Balancing the books to optimise business value
Featured Products Promotional FeaturesPosted by: Dental Design 16th December 2024
Despite the turbulence experienced in most areas of the UK economy of late, the dental practice sales market has remained buoyant. For buyers and sellers alike, there have been good deals to be made, with opportunities to take the all-important next step in their careers.
If you are thinking about selling a practice in the coming years, there are various factors to consider in order to maximise the value of your business. Among them, you will need to be acutely aware of your financial situation, which includes having a tight handle on your business income and spending. From here, you can make adjustments where necessary to improve both the daily operation of your business and its value in the long-term.
Of course, this is a balancing act. You need to invest enough into the practice to maintain high clinical standards, a supported professional team and happy patients, which means purchasing new products, equipment and services on a fairly regular basis. This spending needs to be offset by the benefits that solutions afford either patients or professionals, and it needs to be appropriately proportioned to the practice’s income. When these aspects are out of balance, profits will suffer and the business value will be reduced accordingly. However, when margins are maximised and debt serviceability carefully managed, a practice will operate at its strongest and fetch the highest possible price should it go on the market.
Though comparison with other practices should always be approached with some caution, understanding market norms can be useful for principals assessing their businesses. Reviewing average spending and income for practices of a similar size and set-up can offer reassurance that you’re doing well or provide motivation to make some positive changes.
Given that finances are a very personal matter that most people are uncomfortable or not willing to discuss – especially with someone who may be considered a competitor – it is unlikely that you’ll be able to strike up such a conversation with a colleague down the road. Instead, market-wide research and reports can be a useful resource.
The Dental Elite Benchmarking Report 2024, for example, offers an up-to-the-minute snapshot of the broader UK dental market. This demonstrated that turnover increased for practices between 2023 and 2024, other than those offering predominantly NHS services. The average revenue rise was just over 11%, broadly attributed to higher fees and demand for services. It’s important to note that these calculations were based on year-end accounts from 2023, so inflation may not yet be represented in full. Interestingly, the greatest growth in revenue (23%) resulted from introducing patient payment plans. This makes sense given that dental fees have increased substantially in past few years, hindering access to dentistry for many patients.
On the whole, NHS revenue has remained stable between the two years, which reflects the limitations in fee changes compared to private practices. That said, the profession-wide shift towards private treatment remains evident, with an increase in private and plan-based dentistry being delivered across the UK.
With regards to expenditure, routine costs have remained fairly consistent for all types of dental providers. Expenses are compared between practices in terms of percentiles in order to more accurately ascertain the changes in revenue and costs. Take staff wages as an example. The report found that, while the cost of employing people has risen considerably, this was mostly offset by increases in revenue and so resulted in little difference when assessing the cost of employment as an expression of revenue. On the whole, costs remain stable and payouts are lower thanks to a small reduction in associate payouts. Mixed practices maintain the highest profit margins.
To see how your practice stands up against others in the market, the full report can be downloaded from the website. The Dental Elite team are also available to provide further market insights and bespoke advice on how you could enhance the value of your business, whether that involves optimising space, diversifying revenue streams or managing staff more effectively. Whether you plan to sell your practice in two or 22 years, creating and implementing a strategic approach to business growth will ensure you maximise the value of your practice when the time comes.
For more information, or to download the Benchmarking Report 2024, please visit dentalelite.co.uk/benchmarking-report/, or contact the team on 01788 545900
Author:
Luke Moore is one of the Founders and Directors of Dental Elite and has overseen well in excess of 750 practice sales and valuations. With many years working in the dental industry, Luke has extensive knowledge in both dental practice transfers and recruitment and understands the complexities of NHS and Private practices.
