For many dentists, owning their own practice is the ultimate career goal. It’s not just about clinical freedom; it’s about building a legacy, shaping a patient experience, and creating a thriving business. But as you start to explore the market, a crucial question arises: What’s a dental practice actually worth?
Understanding dental practice valuation is a vital first step in any acquisition or sale. It’s not simply about the number of patients or the shininess of the equipment; it’s a complex calculation influenced by many factors.
Why Valuation Matters
Valuation isn’t just a number for buying or selling. It’s essential for:
- Securing Finance: Lenders will base their loan offers on a professional valuation.
- Partnership Agreements: If you’re bringing in a partner, you need a clear value to establish their buy-in.
- Future Planning: Even if selling isn’t on the immediate horizon, understanding your practice’s worth helps with strategic planning and growth.
- Estate Planning: For future succession or inheritance purposes.
Common Valuation Methods in the UK
In the UK, a few key methods are typically used to determine a practice’s value:
- EBITDA Multiples: This is a favourite for corporate buyers and increasingly common across the board. EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortisation. It’s seen as a good measure of a practice’s operational profitability. The practice’s EBITDA is multiplied by a certain figure (the ‘multiple’), which varies depending on factors like size, profitability, and market demand.
- Percentage of Turnover: Historically, some valuations were based on a percentage of a practice’s annual turnover. While simple, it has limitations as it doesn’t account for varying profit margins between practices. A high-turnover practice might not be as profitable as one with lower turnover but better cost control.
- Asset Valuation: This involves valuing the tangible assets, such as the dental chairs, X-ray machines, and IT equipment. If the property is freehold (owned outright by the practice, not leased), its value will also be a significant part of the overall valuation. However, a significant part of a dental practice’s value lies in its goodwill – the value of its reputation, patient list, and established trading relationships.
Key Factors Influencing Valuation
Several elements can significantly push a practice’s value up or down:
- NHS vs. Private Mix: This is a big one in the UK. Practices with significant NHS contracts often provide stable income and patient flow, which is attractive to buyers. However, their valuation can be more capped than a predominantly private practice, which has more flexibility in pricing and treatment options, potentially leading to higher profit margins.
- Location and Demographics: A practice in a densely populated area with good transport links and a growing, affluent patient base will naturally be more valuable. Local competition also plays a role.
- Patient Base & Retention: A large, active, and loyal patient list with high recall rates is a massive asset. Regular plan patients (e.g., Denplan) are particularly valuable as they represent recurring, predictable income.
- Team and Staff Stability: A well-trained, experienced, and loyal team of hygienists, nurses, and receptionists is invaluable. Staff turnover can disrupt patient care and add recruitment costs.
- Equipment and Technology: Modern, well-maintained equipment and up-to-date technology (like digital radiography, intraoral scanners, or practice management software) can enhance efficiency and patient experience, adding value.
- Property Arrangement: Whether the practice operates from a freehold property (which you’d also be buying) or is based on a leasehold agreement (where you’d take over or negotiate a new lease) significantly impacts the overall deal and its complexity.
- Profitability and Efficiency: A practice with strong financial controls, good cost management, and a consistent history of profitability will always command a higher valuation.
The Importance of Professional Valuation
You might be tempted to do some rough calculations yourself, but dental practice valuation is complex and should always be handled by a specialist dental valuer. They understand the unique intricacies of the sector, including NHS contract nuances, CQC compliance, and the true market demand for practices. Their expert report will be crucial for securing finance and ensuring you’re paying or receiving a fair price.
How Jacobs Legal Can Assist
At Jacobs Legal, we don’t value practices ourselves, but we work hand-in-hand with specialist valuers. Our expertise lies in helping you understand their reports, integrating the valuation into the wider legal due diligence, and ensuring that the financial aspects of your acquisition or sale are legally sound and fully understood. We can guide you through the intricacies of negotiating based on valuation, ensuring your interests are protected every step of the way.
Contact us today to discuss your dental practice aspirations and how we can help you navigate the journey.