Whether you’re buying or selling a dental practice you are likely to experience some level of stress, but one area that you can wrap your head around before starting your journey is the language of the finance world. You might feel put off by the seemingly complex language, but understanding the most important terms can make your buying or selling experience a whole lot simpler.
What do you need to know?
Valuations, the sale, and lending are all financial areas you are likely to engage with throughout your buying or selling process. Some jargon that you may comes across includes the following:
Valuations:
EBITDA – Earnings Before Interest Tax, Depreciation and Amortisation
This is a measure of the business’ financial performance and is used to calculate the value of the dental practice.
Associate-led EBITDA
This kind of EBITDA differs in the sense that it measures profit generated solely through clinical work performed by associates (where no owner-occupier exists).
Fair maintainable operating profit/fair maintainable trade
This refers to profit generated by the principal dentist working within the practice full time (owner-occupier).
The sale:
Share sale
A share sale is a type of transaction where the buyer purchases the shares of an existing limited company.
Asset sale
This type of sale involves selling both tangible and intangible assets.
Deferred consideration
Predetermined amount paid after sale completion, this is sometimes based on a target or timeframe, which may be held in Escrow.
Escrow
This can be a bit of a waiting game, but Escrow is the legal agreement in which a third party (normally a solicitor) holds a large sum of money or deferred consideration until agreed conditions have been met.
Lending:
Separate representation
The lender requires an additional solicitor to represent their interests at cost to the buyer, in addition to their own solicitor.
Stress-test
Financial modelling carried out by broker or lender to check if a high interest loan could be repaid on target practice.
Stressed loan
A high-interest loan, usually modelled on a 6.5-7 per cent interest rate.
Conditions precedent to drawdown
This refers to criteria that needs to be met or actions to be taken before a loan is issued. Confirmation from an accountant that the buyer’s tax affairs are up-to-date could be an example of this.
What could misunderstandings lead to?
As mentioned, the buying or selling transaction is likely to induce some stress. Even the smoothest exchanges will probably cause everyone involved a certain level of stress because humans naturally find adapting to big changes difficult, especially when there is a lot of important tasks to carry out. Wrapping your head around the financial jargon is a good place to start because it will avoid unnecessary miscommunications that can lead to delays and the whole process taking much longer to complete. Professionals in the broker industry often find that people will gloss over important information regarding the sale if they don’t fully comprehend it, for instance, and end up needing more support further down the line. This is understandable, especially as dentists are incredibly busy even at the best of times. However, it’s best to ensure you understand everything before you get too far through a process – though misunderstanding can usually always be rectified, it can cause delays to the transaction.
Get the right support
Of course, the aforementioned list of financial jargon is not exhaustive, but this is the kind of language you will likely engage with throughout a sale or acquisition. It’s important to have a basic understanding of what most of the terms and phrases mean because it will offer you peace of mind. Dental Elite Finance has an expert team who have worked together in order to share their knowledge with you. Putting you at ease to help you feel more comfortable about your practice transaction is a priority.
As your expertise lies within dentistry you cannot be expected to know everything about the finance world and you probably don’t have much time on your hands to learn a whole set of new vocabulary. That’s why getting the right kind of support is vital – working with experts who understand the ins and outs of dental finance and the selling market will mean you’ll benefit from their skills and guidance.
The DE Finance team are always on hand to help and will ensure that you’re provided with all the information you need along with explanations and bespoke support. You can start this journey with the finance jargon guide available on Dental Elite’s website – conveniently download the pack to start your buying or selling journey with confidence!
For more information visit www.dentalelite.co.uk