Why have a dental practice valued every year?

8th October 2021

4 minute read

Following on from the top 10 reasons to value your dental practice, it would be good to explain how the process works and what the result is.

Introduction

Every practice owner should have a dental practice valuation yearly, as this will help them stay in tune with the market and take action to achieve a desired outcome.

If you start with this process early in your ownership tenure, you will feel more in charge of the end result then leaving it to the last few years. To put this into context, if each year during your ownership you improve the profit by 10%, in 20 years your profit would have grown by 215%. See example to see what that looks like over the period.

Table 1. 5% growth over 20 years

Table 2. 10% growth over 20 years

Both examples use a starting yearly profit figure of £100,000 and each year’s growth is added to the previous, compounding the interest. In the first example, 20 years of continuous 5% growth yielded nearly £1.5 million more profit over that time. In the second example, over the 20 years period, the business yielded £4.3 million more profit then without the intervention.

Continual growth is not easy, however by valuing the business every year, you can identify parameters where growth is possible and act on those to continue the cycle. Small changes over a long period amount to a large change. This works in all businesses and positive impact builds over time.

So how do you begin this cycle?

Start with a valuation as this is an in-depth analysis of where the business is and how it compares to other dental businesses of a similar size and location.

To value a dental practice, you will need:

Accounts for the last 2- 3 years
Income breakdown preferably by:
- Income stream (NHS, plan, private etc.)
- By clinician/associate/hygienist/Associate/hygienist payrates, working hours and lab/materials percentage
Practice team list including:
- Hours worked
- Hourly rates
- Pension details
Approximate value of the Freehold or Leasehold annual rental

This looks like quite a list, but these are some of the basics you should be on top of to ensure you are actively and effectively managing the business. If you get into a routine, having the items above will become second nature. Most of the items listed below are readily available from the accounts and practice management software, and if you are using SOE data access could be even quicker as a partner company, always only with your permission.

Once I have the data, what happens then?

A dental practice valuation manager will analyse the data and tell you what the value of the practice would be in the current market, taking into account market conditions in operation at the time.

Most importantly, the dental practice valuation manager will:

Benchmark your practice with similar practices in the area and be able to tell you whether the parameters you operate under are in line with the market. A couple of examples:
- If your dental nurse hours are double the number of dentist hours, you may be overstaffed, and your employment costs may be too high.
- If you own the property and your rental is set too low, or your are not charging rent at all, you may be able to take cash out of the business in a more tax efficient way.
If you are looking to grow the business revenue but are unsure how to, practice valuations managers can help recommend revenue growth routes which you may not be aware of.
If the cost of the services you utilise are high, practice valuations manager can suggest partners who will be able to optimise service costs.
If you are looking to expand your practice, or acquire an additional practice, the practice valuations managers can recommend financing options and engage our partners who can secure funding for you. Ensuring the best lending rate is secured for you, increases the profitability, and value, of the business.
If you are looking to expand a specialist service, our practice valuations managers can work with our partners to secure the right team and equipment for you.

Each dental practice is different, and each dental practice valuation is unique so the solution to help you reach your end goal will depend on your personal circumstances. Regardless of the starting position, we can work with you to find the right path for your dental practice.