Is now a good time to buy a dental practice?

PFM practice valuer assesses the current state of the market

16 August, 2021 / professional-focus
 Samantha Hodgson  

Whether you were already thinking about buying a practice, or the pandemic has given you time to consider options for the future, you may be wondering whether now is the right time to begin your ownership journey.

What is the current market like?

The Covid-19 pandemic has been a point of reflection for many, including practice owners within a few years of retirement.  Having had some time at home to consider their future and exit plan, the practice sales market has seen a new influx of practices coming to market over the past 12 months.  As people start to get back to work full time again, this is only expected to rise, with practice owners wanting to release some of their responsibilities on the wind down to retirement.  As an agent we have also seen a huge increase in the numbers of buyers looking also.

Where do I start?

Just like buying a house, first you need to decide what type of practice you want.  Think about; practice location, income type, how many surgeries, will you work there, are you buying alone?  Write all of your criteria down and start looking!  You will start to get a feel for the market and what your non-negotiables are.  Don’t forget that no practice is perfect, and you can make it your own in time.

Practice values

Practices are now valued on multiples of profit, known as an EBITDA.  EBITDA stands for earnings before interest, tax, depreciation and amortisation.  Note that the EBITDA figure can be calculated either under an ‘associate led’ or ‘principal led’ model. 

As a buyer, you will need to understand how the practice has been valued and how you plan to run the practice, to determine if the practice is right for you.  If you intend to work the practice as ‘associate led’ but the valuation has been calculated using a ‘principal led’ model then this may not work for you.

Should I have an independent valuation?

Although the bank will generally insist on having their own valuation (like a mortgage lender would against the property), at this point you would normally have agreed a price and instructed solicitors and started incurring fees. 

As such it is recommended that you have a valuation to ensure that the value is correct.  Part of the valuation is making sure that the correct information has been used for the valuation (by someone who deals with this day in day out) – it’s not as simple as using the last years accounts!

Whether you are buying a whole practice or buying into a practice as a partner, each valuation will be different.  There are 3 main partnership routes, all of which would give you a different profit level, and therefore the valuation of each would be different.  Don’t fall in the trap of not getting this right at the first stage.

During the Covid pandemic, many practices have seen income levels fluctuate. Whilst some practices have seen an increase in buyer spending on cosmetic treatments, others have experienced an overall drop in income due to lockdowns.  Understanding the income used for the valuation is key and you may need an expert to review the practice details for you to pick up on any inconsistencies.

Can I still get finance to buy?

Yes! Contrary to popular belief, funding for dental practice purchases has not stopped throughout the pandemic.  Whilst some banks found delays to services due to Covid related loans, lending for new practice purchases did not stop and most banks are still as keen as ever to support new owners coming into the market.

With the reduced Bank of England base rate and therefore lower interest on your loan, you may want to consider whether now is a better time than ever to look at taking the step into ownership. 

If you are a first-time buyer, you are likely to need a helping hand and using a healthcare finance broker is your best point of call.  A broker will put together a detailed lending proposition, undertake financial projections under your ownership, and issue these to multiple banks on your behalf.  Saving you hours of time on the phone with lenders, you won’t pay any more than if you went direct and will get the best interest rates on the market.

Samantha Hodgson is a dental practice valuer and finance broker at PFM Dental, one of the largest professional advisory firms for dentists, including sales and valuations, financial advice, and accountancy.

W: pfmdental.co.uk / T: 01904 670820 / M: 07538 363288

Categories: Magazine / Professional Focus

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