The Ts and Cs of a practice sale – always check the fine print!

Deferred payment

There is absolutely nothing unusual about some form of deferred payment when it comes to selling a larger dental practice. There have always been certain conditions in place that are designed to protect the buyer’s investment in the short-term. For example, many principals are required to continue working within the business for a set period of time – commonly between 1-5 years – in order to maintain income and patients. Of course, this is most important for principal-led practices given the greater proportion of revenue that is generated by the owner dentist. There is often an associated clause that ensures practice performance remains constant during and immediately after the sale.

Another component that may be negotiated as part of the deal is additional consideration, where a set sum may be paid to the vendor in the event that they facilitate business growth post-sale. The exact parameters that need to be met should be detailed clearly in the sale terms.

In any case, a deal structure may be agreed that sees the vendor receive payments at various stages, such as at one, two and three years post-sale, or even upon the achievement of predetermined financial or growth goals.

Beware the unachievable

Theoretically all of this is standard in the dental industry. However, significant difficulties could be faced if the fine print is not fully understood, or if the conditions are unrealistic.

We have been seeing requested deal conditions of increasing complexity, which put the buyer firmly in the driving seat. We have had to advise clients that some of these terms would be incredibly difficult to fulfil – if they are at all achievable – which would drastically impact the payment they would receive at the end of it all.

In a staged payment structure, it’s essential to meticulously analyse the criteria in place. For example, if payments are based on 5% annual growth rate, then you need to consider how likely that really is. How does that compare to the growth from your personal experience with the practice? What resources will be available to increase growth post-sale? How much influence will you have to impact the growth rate after the deal is done?

Protect your future self

There are several other aspects that should be covered in the terms and conditions. For instance, be sure that you have a clause that protects you in the event of a critical illness. If you are medically unable to work, through no fault of your own, you need to know that this will not leave you unable to claim previously agreed payments from the buyer.

There must also be an agreement in place that protects you to some extent should you wish to leave the practice before the end of the agreed term. You can expect to lose out on any further payments, of course, but it’s essential to be aware of any additional fees or liabilities you may face. Anecdotally, we have even heard about deals where the buyer has threatened to sue the vendor for the entire price of the practice when they wanted to leave earlier than stated in the original deal. Of course, this is extreme, but it does demonstrate the importance of getting the Terms and Conditions right in the first place.

Seek support for a confident deal

These are only some of the nuances that can be involved while structuring a practice sale. As you will likely realise, there are many different terms and conditions that can be negotiated and it is vital to fully appreciate the impact of each in order to strike a good deal. For support from experts that understand the jargon and will fight your corner, work with a team who can support you throughout the process. At Dental Elite we have many years of experience in brokering practice sales. We know what to look for and how to improve terms for our clients, and we work with an array of solicitors and accountants who do the same. Speak to a member of our team to get the process started with a free valuation or Practice Health Check.

If you are thinking about selling a practice in the foreseeable future, the good news is that the market remains buoyant and there is certainly an appetite among buyers. It is crucial, however, that you check the Ts and Cs meticulously to ensure that you really are getting a good deal.

For more information, visit www.dentalelite.co.uk, email info@dentalelite.co.uk or

call 01788 545 900

Phil Kolodynski

Phil joined Dental Elite at the start of 2017 and soon became an integral part of the practice sales team before being promoted to Director of Practice Sales in April 2023. He has over 10 years’ experience in the dental industry specialising in implantology, periodontal disease and pharmaceutical sales where he was the National Sales Manager