Dental Tribune United Kingdom Edition

11Money MattersMay 16-22, 2011United Kingdom Edition ESTETICA E80 Rise above the rest with KaVo. • Outstanding ergonomics and attractive, highly functional designs. • Innovation at its best. • State of the art technology reliability and functionality at amazingly low prices. From as little as £286* per month excl VAT KaVo Dental Limited · Raans Road, Amersham, Bucks HP6 6JL Tel. 01494 733000 · Fax 01494 431168 · mail: sales@kavo.com · www.kavo.com Contact your local KaVo or Gendex supplier for more details! *Finance is subject to status and for business purposes only. KaVo – Dental Excellence Estetica A4 SELECTED:Layout 1 25/2/09 13:42 Page 1 2Make changes within the practice in the years leading up to sale so that the outgoing principals’ personal gross is less 3Accept that you are going to have to accept a slightly low- er price for the practice to find a very confident purchaser To counteract this principals are advised to consider when they are going to sell the prac- tice well ahead of the time they intend to hang up their hand- piece. Principals often make the mistake of running down the practice before they sell it on which makes it less desirable and less valuable to any future purchaser. So: 1 Don’t reduce your NHS contract value unless you are replacing this turnover else- where; get an associate! 2If you drop a session, don’t let the overall practice gross drop. There are options such as a dental therapist and associ- ates who can do remedial work 3Don’t re-equip all the sur- geries with brand new state-of- the-art equipment in the three years leading up to sale. You will not get your money back 4 Do move the practice goodwill away from your name, ie if you are Dr Gregory & Asso- ciates become Cornwall Dental Centre 5 Lock in your patients somehow. If you are not a plan or NHS practice consider look- ing at membership clubs and encourage some loyalty to the practice and associated brand The key is always in plan- ning; the better an exit is planned the more fruitful it is likely to be. Similarly it is worthwhile considering the value of additional funding and additional turnover in the prac- tice as your approach sale. If your fixed cost base is cov- ered (rent, nurses, light & heat etc) your typical gross margin as a dentist is 40.5 per cent, hygienists’ typical gross margin is 59 per cent. For every £1 in increased turnover from a den- tist you will add 40.5p to the profit of the practice. If you later sell for a multiple of 4.8x EBITDA this would equate to an increase in value of £1.96 per pound of turnover gener- ated. In an NHS environment if the increased capacity can be met by existing associates at £10 per UDA an additional 1,000 recurrent UDAs at £22 equates to an increase in value of £47,568 when based on mul- tiples of EBITDA. This turno- ver is commonly referred to as exponential turnover. Naturally, geography and the type of treatments you are performing does have an im- pact on this multiple and also the volume of marketing ac- tivity required to achieve this turnover. Put simply, routine family dentistry is valued at a higher multiple than that of dentistry, which relies heav- ily on referrals and big-ticket treatments; eg implants and full smile makeovers. Of course some practices do not generate enough EBITDA to come to a value sensible for an acquisition by a group buyer and naturally fall into the are- na of a practice suitable only for an owner occupier and are better valued using an alterna- tive method practiced for own- er-occupier sales. There are some practices, normally with turnovers between £300,000 and £500,000 who depend- ent on their cost bases sit be- tween these two models and it is worthwhile considering both buyer markets. This is especial- ly relevant for principals with NHS contracts within these two boundaries who believe they will get the best deal from a dental corporate when often they will not. DT About the author Luke Moore Director – Dental Elite Dental Elite are a Practice Sales & Re- cruitment Agency with a nationwide remit. We offer all principal dentists a complimentary on-site practice health- check with no strings. The healthcheck includes a valuation of the practice and a report detailing the basis for this val- uation and some suggestions how this could be improved. luke.moore@dentalelite.co.uk