There is a well-known saying that if a smart person was given six hours to chop down a tree, they would spend the first four hours sharpening their axe. While sharpening your axe adds some up-front effort and may delay the start time, it will also result in the ability to chop wood more efficiently and effectively, once you do begin.
This saying is meant to highlight the key role that preparation can play in efficiently undertaking any task or journey. Buying a dental practice is no different.
When a person is considering entering the market to buy a dental practice, there is an urge to get out there and start looking at practices and talking to sellers as soon as possible. However, there are several preparation tasks that a buyer can and should undertake that will speed up the time taken to execute a transaction, once they have found the right practice.
Finance
Dentists are inundated with people wanting to help them borrow money. It is easy for a dental practice buyer to feel a false sense of security when searching for a practice – they might believe that whenever they are ready, practice finance will be quick, easy, cheap and plentiful. This isn’t necessarily the case.
Preparation that we would recommend in this regard includes:
- Meet with sources of finance early,
- Find out their lending criteria so you know what you should be looking at and can get financing for.
- Understand the documentation that they will need in order to approve finance (pay slips, statement of assets, ID, etc.) and get this ready.
- We highly recommend that dental practice buyers look at getting finance from a specialist lender that regularly deals with dental practice purchases. Chasing minimal improvements in an interest rate from banks or finance brokers with little dental experience can come at a high cost, in terms of the time taken and the ease of the transaction.
- Choose your source of finance (or at least narrow the possibilities down).
The above five tasks will ensure that when you have found a practice that you wish to buy, you are confident about what you can finance, and know where you will be getting it from.
Buying Entity
Few practice owners will buy a practice in their own name. For tax and liability reasons, they will set up a separate trust/company/ABN, that will own the practice. Deciding on the right structure involves consultation with a lawyer and an accountant, and this consultation, along with the paperwork and application approval, takes time.
Preparation work that a buyer can do in this regard involves:
- Having a buying entity already set up or
- Having done the appropriate consultation, knowing the structure that their buying entity will take and having the paperwork at hand, ready to go.
- Having performed one of the above means that a transaction will move faster for both the buyer and vendor once an offer is put down. There is no reason why a buyer should wait until they have found a practice to buy before they start considering the entity that they will buy it in.
Lawyer
Many dentists either know a lawyer socially or have one in the family... Others think that when they find a practice they will simply get a referral from a friend who went through a similar transaction. There are some flaws with this approach. Often, when the time comes for them to proceed:
- The lawyer they thought they were going to use is the wrong type of lawyer. It stands to reason that a commercial lawyer will get the most effective and efficient results in a commercial transaction, rather than a lawyer who specialises in immigration, real estate, family law or a conveyancer.
- The lawyer they wanted to use is away, or otherwise unavailable.
- The lawyer who was referred to them is far more expensive than they thought.
- Their friend/family member helps, but either under-services (because they are doing them a favour) or over-services (because of the relationship) and jeopardises the transaction.
A buyer who has done the legwork, called up a few lawyers, received quotes and chosen a lawyer who they will use, is far more prepared than one who is waiting till a deal is at hand to begin this investigation.
Conclusion
Once you have found a practice for sale that you like, that will accept agreeable price and terms, you want to be able to put forward an offer and complete the transaction as quickly as possible.
The last thing anyone wants to hear at this point is that you are interviewing lawyers, or meeting your accountant next week to discuss setting up an entity, and that you ‘think’ you know where you will be getting finance. It will put doubt in the vendor’s mind as to how serious your offer is, and add potential time delays at a very sensitive and delicate juncture of the transaction.
On the other hand, being able to say with confidence that you have finance, a buying entity and your legal representation sorted, will give the vendor (and broker) confidence that you are the right buyer to proceed with, as you will be able to execute the deal with less foreseeable time delays.
Looking at practices to buy and putting offers on them without having done some preparation work like that suggested above, is akin to starting to chop down a tree with a blunt axe. You may get the job done, but it will be slower than it needs to be, and with a lot more effort.
To read more articles about buyer preparation please click the following articles
To read more articles about buyer preparation please click the following articles