The Do’s and Don’ts of Due Diligence
When buying a practice, the due diligence process is likely one of the most important aspects of the journey you’re set to embark on. Putting the business under the microscope will allow you to have a full understanding of the whole business at the point of completion.
Things You Should Do
The process of due diligence is essentially a buyer’s opportunity to find out as much as they can about the practice they’re buying. It is important to understand exactly what you are buying, and you will want to look into every detail possible.
Don’t go it alone! Ensure that you work with a solicitor who has experience with the dental profession. Relying on them to show you what is important and what isn’t will make the journey much smoother. The information supplied can sometimes be overwhelming and a commercial view can save you from getting caught up on something which may tarnish the relationship with the vendor.
The due diligence process will involve looking at many things including the patient records and activity status, i.e. the frequency that the patients visit, their last visit, and treatments carried out to get an idea of the stability of the practice patient base. Furthermore, the equipment within the practice is going to need your attention too; has it been regularly serviced and are there service agreements in place that you will need to continue post-sale.?
Don’t forget the team! Information about vaccinations, PAYE and NI, employment status, salaries and copies of contracts are integral to a good working practice. This is also a first step in getting to know the people who will be working for you in the near future.
You and your lender will also want to look into the financial reports of the practice in greater depth. This includes the practice tax returns and at least three years of profit and loss statements. In doing so, you will be able to assess how successful the practice is and whether it is something you can viably take on. In addition to the accounts, there are other files you will need to get your hands on; Proof of CQC registration, inspection reports, data protection registration, and policies are all things you should ensure are in place As well as this, copies of all insurances and details of any claims (historical or current) should be made clear to you.
The quality of the building itself is another important part of due diligence. You will want to see evidence of building regulations, asbestos reports, risk assessments, D1 certification, energy performance certificates, and details about how the practice is set up.
Buying a practice with a good standing reputation will be a much smoother transition than taking on somewhere that needs building up. If you’re buying shares of a Limited Company, you should consider any historical complaints against the company as they would become your responsibility post-sale. As such, the due diligence process of a Share purchase is greater than that of an Asset purchase as with an Asset purchase the buyer doesn’t take on any historical liability. Your solicitor will work with you to ascertain whether there are any true risks and whether the seller will need to issue warranties against them.
It is likely that the practice you are buying has an NHS contract that you will become liable for too. It is important to understand and know the details of this contract to ensure the correct assets and liabilities are transferred during the sale.
It is also advisable to receive not only the copy of the contract itself but also any variation notices or correspondence from the LAT to show you where the contract is at this moment in time.
Ultimately, due diligence is a lengthy process that will allow you to know the full ins and outs of the practice you are buying and when done properly with the help of an experienced dental solicitor who knows what is important and what isn’t, the buying process will be smoother overall. Thesupport you receive from your broker should aim for exceptional results and give you a personalised service, providing a helping hand through this entire process.