Not all buyers have bought before so it is important to understand what should be put in an offer. These are some of the things you, as a buyer, will need to tell the vendor:-
- Income multiple
- This will depend on how much you think the practice is worth.
- Number of tranche payments
- This usually relates to the size of the practice. The norm is three payments over two years.
- A vendor will not want the payment term to exceed three years.
- Clawback, when applicable and how much.
- Normally this is 100% in the first year.
- Dropping down to 50% in subsequent years.
- Hand over, how long do you want the vendor to stay on and will they be paid.
- This depends on the size of the practice.
- Average time scale is around 6 months.
- After these first 6 months, it is normal to ask the vendor is to be available by phone or email for the following 6 months.
- Staff – Do you want to keep the staff?
- If you are retaining staff, you will need to know about the TUPE regulations.
- Office – do you want to keep it or possibly buy it?
- You will have to liaise with the landlord if the office is rented.
- You will have to get an independent valuation if you want to buy it.
- Funding – do you have money in the bank, or do you have to apply for funding?
- If you do not have funding already in place, then your offer will not be taken seriously.
- Borrowing from a bank can take months and even then, you may not be successful.
- Who will do the work of the vendor post sale?
- You need to satisfy the vendor you have the staffing capacity to deal with the extra work taken on post sale.
- Time scale – can you complete by the indicated date?
- Do you have the time to commit to making the deal work?
- If you are too busy prior to completion the vendor may reject your offer.
- PI run off – do you want the vendor to take this out?
- It is normal for the vendor have PI run off for up to 6 years post sale.
- Have you confirmed you will not increase the fees during the payment term?
- This will help with the retention of clients
- You do not want clients to think their fees will be doubled on the first day of the takeover, if that is their perception they will leave and retention will be adversely affected.
- Non compete clause – do you want the vendor to sign one?
- This is covers you for a period of time from the vendor starting up again and taking back all the clients.
If you want to discuss what to put in an offer when buying, then please get in touch for an initial chat. Remember everything we discuss is confidential. You can contact me, Nicola Draper, on 01788 816440 or email me at n.draper@draperhinks.co.uk.