Ah Goodwill.
Now you see it, now you don’t.
The intangible, invisible, expensive, high value commodity that, unlike the stuff from the attic on Antique’s Road Show is hard to put a value on.
Great when you get the cheque as you sell your practice to a younger, smarter colleague, not so great when you buy it from a popular, charismatic, retiring dentist with an army of loyal patients who are unsure about how they feel about his replacement.
Either it’s going to pay off your mortgage, keep you in foreign cruises and fine dining when you sell your practice (or just maybe it’s not).
Seriously, it might not.
When I put up one of my private practices for sale in the early 2000’s, I was confident it would sell quickly. I had recently moved it into a gorgeous converted warehouse on the edge of the River Dart with floor to ceiling windows taking in the view of the water. The practice was beautifully equipped and furnished with contemporary designer furniture and lighting. My associate and I had a loyal client base who were willing to pay private fees of around 25% more than our nearest competitors and the practice profit was nearly 40% of turnover. I thought in terms of creating a practice I could sell, I’d got it right, but it turned out I hadn’t. I was way off.
A stream of buyers from the books of a well known practice agency came to visit the practice on consecutive Saturdays, were polite and enthusiastic about my lovely practice, went home and didn’t make an offer. I called the agency. What was going wrong? I couldn’t understand it, why weren’t they interested? The agent gave me their feedback. “They don’t believe they can do what you do.” “What do you mean?” I asked, “They don’t believe they can do the sort of dentistry you do, (sophisticated restorative and cosmetic dentistry) and sell it at the fees you charge…” And, they were probably right.
I had created the sort of practice that only somebody like me would buy (and somebody like me would probably start their own…) And, it was finished, full of patients, full surgeries, fully staffed, it was a turn-key for the buyer. But, as it turned out, the buyers wanted to buy something different (for less). They wanted something more ordinary, a practice that had some “headroom”, something they could develop and make their own. Not my practice. In the end it took nearly two years to sell and my associate eventually bought it at a discounted price.
So, how do you make sure that your goodwill has a high value and there is a queue of willing buyers for it on the day you decide to hang up your hand-piece?
Well, if I were growing a practice to sell sometime in the next 3-10 years and I wanted to maximise the value of the goodwill in the sale price I would focus on these 10 tactics:
- Three years of accounts that show every year being better than the last.
- A big, active list of patients that is growing month by month, with most new patients coming in on word of mouth recommendation.
- A Membership Plan that has them coming back twice a year every year
- Average fees say, £170-£210/hour.
- Average dentists grossing average fees such as £1200/day and £240k/year
- A large number (80%) of patients seeing the Hygienist.
- A location that has visibility and footfall.
- A building with room to grow, install new surgeries
- Middle of the road positioning, think Marks and Spencer. (No Modern Art.)
- A competent, experienced, invaluable Practice Manager.
So, here are three situations which will make a practice harder to sell:
- Specialists in the practice. If you have them, you may have to discount their turnover from your goodwill value.
- Rock and roll dentists, that is, personality cults, very high grossers, skills that are hard to replicate, etc.
- Inadequate or un-enforcable barring out clauses for associates.
As for the future, I’m often asked, where I think the value of goodwill is heading and I have to tell you, I think it’s heading downwards (from the heady days of 2008). There are a shortage of lenders willing to lend against something so intangible and there are a shortage of dentists wiling to buy at this level of risk. As for NHS Goodwill, I think it’s likely that the government may take the opportunity (at the next contract reorganisation) to decouple goodwill ownership from the NHS by using competitive tendering to destroy NHS goodwill value…
If you would like some help with grooming your practice for sale, call me on 0845 2997209 or email: simon@nowbreathe.co.uk
With all best wishes
Simon Hocken