When Sid and Bill met Russell

Whether you are selling or buying an incorporated dental practice, it’s wise to be prepared in order to achieve a successful transaction. To illustrate the complexities, I have created a theoretical dental practice owned by Sid, who incorporated his mixed practice some years ago, and now owns Sid Limited. The gross fees total £800k and there is a 15 year lease over the practice property at a full market rent. We will assume that the value of the goodwill and equipment is 100 per cent of its gross fees.

The deal is that Bill, the buyer, buys Sid Limited for £800k, with the assistance of one of the dental sale agencies. This article is about a close inspection of the adjustments that need to be made to the purchase price of Sid Limited, in order to reflect the commercial deal that has been struck.

Firstly, since Sid Limited will have assets and liabilities, adjustments need to be made to the purchase price. An example of a very significant asset might be a cash deposit of £100k in the company’s bank account. An example of a very significant liability would be the company’s tax bill. The tax bill may not be payable until three months after completion of the sale, but the profit was made prior to the sale, so the tax is Sid’s liability. Another significant liability could be the clawback payable under the NHS contract relating either to the current NHS year or the previous NHS year.