When planning your dental practice sale, the earlier you talk to a specialist dental broker, the better the outcome is likely to be. Approaching a consultant three to five years before the ideal exit time will vastly improve your practice’s profitability, and will ensure your accounting reflects your business’s true value in time to achieve the best possible deal.
Getting your ducks in a row
In its simplest interpretation, there are two important factors in computing the valuation of a dental practice. The first is the multiple and the second is earnings before interest, taxation, depreciation and amortisation (EBITDA), measuring the company’s profitability of the operating business only.
EBITDA is an assessment that presents a raw picture of a practice’s performance and profitability once any extraordinary costs and/or tax driven costs are removed (e.g spousal salary) and the multiple is based on comparable evidence and subjective opinion based on how well it is viewed an opportunity would take to the market. When multiplied together they give an enterprise value (EV).
An easy win
The first step to increase the value of your practice is to unlock easy EBITDA. Dental Elite will often work with clients on a non-obligation basis for five years in the run up to sale. The team will develop a tailored approach to maximise value and eliminate waste. As part of this process, consultants will look for simple improvements – those that increase value without adding undue pressure.
For example, a common issue for many practices is the way their dental plan works with their dental hygienist(s). Frequently, practices have an insufficient recharge in place to recover the cost of the hygienist services. Whilst there is often a recharge in place, what is often missed is that the recharge purely covers the gross cost of the hygienist which means the hygiene surgery is running at a loss when delivering plan patients as all of the profit is passed back to the associate.
If you have an effective associate remuneration package in place the hygienist service should deliver the same or near to the same gross contribution if either a plan patient or fee per item patient is in the chair. To illustrate this, if we take a conservative multiple of 7x, unlocking £10k worth of EBITDA through more efficient recharging adds up to £70k to the purchase price.
Planning an exit
A common pitfall for practice owners that can significantly impact on their multiple is not incorporating their retirement goals into their practice sales timeline. By the time a principal makes the decision to sell, they have often already taken their foot off the pedal, perhaps taking long weekends or extended periods of time off. While a £30k or £40k drop in income might look relatively insignificant on the accounts, this could represent £20k in EBITDA, which translates to a reduction in value of £140k. If you want to retire, speaking to a consultant a few years before you plan to leave is the best way to ensure you have everything in place to be able to slow down without financially losing out.
Planning for bigger wins
Founded in 2010 to offer specialist services for dentists, Dental Elite averages 110 to 130 dental practice deals annually. Every year, Dental Elite’s experienced and friendly teams work closely with each and every client to help them achieve the best result possible. Agents offer bespoke support to vendors from the moment they come in for the initial consultation through to a successful completion.
For maximum leverage, even relatively easy changes should be implemented as early as possible in the process of preparing for sale. Not only do you have to financially report them, people want to see evidence of stability in the business when they buy it. This means changes should be in place a good couple of years before you go to market Then, when you present the business for sale, you’re presenting its profitability as a foregone conclusion. This will help you improve the multiple your dental practice can achieve within the market.
For more information on Dental Elite visit www.dentalelite.co.uk, email info@dentalelite.co.uk or call 01788 545 900
