We are living through times in the UK when the average and the ordinary is what folk really want. That’s why there is a Starbucks on every corner and a Specsavers on every high street. From my perspective, some dental practices are becoming a bit more ordinary in terms of what they offer and the standard at which they deliver. And that seems to be what every dental practice buyer wants. 10 or 15 yeas ago, Dental Practices varied a lot more in their offerings and their presentation (I visited Dental Practices in Art Galleries and Dental Practices that offered Acupuncture). I guess it was easier then to be different, the internet hadn’t become the great leveller and the price matcher that it is now, the economy was in rapid growth and rising house prices meant that everyone felt wealthy. In hind sight, although owning a business has always been hard, brave new practice owners in the early noughties were pushing against an open door as our new found celebrity-worshipping culture meant that patients bought cosmetic dentistry no matter how white their teeth ended up…
Now, many practices look and feel the same, producing – at times – a sort of homogenous, rather bland looking market place. This is probably down to many factors which include: increased regulation, current dental hospital teaching, massive fear of litigation, dental business coaches, the internet etc. The dental landscape is changing: it is becoming more retail-orientated and many corporates (whether solely focused on dentistry or not) are making significant in -roads and impact on the landscape and market place. From Truro to Dundee, it’s all beginning to look rather the same.
So, life is getting more lonely and difficult for practice owners who fall outside of the average, despite the fact that many of this group create the most successful practices. The problems all come home to roost when the 50-something hyper-successful Principal wants to sell his/her extraordinary practice to a 30-something who may have a very different attitude to risk and a different view on how a dental practice should both look and perform. And the bottom line is that the 30-somethings (and the lenders who are backing them) are not buying these sort of practices. The 50-somethings practices stick on the agent’s books, and the main reason for this is that they’re too good at earning a high gross.
Let me explain more.
Amongst our fifty or so Breathe Members and their associates, we have dentists who gross £600/day and dentists (not specialists) who gross £5000/day. (We have NHS dentists who gross £2000/day and we have specialists who gross £9000/day.)
Meanwhile back in the average dental practice, the average dentist, grosses (strangely, it doesn’t seem to make a difference whether it’s a Private or an NHS practice) £1,000/day, that is circa £207k/year. In my experience, 80% of dentists gross between £800/day and £1500/day meaning that annually they gross between £165k and £310k. And as far as the lenders and the valuers are concerned, this is the new normal.
The outliers earn from £3000/day or around £621k/year to £5000/day or around £1.035mill/year. Yes they do! And that doesn’t fit with our 30-something’s idea of an average practice and because of this, they are very reluctant to buy practices that contain one of these dentists!
So if this is you, how are you going to sell in today’s market? As we all know, in the world of dental practice valuations, turnover is king and if you are grossing more than £350k per annum, the view of the valuers, practice agents, lenders and prospective buyers is that you (or more importantly your turnover) is going to be hard to replace and therefore, your practice is going to be hard if not impossible to sell. These days, valuations seem to be based on a multiplier of between 0.5 to 1.3. The variation depends mostly on geography and the security of the turnover. NHS Contracts attract higher multipliers and Membership and Capitation schemes add value to the goodwill. Pay as you go patients are probably viewed as the least secure revenue stream.
If much of the turnover is delivered by one clinician (unless it is a one dentist practice) then the risk to a buyer is perceived by the lenders and buyers as much higher, as the turnover is vulnerable when they leave compared to a practice where the turnover is produced by a number of dentists each grossing circa £250k.
So, if you’re a high grossing dentist and you are planning your exit strategy you need to do some serious thinking about how you are going to sell your practice as you might find it difficult/impossible to cash the value you believe is in your practice. Some of the strategies being used by some of our members who find themselves in this situation are these:
1. Share your gross with other clinicians. That is, delegate some of your dentistry to associates/assistants/therapists/hygienists so that it is spread between a several clinicians. This makes you easier to replace.
2. Stay on and earn out. Sell yourself with the practice so that you stay on as an associate for 3,5,7 years when you are to maintain your gross. The buyer (often but not always a Corporate) will usually withhold some of their payment for the practice until you finally leave and they have found a way of replacing you.
3. Take more time off and reduce your gross! Slow down, bring your gross back into a more normal range and have an associate take care of some of your patients.
The trick is to make your practice appeal to a 30-Something £1000/day dentist so that he/she can envisage themselves sitting on your stool, doing what you do. The only other alternative is to find someone like you to buy your practice and from watching some of our high grossing clients trying to sell their practices, good luck with that!
If you would like some help with creating your exit plan, call me or email me on 07770 430576 or simon.hocken@breathebusiness.co.uk
We are establishing a new group of dentists who are wishing to sell their practices within the next 5 years for the best price. If you would like to know more about this group please call or email Ernie on 07990 568909 orernie.wright@breathebusiness.co.uk