BUYING AN OPTICAL PRACTICE

Four Points To Consider For A Stress Free Acquisition

DISCLAIMERThe information is correct at the date published.

The information is not intended to be and should not be construed as legal advice.

CONTENTS PAGE

4WHO IS THIS REPORT FOR?

5HOW CARTER BOND CAN HELP

61 - DO THE REWARDS OUTWEIGH THE RISKS?

82 - IS AN ASSET OR SHARES PURCHASE MORE BENEFICIAL?

103 - REGULATORY REQUIREMENTS

124 - MANAGING EMPLOYEES AND THE RISK INVOLVED

WHO IS THIS REPORT FOR?

Buying an optical practice can be a complicated process, even if you have purchased a business before, as there are a number of challenges unique to the sector.

As a buyer, you not only have to navigate the pitfalls of securing a deal but also ensure you are compliant to run an optical practice.

In this guide we explain the key points to consider, so you are prepared for any complications that may arise during the acquisition and to ensure you get the best deal possible.

IF YOU ARE CONSIDERING BUYING AN OPTICAL PRACTICE THIS REPORT WILL ENABLE YOU TO:

1. Choose the right type of acquisition share or asset purchase2. Avoid making costly mistakes 3. Remove any concerns surrounding your investment

IN THIS REPORT, YOU WILL DISCOVER:

1. The key considerations before purchasing an optical practice2. How to ensure you get the best deal with minimal complications 3. Which type of acquisition will help you meet your business goals

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HOW CARTER BOND CAN HELP

For entrepreneurs and businesses looking for practical, commercial advice and expertise, Carter Bond is a forward-thinking boutique law firm providing you with everything you need through the cycle of your business. From start-up to exit and everything in-between – disputes, trademarks, merging issues, shareholder agreements, franchising – we deal with it all.

Carter Bond is a City-level firm located outside of The City. We’re not your everyday, traditional law firm. Our team has done their time in The City. We know how it works. And we thought it was about time things were done differently.

We’re professional and confident in our ability to deliver nothing less than the highest service. Not in an intimidating, know-it-all kind of way but within a friendly environment where you can ask any question you have, at any time and without judgement.

The truth is, what makes us different isn’t entirely different at all. It’s the small things we find the most satisfying.

We do what we say we will. We’re responsive and we’re there for you when you need us. We return your calls. We don’t take days and weeks to respond to your emails. And we don’t expect you to “clock watch” every time you need to speak with us about your business.

Being small is an advantage. Unlike larger firms, you’re not just a number. You won’t get lost and, at every level, you’ll know exactly who is working on your business. Our entire team is equipped with the experience and knowledge to handle any matter.

For us, this isn’t short-term. We’re here for as long as you need us to be. So, whether you’re looking to move from your current solicitor or it’s your first time engaging with a firm, let’s talk.

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1 - DO THE REWARDS OUTWEIGH THE RISKS?

Buying any business is an intricate process. However, the regulatory requirements of buying an optical practice adds an extra layer of complexity.

The cost of buying an optician’s is not just the upfront asking price. It is also important to assess other financial commitments such as:

Stock

Solicitor fees

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Although banks deem the purchase of an optical practice as a goodwill investment, getting a loan approved will require you to fully disclose your financial position. Before entering into discussions with the seller, carry out a full audit to assess whether buying a business is a viable option for you.

Speaking to a legal expert is essential as they can advise you on the best way to take the acquisition forward.

DETERMINE THE PROFIT OF THE OPTICAL PRACTICE

It may seem obvious but the first thing you need to do is determine whether the practice is profitable. After all, your future livelihood depends on it.

So, the first step is to ask to see the owner’s business accounts and VAT returns for at least the previous three years. You and your solicitor can then assess whether the practice is a viable business venture.

An optician’s practice can be valued in a number of ways, particularly when considering the businesses’ future income stream.

It is also vital to determine whether the sale includes optical equipment. It may be the existing owner obtained it on hire purchase or lease terms. If that is the case, you may need to discuss taking over the hire agreement.

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An upfront deposit

Funding cash flow

Potential lenders’ fees

Other costs which need to be considered before net profit can be determined, include:

• Staff salaries (including opticians’ wages and locum fees)• Insurance policies• Rent and business rates• Electricity and heating bills• Travel costs• Telephone, postage and stationery costs

CONSIDER LOCATION

Where your business is situated can have a lot of ramifications.

Not only do you have to consider how you and your staff can get to work, you also need to assess whether it is an easily accessible location for customers.

Does the practice have ample parking and transport links? Is itin an area that is likely to have a large customer base and attract footfall? Also consider how many other opticians operate in the area and whether this is likely to impact your business.

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2 - IS AN ASSET OR SHARES PURCHASE MORE BENEFICIAL?

When acquiring an optician’s practice, you have two options - an asset purchase or a share purchase.

ASSET PURCHASE

This is where the seller wishes to sell only the goodwill, fixtures and fittings, equipment and stock at valuation (SAV). Goodwill refers to the established reputation of the business as a quantifiable asset. This means that you obtain all assets, but the company liabilities are retained with the seller. Benefits of this deal include:

• Most time and cost-effective purchasing process • Easier due diligence • Can ‘cherry pick’ the assets • Possible tax advantages • You do not need to worry about future liabilities arising as a result of how the business was run prior to your take over • Extracting other losses Although there is a general consensus that an asset acquisition benefits the buyer the most, there are still some downsides to be aware of:

• Potential loss of suppliers and other relationships • Complying with Transfer of Undertakings Protection of Employment (TUPE) regulations

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• Potential loss of customers who signed up to automated, online or recurring payments • Potential VAT payment required • Possible delays in transferring the NHS contract

SHARES PURCHASE

A share purchase, on the other hand, involves buying the whole legal entity of the business. This means taking over all the assets listed above, as well as the company liabilities. This type of acquisition means you gain complete ownership of the business. Other benefits include:

• You get the title to everything in the company’s name • You’re able to dismiss employees and change the terms of the contract • Tax advantages • All suppliers transfer to your database flawlessly

Share purchases, however, tend to work more in favour of the seller than the buyer. Some of the downfalls of shares purchases for buyers include:

• More expensive professional fees• More complex and time-consuming process• Being responsible for all employees, including any with existing disputes or tribunal cases taking place • The extent of the business’s liabilities may not be evident until later down the line meaning share purchases are far riskier than asset acquisitions• Staff can use the opportunity of new ownership to make backdated claims against the business• Stamp duty is payable when purchasing shares

Although the decision to sell an optical practice as assets or shares is negotiable between both parties, and isn’t directly the buyer’s choice, you should still seek legal advice before approaching a sale to ensure you receive the best outcome.

VAT

Regardless of whether you acquire the business on a shares or assets basis, VAT registration is essential. This registration needs to be completed before any transaction formally takes place - ideally four to six weeks in advance to an exchange as it would mean that you do not have to pay VAT on the purchase of any goodwill. By completing this paperwork in advance you won’t have to pay VAT on the purchase of goodwill which will boost your cash flow (a crucial element to any new business venture).

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3 - REGULATORY REQUIREMENTS

While there are a number of regulatory issues that any business owner needs to be aware of, there are added requirements that opticians needs to comply with.

These include:

OPTICIANS’ REGISTRATION

Under the 1989 Opticians Act practitioners are required to register with the General Optical Council (GOC) in order to conduct sight test and dispense visual aids. To register with the GOC you will need an appropriate qualification from an approved institution and meet other registration requirements.

To keep your registration current, you need to undertake continuous education and training (CET), and meet minimum professional standards. Further information can be found on the GOC website.

To carry out NHS work, you need to be registered on the commissioning body’s ophthalmic performers list. Registration requires a recent enhanced Disclosure and Barring Service (DBS) background check.

If you plan to carry out on-site spectacle glazing (cutting and fitting finished lenses into frames), receive remotely edged new lenses and fit them into new frames, or surfacing work, you will have to register as an assembler of medical devices with the Medicines and Healthcare products Regulatory Agency (MHRA).

There is a small one-off fee for registering. More information about medical devices is available on the Gov.uk website. Guidance for opticians is available on the Association of Opticians (AOP) website. Activities such as re-glazing existing frames, repairing broken spectacles and making finalfitting adjustments to finished appliances do not give rise to any registration requirement.

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ORTHOPTISTS’ REGISTRATION

Orthoptists – specialists in eye alignment and eye movement disorders – are required to register with the Health and Care Professions Council (HCPC). They must hold an approved qualification and meet certain standards in order to register. Your optical practice might employ a specialist orthoptist. For further information, contact the HCPC or check the HCPC website.

DATA PROTECTION

As you may be aware, data protection has become a major priority for businesses. As part of your responsibilities under the General Data Protection Regulation (GDPR) you need to register as a data user with the Information Commissioner’s Office (ICO) and ensure your patients’ prescription and personal details are kept secure.

SELLING GENERAL INSURANCE

If your optical practice sells, advises on, arranges or assists in selling general insurance (for example spectacle or eye care insurance) then you may need to be regulated by the Financial Conduct Authority (FCA) – even if insurance is only a small part of your business.

If this applies to your business, you can either become directly authorised by the FCA or act as an ‘appointed representative’ of an authorised principal.

4 - MANAGING EMPLOYEES AND THE RISK INVOLVED

The Transfer of Undertakings Protection of Employment (TUPE) regulations outline that all employees are automatically inherited by the buyer at the point of transfer. You therefore need to ensure prior to the purchase that all employees have written employment contracts.

Checking that locums are genuinely self-employed is also a priority. It’s not unheard for locums to bring an employment based claim for unfair dismissal, when a new owner has dismissed them, following the purchase of a practice.

DUE TO THE REGULATIONS OUTLINED BY TUPE, BE AWARE OF THE FOLLOWING:

• TUPE regulations apply to all workers, including part-time employees and any employed family members.

• There is no qualifying period before TUPE rights are acquired during a buying transaction.

• If an employee proves to be dismissed due to the transfer of ownership, you can face a likely unfair dismissal claim. Ensure you don’t incur a charge by providing evidence clearly stating the dismissal was due to economic or organisational reasons.

• Informing the seller of your intentions regarding the employees after the transaction takes place, including proposed redundancies, proposed measures or the reorganisation of employees.

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If you require advice on the complex issues involved in purchasing an optical practice, we can help.

Our team has worked with hundreds of entrepreneurs and business owners just like you in exactly the same situation. The first step is a call with one of our friendly lawyers who will provide you with options.

Email us at info@carterbond.co.uk or call us on +44 (0)20 3475 6751 and let’s talk.

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