Being prepared will not only avoid costly delays but could also maximise the value. Here are some tips to assist you in preparing to sell a dental practice ….
Make sure your Lease has enough time left to run
If you lease your dental practice premises it is important to review your current leasehold arrangements and determine:
- How long is left to run on your lease?
If your lease has expired and you are holding over as a monthly tenant, or if there is only a short period left to run, you may consider negotiating a new lease or an extension of that lease with your landlord.
- What do the assignment conditions in your lease require from you and the buyer?
A tenant cannot simply sell their business and transfer the lease to the buyer, landlord’s consent is always required and the lease will set out the various conditions that must be satisfied prior to the giving of that consent. Your landlord could be entitled to withhold their consent to the assignment of lease if these conditions are not satisfied, so it is important to be aware what they are and know what the landlord can ask for.
It is important to note that general lease assignment conditions would require you not to be in breach of your lease at the time of the assignment (i.e. at the settlement date). Owners that are selling a dental practice because they are struggling financially, for example, will still need to pay their rent and outgoings up to the date of sale. Bear this in mind because if you are in default under your lease you risk not getting your landlord’s consent and the sale will fall over.
Prepare a schedule of Plant and Equipment
A detailed schedule of all the plant and equipment that is included in the sale, as well as a separate schedule of what is excluded from the sale, should be prepared well in advance of selling a dental practice.
You must let the buyer know which (if any) of the plant and equipment are subject to hire purchase agreements or equipment leases. If you are unsure, your lawyer can conduct a search for you of the Personal Properties Securities Register (PPSR).
You should be one step ahead in contacting the relevant companies and obtaining discharge certificates for any charges that have been or could be paid off. You may also need to transfer some hire purchase agreements and should have copies of these agreements ready to give to a prospective buyer.
Formalise all your important contracts
Selling a dental practice involves displaying it in its best light, at all times, to potential buyers. Remember that buying a dental practice is a huge commitment for the buyer, both financially and emotionally. If you do not have certain key documentation, or financial information, available to back up the price and particulars of the sale, it will look messy and prospective buyers will start to get nervous.
If your practice is reliant upon certain key suppliers or employees you should make sure that formal written agreements are in place before the proposed sale as this could enhance the value of the business to a prospective buyer.
Convert all verbal agreements into written agreements as soon as possible and review all existing contracts with suppliers to ensure they are still current and can be easily assigned to the buyer.
Put your practice on the market for the right price
In our experience, the longer a business is on the market, the more the price will drop. This is true of all businesses for sale, but can be particularly relevant to the sale of a dental practice where the values tend to be higher. Seek advice early on from a business broker, accountant, or professional valuer with experience in appraising or valuing dental practices for sale and set the right price from the beginning.
A buyer does not care how much you paid for the practice when you purchased it or how much you need to sell to leave with your desired margin. They will only pay what they and their advisors determine it is worth after looking at the business itself and its finances. If the price is set too high and the accounts do not reflect the profits required to back up that price, the sale will inevitably fall over during financial due diligence.
Have a confidentiality agreement signed at the outset
When considering selling a dental practice you need to be aware that your competitors are likely to be the first people to show an ‘interest’.
You need to be extremely careful how much information you give a prospective buyer so as not to give them enough information to set up or improve their own competing dental practice.
For that reason you should only supply information to a prospective buyer once a carefully drafted non-disclosure/confidentiality agreement has been signed by them. Even then, it is important that you only disclose enough information to enable them to decide whether to make an offer on your practice.
As we have demonstrated above, there are many things that need to be addressed in the planning stages of selling a dental practice. It has to be ready for sale and you need to focus on that now.
With extensive experience in assisting with the sale and purchase of business, including dental practices, Panetta McGrath Lawyer’s Corporate & Commercial Team will be happy to assist.
