By the time you reach the legal completion stage of a dental practice sale, the headline price has long been agreed. What remains uncertain — and can move that price by tens of thousands of pounds — is the working capital adjustment. For sellers who have not encountered this mechanism before, understanding how it works and where the risks sit is essential before completion day arrives.
1. Locked-Box vs Completion Accounts: Which Mechanism Applies to Your Deal?
Most dental practice share sales use one of two price adjustment mechanisms. Understanding which applies to your transaction determines how much uncertainty remains on price between exchange and completion.
Locked-box. The financial position is fixed at a historical balance sheet date — the locked-box date — typically several months before completion. The price is agreed by reference to the net assets at that date. Between the locked-box date and completion the seller undertakes not to allow value to leak from the company — no unusual dividends, no excess director’s withdrawals, no payments outside the ordinary course. Once the locked-box date is set and agreed, neither party faces a post-completion price adjustment. Price is certain at exchange.
Locked-box arrangements are more common in individual buyer transactions, where buyers are willing to accept the fixed-price structure in return for deal certainty. They are also preferred by sellers precisely because they eliminate post-completion exposure.
Completion accounts. The accounts are prepared as at the actual completion date and reconciled against an agreed target working capital figure. If actual working capital is below the target, the seller pays the shortfall to the buyer. If above, the seller receives the surplus. The adjustment is calculated within a defined window after completion — typically 30 to 60 working days — and resolved by agreement or, where parties cannot agree, by an independent expert accountant.
Completion accounts are more common in DSO transactions and more sophisticated sale and purchase agreements. DSO buyers work with completion account mechanisms routinely; they carry the specialist accounting resource to do so, and the structure gives them confidence that they are acquiring the business on the financial basis they modelled.
2. Working Capital in a Dental Practice: What Goes In
Working capital is current assets minus current liabilities. In a dental practice, the components are sector-specific and differ materially from a typical commercial business.
Current Assets
NHS receivables. NHS England pays practices monthly in arrears for UDA delivery. The timing of completion relative to the monthly NHS payment date is the single most significant working capital variable in most NHS dental practice sales. If completion falls shortly before the NHS payment batch runs, the practice will carry a large debtor balance — representing income earned but not yet received — that feeds positively into the working capital calculation. If completion falls shortly after the payment has been received and cleared, that debtor balance will be materially lower. The difference can be tens of thousands of pounds.
Private fee debtors. Outstanding private invoices to patients at the completion date. Typically modest relative to NHS receivables in a mixed practice, but material in a high-turnover private practice.
Prepaid expenses. Costs paid in advance that represent a future benefit — insurance premiums covering periods after completion, software licences, equipment service contracts, regulatory registration fees. These are current assets and feed positively into the net assets calculation.
Current Liabilities
Lab fees payable. Outstanding invoices from dental laboratories for work delivered before completion. Lab creditors can accumulate quickly in an active implant or complex restorative practice. A high lab creditor balance at the completion date reduces working capital — the seller effectively bears the cost through the adjustment mechanism.
Accrued expenses. Liabilities for costs incurred but not yet invoiced at completion. The most commonly overlooked item is holiday pay accrual: employees who have accrued untaken annual leave at completion are entitled to that pay, and the accrued balance is a liability of the company that feeds into the completion accounts. Sellers who are unaware of this can face a meaningful downward adjustment at completion.
Deferred income. Where the practice operates private dental plans — capitation or subscription schemes — patients pay monthly in advance for a package of treatment. At any point in the plan year, patients have paid for treatment not yet delivered. That undelivered obligation is a deferred income liability. It reduces working capital and is a common source of uncertainty in completion account calculations, particularly for practices with large plan memberships.
3. The Normal Working Capital Target: Getting the Definition Right
The completion accounts mechanism works by comparing actual working capital at completion against a normal or target level. The target is agreed between buyer and seller during the SPA negotiation and represents the working capital level required for the business to operate normally.
The most common source of completion account disputes in dental practice sales is inconsistency between how the target was calculated and how the actual completion accounts have been prepared. If the parties apply different accounting policies to the same items — different accrual bases, different treatment of deferred income, different NHS receivable recognition — the comparison is not like-for-like.
Sellers should insist that the target working capital definition in the SPA uses the same accounting basis as the historical management accounts from which the target is derived. Any departure from that basis — even if commercially neutral in intention — creates dispute risk.
4. NHS Timing: The Variable That Matters Most
No factor moves the completion accounts needle further in dental practice sales than the timing of completion relative to the NHS monthly payment cycle.
NHS England pays practices on a fixed monthly schedule. The payment represents the instalment of the annual contract value for the preceding month. A practice with an £800,000 annual NHS contract value receives approximately £66,700 per month. If completion occurs three days before the NHS payment runs, the company balance sheet carries a receivable of that amount. If completion occurs three days after the payment has cleared, the receivable is zero and the cash has likely already been distributed.
The difference in working capital between those two scenarios can be sixty or seventy thousand pounds — paid by the seller to the buyer in the completion account adjustment if actual working capital falls short of target.
Sellers should identify the NHS payment date for their commissioner before finalising the completion date. Setting completion to fall shortly after the NHS payment has cleared — while retaining the cash in the company for the working capital calculation — can materially reduce downward adjustment risk. This is a straightforward step that requires only coordination with the solicitors, but many sellers miss it.
5. Treatment in Progress
Treatment that is started but not finished at the completion date creates specific accounting questions.
UDA recognition. A Band 3 course of treatment begun before completion but not completed until after creates partial UDA delivery by the seller and completion by the buyer. The SPA should address how UDA value is attributed between seller and buyer for in-progress treatment — typically by reference to the completed treatment plan value pro-rated to clinical stage.
Advance payments as deferred income. Where patients have made advance payments for private treatment that has not yet been delivered at completion, those payments are a liability. In a plan-heavy practice, the aggregate deferred income from advance payments can be significant and should be quantified and disclosed before the SPA is finalised.
6. How to Protect Your Position
Understand which mechanism applies. Locked-box or completion accounts will be agreed during the SPA negotiation. Know which you are operating under and what its implications are before you sign.
Check the normal working capital definition. Confirm that the target has been derived from and calculated on the same accounting basis as your historical management accounts. Any inconsistency should be resolved before the SPA is executed, not during the post-completion dispute process.
Time completion relative to the NHS cycle. Obtain the NHS payment calendar from your commissioner. Map completion against the payment dates. Where possible, set completion shortly after the payment has cleared to reduce the NHS receivable on the balance sheet — or negotiate a locked-box date that captures the payment cleanly.
Instruct specialist dental accountants. The components of working capital in a dental practice — NHS payment cycles, lab fee timing, treatment plan deferred income, UDA part-completion recognition — require sector expertise. General commercial accountants will not reliably identify all material items. Instruct a firm with a specific dental practice transactions practice early in the process.
For a full overview of the completion stage and the sale and purchase agreement that governs it, see dental practice sale agreement. For guidance on the complete sale process from preparation to completion, see how to sell your dental practice.
Find out what your dental practice is worth →
Frequently Asked Questions
What is the difference between locked-box and completion accounts in a dental practice sale?
In a locked-box deal, the price is fixed at a historical balance sheet date and does not change between exchange and completion — the seller gives undertakings that no value leaks from the company after that date. In a completion accounts deal, the actual financial position at completion is prepared and compared to an agreed working capital target, with the difference paid between the parties. Locked-box gives price certainty; completion accounts expose the seller to a post-completion adjustment.
Why does the NHS payment date affect the completion accounts?
NHS England pays practices monthly in arrears. If completion falls before the payment runs, the company carries a substantial NHS receivable — a current asset that increases working capital. If completion falls after the payment has cleared, that receivable is reduced or absent. The difference can be tens of thousands of pounds. Sellers should identify their commissioner’s payment schedule and time completion accordingly where possible.
What is deferred income in a dental practice completion account?
Deferred income represents advance payments received from patients for treatment not yet delivered — most commonly monthly capitation from private dental plan members. Because the treatment obligation remains, the advance payment is a liability. A high deferred income balance at completion reduces working capital and can generate a downward completion account adjustment payable by the seller.
What is a normal working capital target and why does the definition matter?
The normal working capital target is the agreed net current asset level that the practice is expected to carry for normal trading. It is set in the SPA and used as the benchmark against which actual working capital at completion is measured. If the target is calculated on a different accounting basis to the completion accounts — different accrual policies, different NHS receivable recognition — the comparison produces a distorted result. Sellers should ensure the definition matches their historical accounting practice.
Do sellers need specialist dental accountants for the completion accounts process?
Yes. The working capital components in a dental practice — NHS timing, lab fee accruals, treatment plan deferred income, UDA part-completion attribution — require sector-specific knowledge. General commercial accountants do not reliably identify all material items or understand the specific mechanics of NHS payment cycles. Instructing a firm with a dedicated dental practice transactions team reduces dispute risk and helps sellers protect their position on price.