Deep Breath – Time for the Dental Practice Due Diligence Report.

Deep sigh of relief. After months of careful thought, planning and a few sleepless nights, you have agreed to sell your practice and have found the perfect buyer for yourself, your staff and patients. The hard part is over – or is it . . . . .?

Your new buyer and his dental lawyer will soon want convincing that everything is above board, legitimate, accurate and generally that there are no skeletons waiting to jump out of the decontamination room. This is where due diligence comes into play and it is not for the faint-hearted or un-prepared! All your enthusiastic words and beliefs that the practice is successful, well organised, compliant and a bargain at twice the price will need to be backed up with facts, figures and solid evidence.

Having recently taken a practice through the full sale process I thought it would be useful to offer some hints and tips which might help speed this crucial due diligence phase up and avoid spiralling legal fees.

If you are selling the practice premises, there will be detailed enquiries relating to the property and/or lease but here we are focusing on the business due diligence.

Although due diligence is one of the closing stages of a practice sale, planning really starts long before you even consider selling the practice as you need to be well organised and have up-to-date systems, procedures, policies, financials and administrative records in place.

A practice which is fully compliant with CQC and particularly one which has passed a recent CQC inspection will have a great start – assuming you are working hard to maintain your compliance of course. Keep all your CQC compliance papers, evidence and certificates safe and easily accessible.

Up-to-date, accurate financial records are an essential part of due diligence. In addition to the last three year annual accounts signed off by your accountant, you also need to have reliable figures available from the end of the last financial year to within one or two months of completion date. This is something many practices don’t have and systems need to be set up as early as possible to start tracking monthly/quarterly income, costs and profit either within the practice or in conjunction with your accountant. Leaving this until the last minute when up to 12 months of trading figures may need to be prepared can only delay completion. Neither is this the time to discover that financial performance has unexpectedly slipped.

Understand where your income is coming from and be ready to show the split between private, NHS, capitation/plan schemes and the contributions made from individual associates, hygienists and specialists.

For NHS practices, have all your UDA performance figures/monthly reports easily to hand and estimate any potential claw-back as at the year-end which will need to be deducted from the sale price. Make good use of your practice software reports.

Always remember to keep hold of those maintenance, rental, loan and lease agreements which are often just signed and then lost – you will need these to identify and confirm any outstanding borrowings or liabilities which you may want the buyer to take over and show that equipment is maintained. Evidence will also be needed for any liabilities you plan to repay so discuss early and keep all paperwork.

Employee records are also a crucial part of due diligence so make sure that all your staff files are up to date with contracts, job descriptions, appraisal records, registration certificates, attendance records and any disciplinary or grievance papers. Always make sure your associates & self-employed hygienists/therapists have valid contracts in place well before you reach this stage.

An inventory of equipment will always be required clearly highlighting which items are being sold and which you will take away with you such as your expensive digital camera and the valuable oil painting in reception. Always good business practice to maintain a register of equipment for insurance valuation purposes and also to assist your accountant with annual accounts – plan ahead and again this job becomes much easier.

The due diligence enquiries are grouped into logical sections and it is much easier to approach each of these methodically and see the exercise as a series of small investigations rather than one big task which can seem daunting to yourself and your practice manager.

As you move through the questions, the paperwork will start to build up. With the agreement of the two sets of lawyers, time and effort and can be saved by loading all answers and documentation onto an encrypted memory stick which can be easily transferred between yourself and the legal teams. Once again make sure the documentation is well organised by creating folders on the memory stick which correspond exactly with the sections, sub-sections and individual questions found on the due-diligence questionnaire.

A small investment in a desk-top scanner allows you to easily and quickly save all those paper records, documents and agreement forms directly to the memory stick folders – as an extra bonus, you will save a small fortune on replacement ink-scanners and toners given the volume of photo-copying otherwise needed.

With careful planning, organisation and patience, essential due diligence can be submitted easily and cleanly. If you would like any help with preparation or completion of your due diligence report, please get in touch:

Deep Breath – Time for the Dental Practice Due Diligence Report.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s