Here is our unofficial list of things that can go wrong when buying an optician business. Note if you are looking to sell an optician business then they will be relevant to consider as well.
1. Underestimating a lease repair obligation
Everyone wants the practice premises to be in a good condition. But if repairs are required, not everyone wants to pay for them. And so the debate on the repairing obligation under a lease begins. The key principle to understand is the extent of the repair obligations i.e.is it to “repair” only or is it wider to “repair, maintain, cleanse, paint, decorate…”, and whose responsibility, landlord or tenant, it is to ultimately pay? If the lease covers the whole of a building, rather than a part only, the likelihood is the repair obligation will fall solely on the tenant. Even if the premises look visually in good condition, it would still be prudent to have them surveyed to understand the likely costs involved in complying with the lease. For example, a bit of Japanese knotweed in the car park may look harmless enough (assuming even spotted), but it can costs tens of thousands to treat. It can be a fatal mistake by an incoming tenant not to appreciate the consequences of a repair liability. Where it can get really hairy is a repair obligation which includes a right for the landlord to “renew” or “improve” the existing condition (say putting in new double glazing). So the start point is get advice on the lease, and survey the premises.
2. Old fashioned staff working practices
One of the areas a buyer will undoubtedly look to streamline is the workforce practices of the target business. But beware of making any redundancies or harmonising employment terms (with buyer’s existing workforce), if there is no genuine economic technical or organisation reason. For example, changing opening hours, changing the holiday rota, adding restrictive covenants into contracts are all examples of what can be “measures” for the purposes of Transfer of Undertakings (Protection of Employment) Regulations (“TUPE”). Even if staff are properly consulted, as required by the regulations, the change could entitle the staff to walk out claiming unfair constructive dismissal and a hefty compensatory award.
3. Getting finance from the bank
You might think that an agreement from your friendly bank relationship manager, or a formal agreement in principle, can be taken as read that the finance for the purchase is done and dusted. Think again. In one case, we saw a major lender stall for seven months after providing a formal agreement in principle.The result, unsurprisingly, the buyer lost the deal. The reason was never fully explained, but from experience, there can be a difference between the sales side from the relationship level, to the security side of the bank’s underwriting department.
4. Your choice of lawyer
In our experience, even for the very smallest optician practice sale or purchase, there ought to be the benefit of at least two types of lawyer. First, a commercial property lawyer, in respect of the commercial property aspects. For example, the property due diligence, review and report on the lease and property searches, and negotiating terms of the lease transfer documentation (or whatever else is required). Second, a business lawyer. This is to cover all the non-property aspects. For example, provisions relating to the GOS contract, employment indemnities, work-in-progress apportionments, website and intellectual property transfers, stock valuation mechanics, and advising on shares and asset transactions. Indeed sometimes additional lawyer skill sets are required. The litmus test should not be the size (e.g. purchase price) of an optical business, but the type and complexity of issue raised. A good question to ask a prospective new lawyer is “when was the last time you acted on the sale or purchase of an optician practice?”, and “how many optician practices have you acted on?”.
5. Being too clever
At the end of the day, the obvious outcome when buying an optician business, is to take ownership. But sometimes being overly clever on the terms of purchase can be a strategy that can backfire. For example, we have one client who regularly buys practices, but makes it a condition that the price is paid 30% at completion; 30% after the first year, 30% after year two and the balance after year three. He will pay a reasonable level of interest. On the face of it, this is clever business. Where “being too clever” comes in, is including various clauses in the purchase agreement to make deductions from the price payable if certain vaguely defined things happen, or if things the buyer stated before purchase turn out not to be 100% accurate. There is an art, as much as a science, to the purchase of an optician business. A good lawyer and buyer will ask the questions about the reason for the sale, the experience of the seller, the competition for the business, and adjust their approach accordingly.
6. The seller is insolvent
Classically sellers sell when they have done their time in the industry and look to retire. The typical small optician business retirement sale runs from start to finish, in a civilised, glacial and steady pace, in around three months. (Incidentally I have worked on some incredibly complex and high value transactions completing in weeks, and some textbook straightforward transactions clocking a year. Have a look at points 4 and 5 for the common reasons why). Occasionally, the seller finds himself or herself in unfortunate financial times, and is selling to urgently raise funds. You can usually spot the tell tell signs a mile off. For example, the unreasonable time limits to sign up to an ill thought out contract, risking a fairly tidy deposit. The problem though, is if a person is not just financially stretched, but technically legally insolvent i.e. unable to pay his or her debts as when the liabilities arise, then they may not have the capacity to sign off the transfer of the business in any event. Buying an asset from someone in a financial difficulties raises the temperature of a deal. Costs increase, and get incurred quicker. There is a real risk too that the deal could fall apart without any remedy for the buyer’s wasted costs.Fingers can and do get burnt.
7. Skipping due diligence.
I always liken a due diligence exercise, as the equivalent of looking under the bonnet if you were buying a car. Ideally you would not just rely on your own test drive, but you would get an expert mechanic in, to spend a few hours to run through a standard checklist. In the same way, buying a business should not just be about reviewing the accounts, taking an equipment inventory, and relying on conversations with the sellers and their agents. Due diligence should be a formal process every buyer should go through.Every seller should be required to answer a comprehensive list of questions, and supply true, accurate and not misleading answers and documents, so that an informed assessment of all issues can be identified in advance. There is always a skeleton in the cupboard, and we have seen buyers get stung on a number of occasions failing to carry out basic checks. Arguably, the due diligence process can be replaced by relying on warranties from the seller. However, in our experience this is asking for trouble. Suing for breach of warranty is a remedy of the last resort (and assuming the warranty covers the issues). If there is a problem, then you should know about it before purchase, so you have the option to either negotiate the price, or, dramatically, to walk away.
If you are looking to buy an optician business or sell an optician business then please call Spencer Laymond on 020 8363 4444 or contact by email at spencer.laymond@curwens.co.uk for a confidential no obligation discussion.
