The importance of practice value towards a dentist’s retirement

Specialist Financial Planner, Graham Hutton, from Wesleyan Financial Services highlights how a practices value plays an important role in retirement planning.

Something I would urge any practice owner to consider, is not only the importance of fully understanding exactly what your pensions will give you in retirement, but also how to maximise the value of your practice so that its sale value can become a component of your financial security during your retirement.

What’s the ideal timeframe for retirement planning?

One of the first key decisions to make is when you would like to retire - this is typically between the ages of 55 to 67 years of age for most dentists I have worked with. Whatever your aspirational perspective is for retirement, it is important to have at least a five-year line of sight to start making plans.

For the best possible outcome in terms of retirement planning, I would advise dentists to start thinking about retirement planning 20 years in advance – although this may seem like a long time out, it’s good to start forming a mental picture of what you would like your retirement to look like. Ten years prior would be the time to start becoming more detailed regarding what you might want to be doing during retirement and how you will achieve it. Then five years before retirement is the time to ensure that you have everything lined up with your practice and that any shortfall in your pension planning can be covered by the practice - both in terms of the ability to generate income from the sale of the practice, but also in terms of the capital that is released, in order to meet some of your lump sum expenditure in the first ten years of retirement where you are more likely to want to do everything on your bucket list.

Looking at the value of your practice

The five years before retirement is also the time to start looking at the expenditure of your practice and how it impacts its profitability. Ultimately, when a practice is sold, it is based upon the EBITDA (earnings before interest, taxes, depreciation, and amortisation) which is used as an indicator of the overall profitability of a business - the sales value of your practice will be based on a multiple of your EBITDA. Understanding where you are overspending in your practice can improve your profits and your EBITDA and ultimately the practice value.

Joel Mannix, Associate Director at dental business broker, Christie & Co, adds, “If you’re considering selling your dental business somewhere down the line but feel that it’s too early to begin the process, then think again. As with most things, planning is key, and the earlier you start to prepare your business for sale, the better the outcome. There may be things that we can do over the coming months/years so that, when you’re ready to sell, you can maximise your practice’s potential in order to negotiate the best post-sale conditions. For example, reviewing strategy and operations, adapting the property itself, investing in IT to keep your practice up to date, and devising a marketing plan for your business will all contribute to the value of your practice.

“It’s also important to bear in mind that working with a specialist sales broker isn’t just about gaining access to potential buyers, although that is, of course, significant. Negotiating the post-completion terms in a dental sale is a highly sensitive and specialist area, and experience has taught us at Christie & Co that the devil is in the detail.”

Having the right business agreements in place

As a Specialist Financial Planner, we often find that many dentists don’t realise that the ability for their practice to be part of their overall retirement wealth may be sitting on shaky foundations due to not having the right business agreements in place. Ensuring that the value of your business is protected, involves fully understanding your situation and exactly what your business agreements and contracts do and don’t make provision for. The kinds of things we would expect anyone with an ownership share in a dental practice to know, is what happens to the business in the event of the long-term absence of one of the partners. Who covers their share of the expenses, what about their share of the profits? And ultimately if they can’t return, how and when do they exit the business, and on what financial terms? Understanding these areas is absolutely key to ensuring that the potential positive impact of your practice value on the quality of your retirement isn’t undermined.  Dentists who own a practice outright may think, this doesn’t impact them in the same way, but they have all the same concerns with the added issue of what the Local Authority Team (LAT) may decide to do with any NHS contract in the situation that they were to die unexpectedly.  What a practice owner should consider in this type of scenario, is that if they have an asset that's potentially worth anything from £500,000 to £5 million, and they were to die, wouldn’t they want the certainty that the years of hard work in building their practice value would benefit their loved ones in some way?

It's about understanding your situation, understanding at all times what your agreements are and their implications on the practice, what the value of the practice is and not overlooking how this can impact your retirement plans, your family, your income and your legacy.  

Seeking expert advice

In my experience, the majority of principal dentists I have come across have no training or experience in owning and running a business – their area of expertise is primarily in dentistry and caring for their patients. Furthermore, dentists are generally busy people; therefore, ensuring that everything is in order and that the sale value of the practice is being maximised can be a challenging and time-consuming task – this is where expert input can be invaluable. A Dental Specialist Financial Planner understands the complexity of practice ownership and has the time and autonomy to conduct a thorough review of all elements of the practice, from the business agreements, through to liaising with solicitors and accountants and everything else in between, to ensure all aspects of your planning are fully considered.

At Wesleyan we have a team of Specialist Financial Planners available to provide support and guidance on complex aspects of business planning through to estate and legacy planning. If you’d like further advice in this area to understand your financial position and plan for the future you can speak to a Specialist Financial Planner at Wesleyan Financial Services as part of a no-obligation financial review by visiting wesleyan.co.uk/lifes-journey or call 0800 316 3784.

About Graham: Graham Hutton is a Specialist Financial Planner at Wesleyan Financial Services, supporting dentists, their families and their practices with financial planning to secure their financial future.

About Joel: Joel Mannix is an Associate Director at Christie & Co and sells practices for clients across the length and breadth of Scotland. He has been operating within the dental sector since 2018 and has expertise in a range of deals, from single asset sales to larger group transactions, helping clients achieve their business goals. 

Wesleyan Financial Services Ltd (Registered in England and Wales No. 1651212) is authorised and regulated by the Financial Conduct Authority. Registered Office: Colmore Circus, Birmingham B4 6AR. Telephone: 0345 351 2352. Calls may be recorded to help us provide, monitor and improve our services to you.