Guide to buying/selling a private practice

Whether you are buying or selling a private practice, it is essential you make the necessary advance preparations which will place you in pole position for taking this forward. In doing so you can ensure time isn’t wasted at a later date and opportunities are not lost. Here are some tips to help you get started:

SELLING

Preliminaries:

There is nothing more likely to rock the confidence of a prospective buyer than to discover, mid-way through the process, that their seller has “failed to get all their ducks lined up”! An early approach to your accountant and lawyer are essential to avoid this.

Your Accountant

Liaise with your accountant to ensure your affairs are completely up to date and that your business is structured in the most appropriate way to enable you to maximise the value from it.

Check also any relevant timing issues which may impact upon your decision to sell – and the timing of it e.g. with regard to tax allowances etc.

Your Lawyer

Ask your lawyer to check your title documents to identify any steps which need to be taken to enable you to pass on the property to your Buyer. Do you have a complete set of title documents readily available?

Are any consents required from third parties – e.g. either to assign or extend a lease? If you have a mortgage are there any penalties for early redemption? Is the legal Use of the property (based on both the title and the planning requirements) compliant with the practical use?

If you intend to retain ownership of your premises, instruct your lawyer to prepare a draft lease with a minimum 10 year Term (the minimum requirement of a Buyer – and their funder)

Also ask your lawyer to check your staff contracts – and ensure you have a complete set available to disclose to the Buyer.

Collation of information required by a Buyer:

There are certain steps a Buyer will expect to take – so prepare yourself in advance for these to avoid delays later. These include:

Business Due diligence enquiries:

  • Accounts, employment contracts, hire purchase agreements, leases, waste contracts, practice insurance, confirmation of CQC registration etc.

Premises:

  • Energy Performance Certificates and Asbestos Reports
  • Completion of Commercial Property Standard Enquiries

The Transaction:

Your Valuer/Agent

To ensure you achieve the full market value for your practice, you should consult professional valuers/agents. They will initially provide you with a valuation, together with market evidence of what you may expect to achieve. Essentially, your practice is worth “what someone is prepared to pay for it” – but as the majority of buyers will adopt a similar approach towards evaluating a business, your valuers will be able to advise you on what to expect. They should also be familiar with what has been achieved in other similar transactions, which may be relevant to your specialty or your locality.

That said, you may be lucky enough to receive an offer from a “special interest purchaser” which is higher than you anticipate as they may not be constrained by the requirement for bank finance, and may have a “vision” for the development of the business in the future. Market evidence from a specialist valuer/agent can prove invaluable in these circumstances – and it would be most unwise simply to rely on the written down “valuation” of the business shown in your accounts. This may be too low – or may even be too high, allowing false expectations to develop. For example, an implantologist who was trying to sell his business in the Harley Street area, was shocked to be told it was valueless – as he had no “hold” over his premises, and the cost of relocating elsewhere would (in the circumstances of his particular practice) have outweighed any value.

The process of the sale:

Once a Buyer has been found and a price agreed, there are 3 significant steps to consider:

The Due Diligence process

Your buyer will want to raise questions “formally” i.e. through your lawyer. Your replies will be treated as “representations” – meaning anything which is subsequently discovered to be untrue or misleading will give rise to a claim against you for “misrepresentation”. The extent of the enquiries raised will vary – but be prepared to have to tackle a long list! And rely on your lawyer to phrase the replies in appropriate legal language to limit your exposure to a claim.

The negotiation and agreement of a Business Transfer Agreement
This is the document which demonstrates the passing of the legal interest in your business from you to your buyer. You should ensure the Agreement is prepared by a specialist lawyer and that it is specifically tailored to the regulatory and operational regime under which your practice operates. A sale agreement for a general business would not contain all the safeguards sensibly required.There may also be a preliminary contract entered into between you and the buyer to create a commitment for both parties to proceed at a date in the future, allowing time for other essential steps to be put in place in the meantime. Bu don’t be tempted to agree to an exchange which leaves too many issues to be resolved as you might find yourself tied into a deal which has no realistic chance of proceeding – whilst in the meantime, you are prevented from marketing your business to anyone else.

TUPE

You will have obligations under TUPE to inform and consult with your employees on the transfer of their employment to the Buyer.

 

BUYING

Essentially the position of the buyer will be a reflection of all that is required of the seller. Once again, preparation is key – and if you fail to prepare yourself and a seller is let down at the last minute your reputation as a credible buyer will be damaged in the marketplace.

Preliminaries:

Your Accountant

Take specialist accountancy and tax advice to ensure that you acquire and operate the business in the most tax efficient way

Funding:

  • Failure to obtain a funding offer at an early stage, or failing to make a decision regarding funding, causes the majority of delays in a transaction
  • Discuss “in principle” funding with your Bank/Independent Financial Advisor as early as possible to place you in the best position to process the application as soon as your offer is accepted by the Seller

Your Lawyer

Engage with your lawyer to clarify the time – and other aspects – of setting up any legal structure required to enable you to contract with a seller

The Transaction:

Business Transfer Agreement

  • Ensure this reflects any practical implications thrown up as a consequence of the due diligence exercise which are necessary to protect your position
  • Ensure sufficient warranties and indemnities are included in respect of the key aspects of the business to protect any liabilities that may arise after completion
  • Negotiate appropriate restrictive covenants to protect the goodwill that you are purchasing from the Seller (which may also be a requirement of your lender)

The Staff/TUPE

  • Ensure you are familiar with the staff arrangements – including any practicalities which flow from this
  • Engage with the staff to provide reassurance and continuity relating to your takeover of the business.

CQC:

  • Compulsory registration is required which can take up to 8 weeks, so an early approach is essential.
  • A CQC countersigned DBS check is required which can take 4 to 6 weeks to obtain so factor this into your timetable.
    N.B. This will not be necessary if you are acquiring shares in a company as the company should already be CQC registered

Business Transfer Agreement

  • Negotiate appropriate restrictive covenants to protect the goodwill that you are purchasing from the Seller (which may also be a requirement of your lender)
  • Ensure sufficient warranties and indemnities are included in respect of the key aspects of the medical business to protect any liabilities that may arise after completion

Announcements to Patient/clients

You will want to agree with the seller the best means of announcing your takeover of the business in order to best secure patient/client loyalty

Your specialist advisors (valuers/agents, lawyers and accountants) should be approached at an early stage in the process to present you with the best opportunity of achieving a smooth transaction. They will know the questions to ask and will advise you on the most appropriate course of action as and when issues arise – as well as generally supporting you throughout the process. Whilst the process may at first appear complicated, with support from the appropriate specialist advisors who are already familiar with this, you should be able to achieve your objectives with the minimum disruption.