Financing Your Own Dental Practice Acquisition
Many dentists dream of owning their own practice and working for themselves. However, financing your vision can be difficult in the current economic climate and with high competition for patients, managing your cash flow is essential for success. Taken at face value, you may believe you can afford your own place, but what are the hidden costs of buying a practice?
From a buyer’s perspective, the purchase price is not always what one may think. The money paid for the practice is only the beginning of the actual cost. There are a number of fees and charges that you’ll need to factor in when considering an acquisition, including valuation fees, solicitor and accountancy costs, and bank charges. Having knowledge of these will allow you to begin budgeting, as well as giving you a more realistic expectation of what you can afford and how much you will need to borrow. Furthermore, you will be able to narrow down your search criteria, which will save you time when searching for future premises.
Bank Valuation Fee
Valuations underpin nearly every financial decision made – from mortgages and investments to corporate finance transactions, assessment of company accounts and stock exchange listings. A valuation is for the lender’s benefit to confirm the practice exists and is satisfactory security for the loan. Banks will rely on a valuer’s expertise to check how much the property you are buying is worth, which can be different to what you have offered for the practice. By enlisting the advice of a professional valuer, the bank can be sure that if things go wrong and you fail to repay, they can repossess the property and get a decent amount when it is sold.
The bank will request several quotes from registered valuers on their panel once a bid has been accepted and a facilities letter has been issued from the banks credit team. The cost of the valuation survey varies according to the lender and purchase price, but it normally costs between £1,500 and £3,500. This fee needs to be paid directly to the bank before the valuer will enter the practice and begin assessing the property.
You’ll need to cover the cost of all the legal work associated with purchasing the practice, including certain searches and surveys which may well need to be carried out as part of the due diligence process. The cost of solicitors can vary considerably depending on a number of factors, such as whether the property is freehold or leasehold, if assets or shares are involved and whether or not the practice is partly or wholly NHS or private. Practices with NHS contracts require additional legal work and obviously if you purchase as a limited company it can take the solicitor longer to iron out the paperwork and ensure that everything is in order. In general, solicitor’s fees can be between £5,000 and £15,000 for a single transaction, depending on the structure of the acquisition.
Accountancy and Bank Fees
Sometimes the banks will ask for Accountant Projected Forecast Figures, which could cost around £2,000. A detailed financial forecast of income and expenditure, using the existing practice accounts and benchmark statistics as an additional guide, can provide a more accurate assessment of whether or not you will be able to cover the costs involved and meet repayments. Ultimately, this forecast gives the credit team confidence that all the figures stack up and that any projections are realistic.
You need to consider any bank solicitors fees that they may charge you, which can cost between £1,000 and £3,500. Some banks can be particularly pedantic about conducting their own checks, which can delay proceedings. Contract exchange and completion can also take several months, particularly for NHS practices.
In conclusion, finding out the true cost of buying a practice is the first step to budgeting for your future venture. To be successful, you not only need to have great clinical skills, but you also need to understand the business side of the industry or know who to turn to for help and advice. Whether you are an independent dentist, small group or corporate buyer, Dental Elite now operate DE Finance to provide you with a comprehensive service throughout, from financial advice right through to completion and beyond. With decades of experience across all sectors of the industry, you can rely on the advice of experts at Dental Elite.
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Acquiring a dental practice is likely to be one of the most important transactions of your life. It is therefore essential to surround yourself with professionals who have knowledge of the industry. With expert help and advice, purchasing a practice need not be as complicated and stressful as you think.