need to check whether they stand up to scrutiny.
Check whether the practice has:
- Reliable monthly income
- A solid source of clients
- Control over its monthly expenses (i.e. outgoings are not exceeding income))
- Up-to-date dental equipment
- The potential for future expansion
Examine the practice’s past and recent banks statements, sales forecasts, ledgers, balance sheet, Profit & Loss statements and any other documents that may be relevant.
If the current owner is reluctant to share these, or the figures don’t support what you are being told about the practice, think very carefully before proceeding any further.
Are there any external factors you need to be aware of?
External factors may exist that could impact on practice performance, either now or in the future. These could involve anything from competition, regulatory changes, local economy or politics to advances in dental technology.
Although the likelihood is these will be outside the current owner’s control, you must ensure you can effectively overcome them and generate a return on your investment without draining your cash reserves.
What business finance solutions are available?
Once you have decided you want to purchase, you now must consider what the cost of a dental practice is and how you’re going to raise enough capital.
There are two ways you can handle the costs involved: Commercial Mortgages and Bridging Finance.
- Commercial Mortgages are secured, long-term agreements that can last up to 20 years, or possibly longer.
- They’re typically secured against property, which in this case would be the practice that you’re seeking to purchase.
- You’ll need to place equity into the agreement which, subject to negotiation, typically starts at 20% of the practice’s purchase price.
- If you’re able to offer as much as 40%, lenders may be inclined to offer a more favourable agreement. This will reduce the amount you’ll need to borrow, saving you money in the long run.
- You’ll need to make fixed monthly repayments, plus interest.
- The interest can vary depending on whether you’ve chosen a Variable or Fixed Rate Mortgage.
- Bridging Loans are secure, short-term agreements that can last up to 12 months.
- They’re typically secured against property and can be approved in 48 hours, making them a source of quick capital.
- With a Bridging Loan, you can borrow up to 80% of the seller’s asking price.
- Bridging Loans come in two forms: Open Bridge and Closed Bridge. Open Bridge means you are required to fully repay the loan within a prescribed term or period, not by a specific date. With a Closed Bridge you will be expected to fully repay the loan by a set date.
- Unlike other finance products where you simultaneously repay both the Principal (money that you’ve borrowed) and the interest, a Bridging Loan requires you to treat these separately. You’ll need to agree with the lender whether to repay the interest by:
Monthly Interest Payments – until the Principal on the loan has been fully repaid.
Rolled-Up Interest – where the total amount of accumulated interest is combined with the total amount of money that you have borrowed. When you’re due to settle the loan, both the interest and the Principal are repaid in a single final payment. (Note: this will increase the size of the final payment, so you need to be certain this is the right option for you.)
Retained Interest – you borrow the interest that would be accumulated for an agreed number of months on top of the money that you are already requesting. The amount of interest is then retained by the lender but offers your business a safety net as you make monthly payments until the loan’s Principal has been fully repaid. If you haven’t used up all the interest that was retained, or you’ve managed to fully repay the loan early, lenders may reimburse a portion of the unused interest back to your business.
Purchasing a dental practice?
If you’re looking to expand your practice why not let Chase de Vere Dental help?
Our aim is to empower dentists to make well informed financial decisions. We’re the only financial advisers accredited by Simplyhealth Professionals, meaning our expertise is truly specialised to the dental profession.
Chase de Vere Dental partners with leading business finance specialists Rangewell to be able to offer bespoke funding opportunities. Your aspirations and objectives are unique, and so are the solutions we can provide for you.
Get in touch today to find out more.
Content correct at time of writing and is intended for general information only and should not be construed as advice.