If you’re a practice principal you’ll no doubt be familiar with the term ‘exit strategy’. What you may not know is that your plan should be in place at least five years before you actually intend to leave. This gives you time to get all your accounts in order, identify the appropriate exit strategy and identify your personal goals for the future. Not to mention that it will help you secure a smooth exit and gain maximum return on your practice.

If you plan on selling the business as a way of securing monetary funds for retirement, then that time can be used to implement strategies that will help to maximise turnover and profits. Advertising and branding can help with this, as can having a dental practice valuation from a specialist valuations company.

As part of your exit strategy you should also decide whether you want to sell the practice outright or stay on part-time as part of a deferred consideration deal. Admittedly the eventual outcome may be outside of your control, but it’s definitely something to give thought to and plan. Especially if your intention is to depart immediately and settle for a smaller sum, as you may need to start your exit plan even earlier.

Of course, the better the planning, the more likely you are to achieve your personal and business goals. So if your heart is dead set on walking away from the practice and avoiding being tied into a part-time contract for several years after the sale, you’ll need to plan in advance to make that happen. Naturally, it’s best to contact a specialist dental acquisitions and sales agency that can help you to establish the most appropriate exit strategy that matches your objectives.

They will also be able to warn you of potential pitfalls to avoid. For instance, don't make the mistake of taking on fewer patients and reducing working hours too soon. All too often practice principals make this mistake, resulting in stagnation of growth and loss of income. As your profits decrease, so will the practice’s attractiveness to potential buyers and banks.

In regard to your staff, be sure to look at the way in which your associates are remunerated in your exit strategy to create an accurate overview of your practice’s performance and potential. Official associate agreements will be needed as well to protect the goodwill of the practice and assure potential buyers that the clinical team plans to remain with the business for the foreseeable future.

If retirement is on your mind or you’re thinking of moving on, then it may be time to start thinking about an exit strategy. Call Dental Elite for a free valuation, healthcheck and expert advice that will help you to achieve your long-term goals and realise your practice’s potential.

For more information contact Dental Elite. Visit www.dentalelite.co.uk, email This email address is being protected from spambots. You need JavaScript enabled to view it. or call 01788 545 900

John Grant of Goodman Grant Solicitors explains the difficulties that NHS orthodontists may encounter when the time comes to sell their practice…

It is often the case that the majority of NHS orthodontists will have a Personal Dental Services (PDS) agreement rather than a General Dental Services (GDS) contract, which, unfortunately, can make it difficult for a contractor to sell.

This is because PDS contracts are time-limited; at present, the longest contracts are being renewed for three years. While LATs are likely to grant this, there is nothing obliging them to do so. Indeed, if an LAT were to decline a renewal request, there would be nothing an orthodontist could do.

The second issue is that, unlike GDS contracts, PDS contracts cannot be transferred  using the partnership route . Since 2006, NHS practices have been bought and sold by introducing a partner to the contract with the seller subsequently retiring – resulting in a  smoothish transition from one principal to the next. As this is simply unavailable for PDS contracts, on the face of it they are unsalable.

In 2006, there was a change in the law that allowed dentists to incorporate their businesses. After years of uncertainty in 2013, NHS England introduced its incorporation policy – effectively making incorporating possible – if by no means guaranteed. For orthodontists, this created the opportunity for the sale of their contracts: by transferring the practice’s assets, including the NHS contract, to the limited company. Then, by selling the shares in the company  the value of the practice could be realised.

Nowadays, however, the LATs’ attitudes towards incorporations have changed. More and more often, they are requesting tangible benefits – and the focus tends to be on the patients. Typically, their requests manifests as a request for extended opening hours; a recent case saw an incorporation application denied because the practice refused to commit to more than an extra hour a week, showing how stringent the LAT can be in this regard.

Of course, assuming the LAT does agree to the incorporation in principle, the problems for the contractor will not suddenly cease. At this stage, the LAT will produce a Deed of Novation – which operates to transfer the NHS contract to the limited company. Included in this document are two sections of which practitioners must be particularly aware.

The first is that the LAT will require a guarantee from the contractor that the contractor will personally guarantee the performance by the limited company of the NHS contract. This does not represent a problem whilst the contractor holds the shares in the limited company – it places them in no worse position than they were prior to incorporation. Complications arise, however, after the sale of shares, due to the way in which the deed is drafted unless amended the personal guarantee will continue even after the contractor has sold their shares.

Secondly, a Deed of Novation will include what is known as a change of control clause, which subjects any transfer of shares  of 10% or more in the Company (which obviously will be the case on a sale)  to the approval of the LAT. This essentially puts the decision as to whether the principal can sell in the LAT’s hands – and if they were to refuse it would be extremely difficult to challenge that decision.

John Grant of Goodman Grant Lawyers for Dentists - a NASDAL member

For more information call John Grant on 0113 834 3705 or email This email address is being protected from spambots. You need JavaScript enabled to view it.

www.goodmangrant.co.uk

A NASDAL and ASPD MEMBER

Many practice sales agents will use percentage of turnover to value a practice – which can lead to an unrealistic expectation on which many vendors, particularly those approaching retirement, will base their futures.

There is a significant problem with this; a valuation through percentage of turnover is an increasingly unreliable way of valuing a dental practice. It only works on the assumption that the practice that is being sold is just like other practices in the area which, unless it happens to be a predominately NHS practice, is unlikely. Yet the majority of practice sales agents work with this method – and will charge from anywhere between 2-4% for doing so, equating to thousands of pounds in fees.
 

The fundamental issue with percentage of turnover is that it disregards many important factors that may affect the actual value of a practice – factors that you can be sure a buyer (and the buyer’s bank) will be quick to scrutinise, like the type of dentistry being delivered, the quality and state of equipment, the sustainability of the practice and the potential for expansion. In fact, by disregarding these factors, valuation through percentage of turnover begins to look a great deal like guesswork – particularly expensive guesswork – which completely ignores one essential aspect that will ultimately mean more to any buyer than any other: profitability! By failing to take a practice’s overall profitability into account, as well as the assets and the liabilities on the balance sheet, any valuation is bound to be unreliable, unrealistic and, ultimately, unachievable.
 

Why, then, do many practice sales agents continue to use this method? Firstly, it is quicker – a valuation based on turnover can be calculated relatively easily as long as the practice’s accounts are well-maintained. Secondly, the agent’s main objective is to acquire the initial commission to sell the practice, collect the fee and move on. They are not required to become invested in the priorities that the vendor might have – like ensuring the welfare of patients and staff or finding a buyer who can continue to uphold the standards and ideals that the practice has come to represent. Their remit is to find a buyer who is willing to pay and complete the transaction; they have no real reason to search with you for the ‘right’ buyer.  
 

Therefore, finding the right practice sales agent – one who will provide you with a service which is truly represented by the fees charged – is one of the most important elements of selling a dental practice. It can ultimately save a great deal of time, anxiety and cost if you find an agent who is willing to go the extra mile in the first place. Ideally, you need someone who is sensitive to the specific features of your practice and the individual needs you exhibit as a vendor. You need someone who has taken the time to understand your motivations for selling, who understands the overarching philosophy of the practice and duly considers a buyer on these terms and, most importantly, who has the expertise and experience to thoroughly analyse the practice’s accounts in order to establish a realistic and achievable sales price.

 

For more information about joining the Portman Dental team, please visit www.portmanhealthcare.co.uk or call Gary Chapman on 0207 281 9489 or 07966698130

Gary Chapman is the Head of Mergers and Acquisitions at Portman Dental. A qualified dental technician with over 30 years’ experience in the dental industry, including running his own dental laboratory and a Harley Street facial aesthetics clinic, as well as working as the Director of Acquisitions at James Hull Associates, Gary has a unique understanding of the profession. He now uses his extensive expertise to help the Portman Dental Group grow and, to date, he has identified all but two of the practices acquired by Portman Healthcare.

Geography can play a significant role in the success of any practice transaction. From regional variations in value, demand and activity to patient demographics, understanding the local trends and market characteristics are all vital when ensuring the optimum transactional outcome. 
 

Christie + Co has specialists in 16 locations across the country, providing convenient, reliable access and insights into the local markets. For instance we understand that the areas that see the most interest are London and the South East, with the Midlands and some areas in the North also experiencing very high demand. This causes significant regional variations in practice valuation and it seems that the closer you get to the extremities of the UK, the more values ‘fall off’.
 

With years of experience valuing businesses across many market sectors and experts located across the UK, Christie + Co understand the significance of local knowledge. So if you’re looking to purchase a practice and want to ensure you make the most appropriate decisions based on in depth local and national insight, contact the experts at Christie + Co today.
 

To discuss how Christie + Co might help you achieve your future plans please contact Simon Hughes on 020 7227 0749

We all have the dream of owning our own practice, however the thought of making that transition is often frightening.
 

My first thought was, what can I afford? The only loan I’d ever got was for my home, and that was in the days banks were handing out money to anyone and everyone. This is where Dental Elite (DE) Finance, and in particular Becki, were invaluable. Long before I found the right practice, Becki had taken all the relevant information from me and let me know what I could realistically expect to get from the banks given my circumstances. This really narrowed down my search criteria, allowing me to stop wasting time on those practices that were out of my reach.

This was to be my first acquisition, for a reasonably sized practice in South Yorkshire with a healthy NHS contract. Before committing, DE Finance ran through all the figures again, ensuring the purchase was financially viable, before we moved forward.

In between dealing with the sellers and our respective solicitors, as well as having to turn up to work each day, I didn’t have time for much else. In DE Finance I felt like I had a PA, with Becki contacting all the major banks (and some I’d never heard of) on my behalf, leaving me to get on with other things. I left Becki to fight my corner as to why they should lend someone who has never run a business, let alone a dental practice, such a large sum of money. This I thought was going to be the most stressful part of the purchase, but it turned out to be the easiest.

Becki had influential contacts in all the right places, and offers from the banks quickly came rolling in. More importantly, because Becki was involved, the banks knew they would be competing against each other, and subsequently provided offers at fantastic rates. I certainly didn’t have time to approach all these banks myself, nor would I have received the rates I did.

Things didn’t end here however. Becki followed the process right through to completion and beyond. She was always there when I needed to contact her, even out of work hours. When the bank was labouring with the sale at times, she would intervene on my behalf and get her contact to push things along. It was great just being able to pick up the phone when I wasn’t sure about something, to receive some expert guidance, or even just some much needed reassurance.

Would I recommend Becki? Absolutely, without hesitation. I know who the first person I ring will be when I’m ready to make my next acquisition, even if it’s not a dental practice. And what did this fantastic service cost me? Nothing, not a penny!

Thank you Becki for making this whole process so easy for me.

- Imran Ahmed

The dental practice goodwill values for the last financial year ending March 2015 are out at last, and average practice sales with Dental Elite as a broker have risen to 3.23x adjusted net profit, 6.99x adjusted EBITDA with 137.8% as a reflection of turnover.

“I think anyone involved in dental practice sales and goodwill values will have noticed that the market has gained considerable strength,” reflects Luke Moore, Co-Founder of Dental Elite. “Most practices this year have achieved over and above our valuation.”

This year, NHS practices are displaying a 3.66x ANP, 6.79x EBITDA and 156.70% turnover compared to mixed practices, which sold for an average of 8.98x adjusted EBITDA or 3.56x ANP with a reflection of turnover standing at 136.02%.

“The breakdowns are very interesting,” says Paul Wilkinson, Co-Founder of Dental Elite. “It would seem that mixed practices tend to sell more to dentists who seek to work in the practice themselves, hence the slightly higher EBITDA multiple which is counteracted by the lower Adjusted Net Profit. It is also interesting to see Private Practice Multiples starting to narrow the gap between NHS Practices.”

To find out how you can get the best deal on your practice, and for a free, no strings valuation, contact Dental Elite now.

For more information contact Dental Elite. Visit www.dentalelite.co.uk, email This email address is being protected from spambots. You need JavaScript enabled to view it. or call 01788 545 900

When Peter Instone and his colleagues were ready to sell their practice, they chose to work with Dental Elite. “We were happy with them in every way,” he says. “They were excellent; we had no problems.

“Being able to talk to the same person throughout the process was useful – they knew everything that was going on from start to finish. Any questions we raised, they were able to get back to us with answers.

“I would certainly recommend Dental Elite to others.”

With a team that is proud to have over a hundred years’ experience in the dental sector, Dental Elite is in the perfect position to assist professionals through the sale of their practice. They have a reputation for offering practical and pragmatic advice and approach each case with honesty and openness.

If you are looking to sell your dental practice and want guidance from the experts, look no further than Dental Elite – contact the team today!

For more information and to find out how Dental Elite can value
and assist your practice sale visit www.dentalelite.co.uk, email This email address is being protected from spambots. You need JavaScript enabled to view it. or call 01788 545 900

In 2006, the NHS and Primary Care Trusts (PCTs) introduced the current funding system to NHS dental practices based on the amount of Units of Dental Activity (UDAs) completed in one year. Since NHS England took over the responsibility from PCTs in 2013 operating this system, a total of 27 Area Teams replaced the 150 PCTs nationwide.

There is no sign the pressure on practices to reach their UDA targets will ease. In fact, underperforming practices today could be finding the targets even harder to meet; any shortfalls in one financial year are carried over to the next, meaning a ‘rolling’ deficit is a real concern for year-on-year figures. During this financial year, NHS England is also required to reduce running costs by between 10-15%, so if anything a tightening rather than a slackening of the rules on meeting targets is inevitable[i].

In the quarter of the financial year ending December 31^st 2014, the NHS published data showing that in England, 88.8 million UDAs had been commissioned. This presented a 0.8% decrease from the same quarter in 2013, equating to 696,000 fewer contracts and also 90,000 fewer contracts than were commissioned in the previous quarter of 2014[ii]. This situation has had a knock on effect that determines the prospect of selling those NHS practices struggling to make the quotas they’ve been allocated. 

The sale of practices with NHS contracts in some areas of the UK has been detrimentally affected where NHS England has over-commissioned dental services. Simply having enough people in a locality to justify a contract hasn’t proven to be reason enough to award one. It doesn’t automatically follow that the community wants more NHS dentistry; they may instead prefer long-standing local private practices, or worse still, not be seeking dental services at all.

Failing to be within 4% of the fixed year-on-year target can be catastrophic, in the most extreme cases practice contracts can be terminated. In examples such as underperformance or closing during contractual hours, NHS England initially serves a breach notice but if the practice then makes any kind of future breach of contract (which may be for an entirely different reason) the contract can be immediately revoked. NHS England will then negotiate a new contract, with less funding. Also, the degree of leniency previously afforded to NHS dentists will diminish with Area Teams having to enforce a harsher approach and breaches of contract are far more likely to be issued this financial year than ever before. In cases of underperformance alone, NHS England may deem that a practice was over-funded for the services being provided and will effectively ask for a refund from the practice (a claw back).

Nowadays, competition is fierce between NHS practices to entice patients through the door so that they have a fighting chance of meeting their UDA targets. This fact contributes towards complicated agreement negotiations when valuing a dental practice for sale. Purchasers (and their financial backers) involved in buying NHS practices must thoroughly research and become assured that the UDA contracts can be maintained and that they have the finances for any necessary improvements to facilitate this. Sellers on the other hand, will want to ensure that the post-completion obligations and liability are kept to a minimum. In short, a shrewd perspective and business plan are two essential ingredients for all involved in the sale of NHS practices. The predicted outcome of patient recruitment plans and any expense involved in them needs to be assessed and built into the valuation of the dental practice for sale.

A claw back of 500 UDA’s is equivalent to a £11,000 reduction in funding (based on average treatment costs) which can seriously undermine profit, so a potential buyer will need these kinds of figures incorporated in the practice value. Essentially, you are on your own in terms of building a patient base, NHS Clinical Commissioning Groups play no part in filling appointment slots. This means examining the practice’s current performance to see if there is room for improvement on reputation and profit.

Action plans cover anything from a complete re-fit of the surgery and reception areas, to designing a trendy website, prioritising SEO and right down to the skill of your receptionist in welcoming patients and putting them at ease. The team at Dental Elite can help you identify key areas to note during the sale of NHS dental practices whilst retaining a realistic view of the changes that actually need to be made to the business; often the simplest aspects such as chairside manner and the comfort of the patient waiting room are the cheaper and most effective alterations needed.

For more information and to find out how Dental Elite can value
and assist your practice sale visit www.dentalelite.co.uk, email This email address is being protected from spambots. You need JavaScript enabled to view it. or call 01788 545 900