The purchase of the practice had been approved by her financial advisor and her bank but throughout, she said, she had a nagging feeling it was not going to deliver the money she needed, despite the prediction of an annual profit of £140,000.
How did she avoid acquiring a millstone around her neck? She was saved by a financial forecast.
The story was told by the dentist like this:
'I was delighted to have the opportunity to be given the first refusal, by my principal, to buy the mainly private practice that I worked in as an associate.
'I passed the practice’s accounts onto my accountant and financial advisor who both agreed that it was an opportunity not to be missed. I did explain carefully to them both that I could only work three days compared to my principal who was working five days. I was reassured that this wasn’t a problem and arranged to see the bank manager to arrange a loan.
'The bank manager thought the figures were brilliant and discussed how I would be taking out over £90,000 in dividends and had plenty left over to employ extra staff. I again stressed that I worked fewer days than my boss but this appeared not to matter. In, fact the bank manager was sure the loan would be approved and would meet nearly three quarters of his loan target for the year!
'I was so excited and contacted Cohen Cramer a solicitor (and member of NASDAL) who specialise in acting for dentists. They were very helpful, but pointed out information that I needed from my accountant in order to proceed with the purchase. I was unable to get in touch with my accountant and was recommended Alan Suggett of UNW LLP, a member of NASDAL.
'From the very beginning, Alan was friendly, approachable but most importantly has a wealth of knowledge about dental accounts. As soon as humanly possibly Alan had emailed me a forecast. This showed that the amount I’d be able to pay myself did not even cover my household bills! I was devastated but also angry that if I hadn’t had had Alan`s advice I could have proceeded with the purchase and ended up in financial hardship.
'I would strongly advise any dentist wishing to buy a practice to make sure you get a forecast and it is done by an accountant who specialises in this field.'
Alan explained that although figures showed that the annual practice profit was £140,000, this was only the starting point. That figure would come down substantially because the dentist wishing to acquire the practice could only work a three day week.
Alan said: 'Obviously, the more work a practice-owner pays an associate to carry out, the more the practice profits drop. Also, unlike the practice vendor, the buyer would have to make bank loan capital repayments of £35,000 a year out of taxed profits.'
'When I prepared a detailed financial forecast and looked at income and expenditure, using the existing practice accounts and NASDAL benchmarking statistics as an additional guide, I could see that the current annual profit of £140,000 was going to be substantially depleted to the point where it simply wasn’t a viable proposition for the prospective buyer. Despite considering a number of alternative ways of reducing costs and increasing income, we just couldn’t make it work.'
He concluded: 'My advice to anyone buying a practice is to work hand in hand with a specialist dental accountant with experience of preparing dental practice financial forecasts.'