Dental accountants on 2021: “A year like no other”
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- Published: Friday, 18 March 2022 09:02
- Written by Peter Ingle
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The annual Benchmarking report from NASDAL (National Association of Specialist Dental Accountants and Lawyers) is a major fixture in the dental business calendar.
The NASDAL member accountancy firms are able to pool a great deal of data to give an authoritative picture of business trends. This year they had access to financial information from 650 principals and limited companies, plus 600 associates. Unlike the Public Health England figures that are often quoted, which only reflect NHS dentistry, NASDAL’s figures involve the full spectrum of provision.
Returning to the BDA for the first time since 2019, the presentation began with Alan Suggett of UNW Chartered Accountants reporting on goodwill values. Based on quarterly figures using the value of deals struck, they considered goodwill as a percentage of fees. These values have been rising since April 2021 and in the most recent quarter had overtaken pre pandemic levels. NASDAL use three categories of practice type, “Private” (defined as 80% or more of turnover from private work), “NHS” (80% or more from the Health Service) and “Mixed,” for those in between. While private and mixed percentages had clearly risen over the last year, NHS percentages appeared static. The range of percentages, however, in all groups was eye-opening. For the NHS group it ran from 48% to 276% and for the mixed group from 45% to 490%. Practice owners planning their exit strategy will be very eager to know what differentiated these businesses. In the discussion that followed, it was suggested that corporates were increasingly looking for a significant private element in new acquisitions, particularly in England given the concerns over NHS contract changes. It was also felt that the increasing recruitment squeeze would have a greater effect upon NHS practices.
Moving to profitability and benchmarking, Ian Simpson of Humphrey & Co, began looking at trends in average profits. He compared the 2021 figures with those for the two preceding years. The newest figures are based upon 2021 tax returns and accounts, with year ends up to April 5th 2021, so reflect the major changes the pandemic has had on practices. In general, average profit had declined in 2020 and then more than recovered in 2021, with the average across all sizes of practice going from £134,000 in 2019, to £129,000 in 2020, and then £151,000 in 2021. Using the earlier definitions of NHS, mixed and private practice, showed similar trends of a decreased, or static profit, in 2020 and recovery in 2021. For associates average profits in 2019 of £69,000 had marginally increased to £70000 in 2020 and then fallen to £63000 in 2021. Average received UDA rates of £28.28 translated into average associate rates of £10.89. Alan Suggett observed that he was unable to see the ‘logic’ in those cases where principals were passing on the NHS fee abatement to their associates.
Moving to key expenses ratios, there was limited change, the largest one, though unsurprising, being a reduction in laboratory and material costs for NHS practices in 2021. A longer term view of profits showed a peak around 2009 with little change since, and this was without adjusting for inflation.
The ensuing Q & A session concluded that while there had so far been modest increases in fees and profits for principals but declining profits for associates, the increasing workforce shortages had yet to come into play.
Rising inflation would inevitably put pressure on practice finances and earnings, and the war in Ukraine whilst it’s effects were yet to filter through, would also lead to increased costs.
The expectation was that the March 2022 figures would see profits slipping slightly, particularly for NHS practices.
Despite this the number of practice sales had recently climbed back above the immediate pre pandemic levels, so there are still dentists and lenders willing to invest in the dental market.
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