Who to trust?
Getting the sale of your practice right is a tricky business, so go with an expert
Misconceptions, half-baked advice and hearsay. Everyone and their dog will give you advice freely when you come to sell your practice, but who can you trust? Through PFM Dental, I handle dozens of sales of every shape and size, year in, year out. Here are my top tips for cutting through the flannel and getting the right deal for you.
1. GET THE BEST PRICE BY GOING TO THE OPEN MARKET
There’s a myth that corporates pay the highest prices. Hot on its heels is another misconception – if you want to sell up but stay on as an associate, selling to a corporate is your only option. Speaking from the agency coalface, I can promise you it’s still a seller’s market. Corporates are very active, but I always advise vendors to go to the open market, or as many suitable buyers if we are keeping the practice ‘off market’. Marketing your practice widely is the best way to maximise your price and compare the offers. If your business is just what a private buyer is looking for, they’ll often pay more than a corporate to secure the perfect location or set-up.
2. BE WARY ABOUT SPENDING LOTS OF MONEY BEFORE YOU SELL
Everyone wants to get the best price for their practice. As a result, many vendors spend vast amounts of cash upgrading their equipment before they put the business on the market. This can be an unnecessary expense. Today, we value practices using profit multiples. Yes, it’s still important for valuations to include a breakdown of the value of the equipment (for tax purposes) but new equipment doesn’t directly boost the value of your practice. Of course, if something is not working properly, you should replace it. And it’s true that someone might find a practice with new equipment more attractive. But overall, be careful about splashing out huge sums when you don’t need to.
3. FORGET TURNOVER – FOCUS ON PROFIT
Historically, dental practices were valued on a percentage of turnover. Today, it’s all about multiples of profit. And with a standard “associate led” valuation based on, say, seven and a half times profit, even a small increase in margin can mean a big rise in the overall valuation. In other words, if you can shave, say, £20k off your costs, you’ll see your valuation rise by £150k. A good valuer will look at how your business is run and come up with suggestions to hone your profit margins.
4. BE SAVVY WITH YOUR PROPERTY
Do you own a practice and the property? If so, smart tax advice is a must. As long as you don’t hold it through a limited company or own the property within a SIPP (self-invested personal pension), property is classed as an ‘associated asset’. If you sell it with the practice, it will generally qualify for Entrepreneurs’ Relief (taxed at 10 per cent on the gain). But if you hold on to the property and lease it out, you lose Entrepreneurs’ Relief and pay Capital Gains Tax. There are also transitional rules that may apply. This might be a one-time chance to get tax relief on the property sale. Tax rates and rules are subject to change and are complex, so you’ll need to liaise with a well-briefed accountant to find out what’s best for you.
5. GET AHEAD OR GET HELP WITH DUE DILIGENCE
Picture the scene: you’ve found your perfect buyer. You’re excited about the deal going through and you’re already planning the fun you’re going to have when those sale proceeds are in your bank account. Then the eight-page business questionnaire drops on to your desk. Swiftly followed by the three-page property questionnaire. You find yourself knee deep in collating all the necessary due diligence information, including accounts, staff contracts, service agreements and inspection certificates. My advice is to avoid delays by starting this process early.
6. DON’T UNDERESTIMATE THE NEED FOR DENTAL SPECIALISTS
You’re going to need someone who can get your dental practice valuation right first time. A dental sales agent will be best placed to market your practice to the maximum number of appropriate people who are actively looking to buy in your area. Dental lawyers understand all the nooks and crannies of due diligence and they’re also past masters at making sure all the right warranties and protections are included in your sale agreement, leaving you to stroll away post-sale, knowing you’re safe from future claims.
Martyn Bradshaw, Director.
O: 01904 670820
DD: 01904 946165
M: 07779 658332
A: 62 Skeldergate,
York, YO1 6WN