How You Can Drive Your Dental Practice’s Value Before a Sale

For dentists who are looking to sell their dental practices in years to come, with some planning and guidance there are ways to significantly increase the value of your dental practice. This is an exercise that we have undertaken with a number of practices, with some relatively small changes but increased the value by circa £500,000. This is undertaken by really understanding the key drivers of the valuation and making these work for you.

Whilst the valuation of the practice is determined by applying a multiple to the EBITDA and therefore Principals will often look at the turnover and profit to judge how well they are doing, these figures are after the event and more of a result of what you are implementing.

As such it is useful to track things such as; new patient acquisitions, retentions and recall effectiveness. Reviewing on a monthly basis the UDA contract target against actual performed, plan patient numbers seen against expectations and private growth per clinician.

Whilst this may not be something that you may wish to do in the latter few years of your career, we have seen a number of clients undertake part or full private conversions. This can provide a number of benefits as well as giving more clinical freedom. At present there are more buyers now looking for private practices than NHS, especially if you are of a size that would suit a Corporate (typically where turnover is exceeding £1,000,000 to £1,500,000). As such you will likely open yourself up to more buyers. A second factor which is demonstrated clearly in the valuation is that a private conversion will often lead to a higher turnover and profitability of the practice.

However you have to be careful to assess the figures correctly, in that a £1 for £1 replacement is unlikely to be sufficient if you are paying an associate 50% of the private income, yet you were paying them £14 per UDA on a contract value of £35 (equating to 40%).

Private plans can often be seen as advantageous also as there is 3rd party administration showing patient numbers and also provides the practice with regular monthly income.

High values are achieved by ensuring that a dental practice is running as efficiently as possible. If there is a spare surgery (or room to fit a surgery) in the practice and sufficient patient base to fulfil this then this is when the real value can be created. If we assume that most of the overheads would remain fairly static (rent, light/heat, telephone, insurance etc) then generating a further £300,000 in gross fees could give extra EBITDA of around £93,000 (after £138,000 associate cost, £24,000 lab, £15,000 materials, £30,000 nurse). If we assume we are working on a 7 multiple then this would give extra value of £651,000.

There may also be available capacity where each surgery is not running every day. Whether filled by a new associate or hygienist/therapist. Making sure that you are maximising what you can.

Looking at how hygienists are re-charged to associates is something that we would examine carefully and can make significant differences in values. Whilst not as common as a number of years ago there are practices that do not charge the associates for using the hygienist where the fee income is paid to the associate. Typically we view this as a double charge for the practice as if the associate were to generate the income then the associate would be paid the same, so the practice is taking on the full cost of the hygienist. We would ideally wish to see that the referring associate was at least paying the hygienist’s hourly rate from their net income. Although what is now becoming more common is disassociating the hygiene/therapist income from the associate and having this come direct to the practice. For a detailed breakdown of different hygienist re-charge methods and their financial impact, see our comprehensive guide at https://pfmdental.co.uk/hygienist-re-charge/.

Whilst some practices are now getting used to increasing costs as required, others can be more reluctant or still fearful of increasing pricing in line with real cost increases. As costs increase there is a real need to ensure that the prices are going up at least with these, to ensure that the EBITDA is not reducing (like for like).

Whilst it may seem obvious to focus on the business, it is easy for one year to drift into another without any clear push to grow the dental practice and in turn increase the value of the dental practice. It can also be easy to go down a wrong path, such as taking on additional non recurrent NHS contracts which unfortunately, in most instances, do not add extra value when selling. There is great value in having an expert alongside when making these decisions and also giving some structured growth advice. This is something that PFM Dental accountancy clients can take advantage of alongside our Director of Sales and Valuations.