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What would Dr Mo Lar Do? Dr Lar looks to become a principal

 From dental student to associate, homeowner, husband and father, Dr Lar is now at a point in his life where he is considering taking on the challenge of running his very own practice. To achieve his goal, Dr Lar will need to consider a great many factors, including finance, the location of the practice, practice premises and type of contract as well as general compliance and regulatory issues.

 

Finding a suitable practice

The path to becoming a successful principal begins with finding the right practice. As well as needing the right experience and financial backing, Dr Lar would have to consider the impact of current market trends and availability. There’s no point in choosing a practice that isn’t financially viable or is beyond his financial capabilities, as he will either struggle to secure the necessary funding or won’t be able to sustain the business. As such, Dr Lar will need to work with a strong practice sales agent that both fully understands his current financial position and requirements, and can navigate him through the process.

 Acquisition process

No two transactions are ever completely the same, but there are certain processes that are a given during a practice acquisition. Dr Lar should expect:

Heads of terms:

In the initial stages of the transaction, both parties’ teams work together to outline the agreed terms of the purchase including price, the amount of deposit required and legal aspects such as cost protection, indemnities, exclusivity, confidentiality and price amendment mechanisms.

Due diligence:

This is the intermediate process in which the buyer’s solicitors work with the vendor’s team to raise enquiries about the practice and premises. Typically this can take between 60 and 90 days, though in the event of complications, due diligence can cause significant delays. Once Dr Lar begins his acquisition journey he will need to utilise the services of a specialist legal representative to ensure that the process is handled efficiently and accurately. Required documentation can include a detailed inventory of equipment, information about employees, suppliers and goodwill, up to date risk assessments, energy performance certificates, asbestos reports and so on, and three years’ worth of accounts.

Lease transfer agreement or purchase of freehold:

What exact processes Dr Lar will go through will depend on whether he purchases a freehold practice or takes on a lease. Whichever he chooses, he should make sure that conveyancing searches are carried out to ascertain whether there are any issues affecting the premises.

The business sale/purchase agreement/contract (BTA):

Once signed, dated and exchanged, the BTA is legally binding on the condition that other aspects of the transaction complete smoothly, such as CQC registration and transfer of NHS contract (if applicable).

Transfer of NHS contract:

Dr Lar has experience working in a predominantly NHS practice so his sights are set on purchasing a mixed practice with an attractive UDA contract. There are several areas to consider here, including whether the contract is a Personal Dental Services agreement or a General Dental Services contract, and if there has been any underperformance by the seller. If so, there would be a risk of a significant clawback of any overpayment or possible termination of the contract. Only with expert help can Dr Lar hope to navigate through the transfer of the NHS contract.

 CQC registration:

All buyers are required to register with the CQC. Again, this process can be convoluted due to the number of potential pitfalls – such as late application, use of wrong form, and errors or incomplete details – so it is always wise to utilise the services of a specialist legal adviser.

Finance

Before any of this, though, Dr Lar must review his finances and calculate his affordability. He might have his heart set on becoming a principal, but unless he can prove to the banks that he is a suitable lendee, his dream will be over before it has even begun – this is where an accountant comes in.

 An accountant can work with Dr Lar on every aspect of practice finance from calculating his upper spending limit to putting together a business plan, applying for a loan and selecting a lender. The composition of a solid business plan is particularly pertinent, as the banks will not lend to Dr Lar unless they have the relevant proof that he is a suitable candidate. To maximise his chances of success, Dr Lar would need to include the following:

  •  Business aims and objectives.
  • Description of services/products.
  • Potential weaknesses of the business and solutions to overcome them.
  • Market and competitor research/plan.
  • Proposed working arrangements and working hours.
  • Accounts and financial forecast for three to five years including expenditure, projected profit and loss and balance sheet.

Altogether, Dr Lar has a lot to consider now that he wants to become a principal. With the right help from a team of experts including a specialist Independent Financial Adviser, lawyer, accountant and sales agent, though, Dr Lar can rest assured that he’s prepared for what the acquisition process has in store.

 

 

Posted by Gemma

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