Khyam Chudhry explains everything potential buyers need to know before a dental practice purchase.
Buying a dental practice is one of the most significant financial decisions a clinician will make.
For many, it represents a transition from focusing purely on clinical work to taking responsibility for a business. The opportunity can be compelling: an established patient base, immediate revenue, and the ability to shape a practice going forward.
In reality, however, the success of a purchase rarely comes down to what is presented in the brochure or the headline figures.
It comes down to whether the buyer truly understands what they are taking on.
Looking beyond ‘reconstituted profit‘
Most practice valuations are anchored around a ‘reconstituted profit’ figure.
This is typically calculated by taking the reported profit and adding back items such as:
- Directors’ salaries
- Pension contributions
- Personal or discretionary expenses.
On paper, this can make a practice appear significantly more profitable.
However, there is a critical assumption underpinning this calculation that is often overlooked.
Outgoing principals are not simply costs – they are part of the productive engine of the business. They generate revenue, maintain patient relationships, and drive the day‑to‑day performance of the practice. When they step away, those functions do not disappear. They need to be replaced.
In most cases, that replacement comes in the form of associate clinicians, typically remunerated at between 50% and 55% of revenue. This fundamentally changes the cost structure.
A practice presented as generating £240,000 of profit may, under an associate‑led model, realistically deliver closer to £150,000-£200,000. That difference is not marginal. It is often the difference between a well‑judged acquisition and an overpayment.
Transaction structure: the part that is often missed
Buyers are often focused on the business itself, but insufficient attention is given to how the transaction is structured.
Broadly, a dental practice can be acquired in one of two ways.
Asset purchase
The buyer acquires:
- Goodwill
- Equipment
- The patient base
- Sometimes the freehold.
The company itself – along with its history – is left behind.
Share purchase
The buyer acquires the shares in the company.
This means stepping into the company as it stands, including:
- All assets
- All liabilities
- All historic obligations.
At first glance, a share purchase may appear simpler. In practice, it is often more complex and carries a different type of risk.
A common reassurance in these situations is: ‘All liabilities will be cleared before completion.’
While this may be the intention, it is not, on its own, sufficient protection.
In a share acquisition, the buyer assumes the legal and financial history of the company. Without a clearly defined mechanism – supported by warranties, indemnities, and properly structured agreements – there remains exposure to issues that may not be immediately visible.
For many independent practices, an asset purchase is often the cleaner and more straightforward route.
The balance sheet: a quiet but important indicator
It is natural to focus on profit.
However, the balance sheet often provides a more complete picture of how a business has been managed.
Key points to consider include:
- The level of liabilities within the company
- Whether reserves are positive or negative
- How dividends have been extracted historically.
In some cases, it is not uncommon to see dividends taken in excess of available reserves, or liabilities quietly building up in the background.
These are not always deal‑breakers. But they are indicators.
A practice can be profitable and still be financially stretched – understanding that distinction is important.
Goodwill: what are you really paying for?
In most transactions, goodwill represents the largest component of the purchase price.
It reflects:
- The patient base
- The reputation of the practice
- The expectation of future earnings.
However, goodwill is not a fixed or guaranteed asset.
It depends on:
- Patient retention
- Continuity of care
- Stability within the clinical team.
If a principal is retiring or stepping back, the key question becomes: To what extent will that goodwill transfer?
This is particularly relevant where revenue has already shown signs of decline or volatility.
Goodwill should not be viewed solely as a reflection of what the business has done historically. It should be assessed based on what the business is likely to continue to do.
Revenue trends: context matters
A single year of strong performance can be persuasive.
But it rarely tells the full story.
Buyers should examine:
- How revenue has moved over several years
- Whether any decline has occurred
- Whether recent improvements are sustainable.
A pattern of decline followed by partial recovery is very different from consistent growth.
Valuations based on a ‘best year’ are rarely representative of future performance.
Negotiation: reframing the conversation
Many buyers are understandably cautious when it comes to negotiating price. There is often concern about losing the opportunity or appearing overly critical.
In practice, the most effective approach is not to challenge the business itself, but to align the valuation with how it will operate under new ownership.
A simple reframing can be powerful: ‘We are not questioning the practice – we are aligning the price with how the business will perform going forward.’
This keeps the conversation grounded, rational, and commercially focused.
The role of proper review
Most buyers will go through this process only once.
The challenge is that practice acquisitions sit at the intersection of:
- Clinical operations
- Financial performance
- Tax considerations
- Legal structure.
Relying on headline figures or informal assurances can lead to decisions that are not fully informed.
A structured review allows buyers to:
- Understand the quality of earnings
- Identify risks early
- Approach negotiations with clarity.
Final thought
Buying a dental practice is not simply about stepping into ownership. It is about stepping into a set of assumptions. Some of those assumptions will be correct. Others may not.
The role of proper analysis is not to slow the process down, but to ensure that when a decision is made, it is made with clarity.
Because in practice, the greatest risk is not the opportunity you walk away from. It is the one you proceed with without fully understanding.
If you are considering the purchase of a practice and would like an objective view before proceeding, you may wish to seek independent financial advice to ensure the decision is approached with clarity and confidence.
Find a certified chartered accountant here.
This article is sponsored by Fortuous.
