Preparing Your Dental Practice for Sale
Can you see the sale of your dental business on the horizon?
It’s vital you work in advance to prepare your business for sale.
Take the following steps, and you’ll create a dental business which will sell at the price you require:
1. Work out where your future income will come from
The first step is to determine the level of annual income you will need after the sale.
I recommend you do this for three to four years before putting your business on the market. Most dentists find they need this period to boost their business income to the level required to demand a particular sales price.
Then, calculate how much of this income will come from sources other than your sale proceeds. This includes your pension if you are retiring and any rental properties.
The remainder will need to come via the sale of your business.
2. Calculate the ‘gap’
Get an estimation of what your business is worth currently. An accountant with dental sector knowledge will be able to calculate this for you.
This will give you the ‘gap’ between your business value now and what you need it to be in order to generate the appropriate level of personal proceeds on sale.
Be aware that most buyers will want you to stay on in the business for a three to five-year transition period.
In this event, you can expect to receive a proportion of the sales price on sale. This can be as low as 65% of the total, with the remainder being paid at the end of your working period.
If you want this period to be shorter, bear in mind this will affect the overall sales price and the amount you receive.
3. Bridge the Gap
Here are two powerful strategies to focus on:
Use your untapped business potential
Dental business valuations are based on a multiple of your adjusted net profit figure (accountants refer to this as your ‘EBITDA’).
Increase your EBITDA, and your business value increases.
An increase in business profit comes when you:
- Increase your income, and
- Your associated costs stay the same or rise more modestly than your income
For example, unused chair time represents the potential for profit increase.
Filling this with extra hygiene work can be particularly profitable. This is because the costs you incur on hygiene compared to other dental treatments tend to be lower as hygienists work on their own.
Let’s assume you generate £120 hygiene income per hour. Based on four extra hours of hygiene, you stand to make an extra £480 per week. Less your costs of, say, £40 per hour, that’s an additional £320 on your bottom line every week. Or £16,000 over 50 weeks.
This equates to a further £80,000 to £96,000 on your capital value if your business can attract a five or six-times multiple.
Systemise your business
Robust, consistent business systems boost profit and business value.
This includes having an efficient stock management procedure and systems which make your patient experience better than your local competitors.
Be sure to get the support you need to form a plan to access your potential and enhance your business systems.
4. Get your UDAs up-to-date
A buyer will challenge the value placed on your business if there is a chance of incurring a clawback of NHS payments as a result of an incomplete contract.
They may also argue that a lower price is appropriate as the UDA shortfall puts the contract at risk.
Monitor your UDA situation throughout the year, and you:
- See when you need to take action to keep up-to-date
- Avoid any UDA ‘panic’ towards March
- Prevent incomplete UDAs from affecting your sale price.
5. Get repair work done
Potential buyers will often point to equipment that requires repair or replacement during negotiations with you.
Update any equipment which is not up to scratch, and your valuer can promote the quality of these assets in your sales information.
Likewise, if you own your business property, carry out any necessary repairs or restorations before listing your business for sale.
This increases its value if being sold or the rental value to the buyer if you will be retaining the property.
For expert help and advice on preparing your dental business for sale, contact us here.
