Selling your dental practice?
The top 10 must-know tips before you hit the market
Misconceptions, half-baked advice and hearsay. Everyone and their dog will freely give you their advice when you come to sell your practice - but who can you trust?
Through PFM Dental, I handle dozens of sales in every shape and size, year in, year out. We focus on an ethical, realistic and customer-first approach to sales but it’s a win/win when our vendors are clued up in advance. Here are my top tips for cutting through the flannel and getting the right deal for you.
1. Get the best price by going to the open market
There’s a myth that corporates pay the highest prices. Hot on its heels is another misconception: if you want to sell up but stay on as an associate, selling to a corporate is your only option.
Speaking from the agency coalface, I can promise you it’s still a seller’s market. Corporates are very active but I always advise vendors to go to the open market. Marketing to everyone is the best way to maximise your price and compare all the offers.
If your business is just what a private buyer is looking for, they’ll often pay more than a corporate to land the perfect location or set up.
2. You don’t have to be tied in after your sale
Another benefit of a hungry market is that competing purchasers want to make their offers as attractive as possible. That means that many don’t insist on tie-ins - especially in NHS practices.
Non-traditional corporates (dentists who own many practices) and dentists who want to work at the practice typically don’t include handcuffs in their deal.
Principals who generate high levels of private income may find themselves obliged to stay, to safeguard those private patients. But it doesn’t necessarily mean a retention (money held back) would be required.
3. Be wary about spending lots of money before you sell
Everyone wants to get the best price for their practice. As a result, many vendors spend vast amounts of cash upgrading their equipment before they put the business on the market.
In fact, this can be an unnecessary expense. Today, we value practices using profit multiples. Yes, it’s still important for valuations to include a breakdown of the value of the equipment (for tax purposes) but cutting edge tech doesn’t directly boost the value of your practice.
Of course, if something’s not working properly, you should replace it. And it’s true that someone might find a practice with new equipment more attractive. But overall, be careful about splashing out huge sums when you don’t need to.
4. Take a long, hard look at your UDA values
Should you be selling up sooner, rather than later? With UDA values riding high, I have seen lots of dentists younger than typical retirement age selling their practices earlier than planned and staying on as associates.
Essentially, they’re cashing in on the high value of their practice, even though they’re not ready to finish working.
This is especially true of practices with high UDA values. There’s a cloud of uncertainty hovering over these values and many dentists are worried a fall is lurking in the future.
When you break down the figures, you can see why these owners are selling up.
Imagine this scenario: you have 20,000 UDAs at £32, paying an associate rate of £11 per UDA. The UDA value drops to £26 - a loss of £6 per UDA to the practice.
Multiply this by the 20,000 UDAs being undertaken and the profit falls by £120k (while the associate stays on £11 per UDA).
If we assume a standard valuation based on income multiplied by six, the value of your practice has just plummeted £720k. Certainly a figure worth thinking about.
5. Could hygienist referrals save you money (and boost your business valuation)?
How much are your hygienist costs? If they’re £15k, you could be saving that amount - and gaining £90k in the value of your business.
I spend a lot of time reviewing practices and looking at the best way to enhance their value. One of the most common changes is in the way owners pay associates for referring patients to hygienists.
It still surprises me how many practices pay the associate the fees earned from the referral but don’t charge them (the normal associate 50% cut isn’t classed as a referral charge).
If your practice credits the associate with the income, you should be charging that associate for the hygienist’s time from their net pay. That means they’re covering the cost of the hygienist while still profiting from the hygienist doing work on their behalf - leaving the practice cost neutral.
6. Forget turnover - focus on profit
Historically, dental practices were valued on a percentage of turnover. Today, it’s all about multiples of profit.
And with a standard valuation based on six times profit, even a small decrease in margin can mean a big loss in the overall valuation. In other words, if you can shave, say, £20k off your costs, you’ll see your valuation rise by £120k.
A good valuer can look at how your business is run - and come up with suggestions to hone your profit margins.
I strongly recommend you have your practice valued as long as five years before you want to sell. You don’t have to have made the changes many years before you put the practice on the market but getting started early gives you time to plan - and you could start saving money straight away.
7. Be savvy with your properties
Do you own a practice and the property? Smart tax advice is a must.
As long as you don’t hold it through a limited company or own the property within a SIPP (self-invested personal pension), property is classed as an ‘associated asset’.
If you sell it with the practice, it would generally qualify for Entrepreneurs’ Relief (taxed at 10% on the gain).
But if you hold on to the property and lease it out, you lose Entrepreneurs’ Relief and pay capital gains tax. There are also transitional rules that may apply.
This might be a one-time chance to get tax relief on the property sale but you’ll need to liaise with a well-briefed accountant to find out what’s best for you.
If you want to sell the premises but your prospective purchaser would prefer to lease, get in touch. We have a number of property investors looking for dental practice properties to lease out.
8. Get expert advice on your CQC
The CQC application has become much more difficult over the last couple of years - and if you get it wrong, they’ll keep sending it back, causing frustrating delays.
First, you need to know which of the many CQC forms you need to fill in. That’s determined by the structure of the purchase. Are you undertaking a new NHS partnership transfer? You’ll need a new partnership. Are you moving from a sole person to a partnership CQC application or were there already two people involved? Are you applying through a limited company? If so, is the registered manager going to change?
As you can see, it can be complicated. If you want things to move swiftly and smoothly (who doesn’t?) I’d recommend instructing a solicitor who can fill in - or at least review - your CQC application.
9. Get ahead - or get help - with due diligence
Picture the scene: you’ve found your perfect buyer. You’re excited about the deal going through and you’re already planning the fun you’re going to have when those sale proceeds are in your account.
Then the 25 page business questionnaire drops onto your desk. Swiftly followed by the 34 page property questionnaire. You find yourself knee deep in collating all the necessary due diligence information, including accounts, staff contracts, service agreements, inspection certificates and CQC documentation.
There’s no getting around this step, nothing can really proceed until it’s done - and it can take months.
My advice is to avoid delays by starting early and getting help. Ask your solicitor if they offer a due diligence service (where they help you fill it in). If they don’t (and you really want to use that solicitor) at least ask your practice manager for help answering the barrage of questions.
10. Don’t underestimate the need for a dental specialist
Well, I would say that, wouldn’t I? But it’s true - and it’s the reason PFM Dental exists.
You’re going to need someone who can get your dental practice valuation right first time. Like any market, from homes to antiques, Pokemon cards to football transfers, conditions are fluctuating and dynamic. If someone’s not constantly immersed in that market, it could cost you dearly in terms of sale price.
A dental sales agent will be best placed to market your practice to the maximum number of appropriate people, actively looking to buy in your area. At PFM Dental, we generally find we can give clients a choice of buyers - the perfect start to negotiate the best price
Dental lawyers understand all the nooks and crannies of due diligence and they’re also past masters at making sure all the right warranties and protections are included in your sale agreement, leaving you to stroll away post-sale, knowing you’re safe from future claims.
Selling a dental practice on the open market
“— Mark Woodger, former practice owner, Birchwood, Warrington
Having spent years building the practice, it was important to us we found someone to take good care of our team and patients. PFM Dental took the time to understand who we were looking for and helped us market accordingly.”