Why have a dental practice valued every year?
Maja Thompson explains the process of having your practice valued and how this can help you reach your end goal.
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.
Every practice owner should have their dental practice valued yearly. 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 than 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 Tables 1 and 2 to see what that looks like over the period.
Both examples use a starting yearly profit figure of £100,000. Each year’s growth adds 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-year period, the business yielded £4.3 million more profit than without the intervention.
Continual growth is not easy. However by valuing the business every year, you can identify parameters where growth is possible. You can 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 get your dental practice valued, you will need:
- Accounts for the last two to three 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: ours worked, hourly rates, pension details and 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. 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 practice valuation manager will analyse the data and tell you what your practice would be valued in the current market. They will take into account market conditions in operation at the time.
Most importantly, the 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 you 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 that you secure the best lending rate, 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.
Finding the right path
Each dental practice is different. Each dental practice valuation is unique. 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.
The new year means a new start, so there is no better time to plan. Contact Mediestates for a free, evidence-based dental practice valuation to open the path for your future growth.