If you are considering your future options and planning to buy your first dental practice, the following key points are well worth reviewing.
1.While it may be more challenging to gain finance compared to a few years ago, the banks are still lending – but only to whom they perceive are the strongest applicants.
On top of this, all banks are different with varying credit criteria and requirements, so do not go direct to your high street bank – instead, find out about working with an independent adviser who will be able to provide you with an overview of the whole market (rather than just the thoughts of one bank).
2. The good news is that there are currently 12 high street banks that are lending to dentists – and they really do want to lend to you! And remember, the cost of borrowing is currently at an historic low.
3. Choose the right lender. Several of the major banks have specialist dental lending teams. This means that the decision to whether or not to agree to your loan will be taken by people with dental industry experience and how a dental practice functions.
4.Alternatively, there are a number of companies that offer independent advice and search lenders on your behalf, effectively doing the ‘leg work’ for you by enabling you to concentrate on your dentistry.
This can be seen as the ideal option as you will have had access to the full range of lending deals on offer.
Ensure that your adviser is Financial Conduct Authority (FCA) regulated. Ideally, they will also be registered with the National Association of Commercial Finance Brokers (NACFB.)
5.Preparation is key. You need a sound business plan with profit and loss forecasts to demonstrate to the bank that both you and the practice you intend to purchase are a viable proposal.
6.Affordability is essential in terms of purchase price, but also to ensure there will be sufficient profit to cover your loan costs, tax and personal drawings requirement.
Again, for best results, work with an independent business adviser as they know exactly what the banks like to see and the format in which to present everything.
7.An independent adviser will work with you to help shape your business plan and funding application, and tender out your proposal to all of the lending institutions to ensure you have the best chance of achieving a positive response. They’ll also be able to negotiate the best terms for you. There are often huge differences in the cost of borrowing (especially the monthly repayments) even if the difference is only 0.25% on paper.
8.It is important to review the whole lending package – how much will the bank lend, or the term over which it will structure the loan? What about the commitment period and interest rate margin? Will it be linked to base/LIBOR rate or at a fixed rate? What are the upfront costs (such as arrangement fees, valuations, security costs, additional accountancy costs) and early repayment costs?
It can be daunting making a comparison between banks, but, again, your adviser should be able to provide a clear spreadsheet outlining the pros and cons of each offering.
9. Are you buying on your own, as a partnership (and if so, is this a conventional partnership or on an expense share basis?) or as a limited company or LLP?
It makes a difference, as there are merits and drawbacks to each option. It is crucial you seek specialist advice to ensure the most flexible and tax efficient structure to fit your own circumstances. I believe using a specialist dental accountant is a real must when it comes to confirming purchase structure.
10. An independent practice evaluation is vital.
You need to ensure that the figure being quoted by the seller is not inflated, is realistic and is a true reflection of what the practice is worth in the current market. This is quite often required by the bank as a condition of its loan facility.
11. Always seek specialist legal advice from experienced dental solicitors. It is false economy to use a lawyer without this specialist knowledge, particularly if there is any NHS element in the purchase. You will most certainly run into problems later once the purchase is underway.
It is also key to work with a solicitor who comes recommended by your peers and advisers – you need them to be approachable and willing to talk and work with all parties to ensure the transaction proceeds smoothly.
12. Insurance, which is quite often left to the last minute and one that should be sorted much earlier in the process, is also an essential element.
Most lenders will insist upon life cover, income protection and practice/property insurance as a requirement of the loan.
To avoid any last minute issues, you really should start your insurance applications as soon as possible and always seek independent ‘whole of market’ advice from a specialist dental independent financial adviser.
13. Finally, enjoy it when it comes to fruition! Owning and running a practice isn’t for everyone but for many it does bring enormous rewards and fulfilment.
David Brewer is the director at FT&A Finance and has been working with the dental profession for more than 15 years. He has provided guidance and advice in practice purchase, new start-ups and retirement planning for more than 1,000 dentists, and provides a proactive, friendly and hassle-free service.