Due diligence is a fact-finding process in which the vendor will undertake to obtain and provide detailed information about the dental practice.
It allows the buyer’s solicitor to drill down into the bare bones of the business to not just ensure it is a viable acquisition for their client, but also highlight any potential complications further along in the sale process.
Importance of a specialist solicitor
Once a practice is sold subject to contract and heads of terms, and an offer has been agreed, both sides’ solicitors become involved in the due diligence process. It is a lengthy, time-consuming and often frustrating process, and at this stage it is highly recommended that both vendor and buyer instruct specialist solicitors who understand the exact requirements of a dental practice purchase.
It starts with the buyer’s solicitor issuing a due diligence questionnaire to the vendor’s solicitor and the vendor must provide all the necessary information covering three main areas:
- The business element of the practice
- The financial side of the business
- An in-depth analysis of the property itself
Equipment and compliance
The buyer will ask for an inventory of fixtures and fittings, details of ownership of assets and what is excluded from the sale. This includes any lease, servicing and maintenance contracts, and proof that all practice equipment is maintained in good working order.
For NHS practices, the buyer will want to see a copy of the NHS contract, recent pay and activity statements, and vital signs reports. This will show the buyer the value of the contract and whether the practice is underperforming or hitting its units of dental activity targets.
Regulatory information and staff
At least three years of certified accounts are required to assess turnover and forecasts. The vendor needs to supply copies of all staff contracts, working hours, rates of pay and vaccination histories, as well as disclosure of any complaints against staff members and how this has been dealt with. The same applies to any associates and locums, with copies of contracts, licence fee amounts and confirmation of self-employed status.
Working with professionals who deal with the due diligence process every day can help make everything run much more smoothly
Details of Care Quality Commission (CQC) inspection reports and registration details are essential, as well as details of the number of active patients.
The buyer is entitled to ask for an energy performance certificate, fire risk assessment, asbestos report, legionella report, a copy of the building insurance policy, employer’s liability and public liability insurances, and any relevant planning permissions to ensure the property complies with various legal requirements.
Details of the planning permission is important as it also connects with the necessary CQC application. Both the buyer and the CQC will want to know when planning permission was granted, plus details of any existing planning permissions granted for potential expansion of the property.
It must be made clear how the building is owned and occupied, that it has D1 use planning consent to be a dental practice and who actually owns the building on a leasehold or freehold basis, plus any structural issues or ongoing repairs.
Once the buyer’s solicitors have reviewed and completed the due diligence, and their credit has been approved, they draw up the sale purchase agreement. This sets out every detail of the transaction, including the information collated during due diligence and terms of the sale. This is just an overview of the amount of information that is required for due diligence, and can be a daunting process for both buyer and seller alike. For the vendor, it can often involve doing most of the investigative work in their spare time, especially if the proposed sale of the practice is not yet common knowledge among senior staff.
This is where an experienced dental practice broker can really help, advising vendors at the earliest opportunity about what will be required of them, while guiding them through the due diligence process and beyond. Working with professionals who deal with the due diligence process every day can help make everything run much more smoothly.