John Clarke gives four tips to help finance the purchase of a dental practice.
Many dentists have a specific career plan after qualification, often culminating in them owning their own practice. For the majority, this represents a once in a lifetime opportunity to run and grow their own business.
But purchasing your dream dental practice may not be as straightforward as you think, particularly if you require financial support to compete in a fierce marketplace in which demand continues to outstrip supply. The following tips will enable you to better prepare and secure the necessary funding to fulfil your career ambitions.
Find the right practice for you
You must ensure that the dental practice you purchase is profitable and has sufficient cash flow to be able to pay all outgoings, along with the funding you require to complete the purchase. To ensure you find the right practice for you, it is recommended that you register your interest with several specialist sales agents who understand the dental sector.
Conduct due diligence
Once you have identified a dental practice you are interested in you should conduct an initial review of the key financials of the business, such as bank statements for the last 12 months and the last three years of annual accounts. These will give an indication of the level of turnover, any key trends and the profitability of the business. This information will also be required in support of any finance you may need to obtain for the acquisition.
At this stage, it is a good idea to involve your accountant as they will be able to assist you in compiling forecasts that will show you what position the practice would be in following the acquisition and your planned adjustments to the business. Your accountant will also be able to estimate the price of the goodwill.
Formulate your business plan
A business plan is a vital part of any purchase. This plan is not only used to support your finance application but will also allow you to check that the dental practice you want to buy is the right business for you. Key considerations include:
- What are your short, medium and long-term plans for the business?
- Is the business currently performing at its best? Are there any plans for relocation or extension of the current premises to offer additional treatments?
- Does the current staffing structure suit your plans?
- What are your profit and cash flow forecasts for the business? This can be completed by you or a specialist dental accountant. The plans you present should allow for contingency and evidence that you will be able to meet any loan repayments along with any deferred payments you may have agreed with the seller.
Evidence your cash contribution
All funders will require a level of cash from the purchaser. This will be dependent on each individual’s circumstance and it is recommended that you engage with your chosen finance provider as soon as possible to ascertain what is available to you. Some specialist banks can offer loans of up to 80% of a business’s value and are more flexible in accepting smaller, non-traditional forms of cash deposit compared to traditional high street lenders.
From high street banks to specialist lenders, dentists have no shortage of options when considering commercial finance providers. But it’s important to choose a flexible financial partner who specialises in dental practice transactions will ensure that the process is as streamlined as possible and ensure you will receive the right advice and support throughout the process.
Wesleyan Bank’s comprehensive road map to buying or selling a dental practice serves as a useful guide by highlighting everything you need to know about the dental transaction process.
