Managing change
Martyn Bradshaw from PFM Dental discusses key factors in selling your practice.
Selling a dental practice can be a complicated scenario, as with any business it is never at standstill and things are always changing. So how do you manage this and make sure that you get the best price and terms for your practice?
Practice valuation
A practice valuation should never be underestimated and is the starting block for your sale. While people may consider statistics of an average practice this is not the way to go with a valuation. You do not want to be estimating the value as you could be leaving significant value behind. While the accounts of the practice will give a good historic basis, they should not be the sole factor in looking at your practice value.
Most accounts will be six to 12 months out of date, and if you have seen growth in the practice turnover, this should be shown in the valuation. As a valuer we would always ask for the last 12 months’ income to the end of the last month; in essence re-writing your profit and loss and creating a new EBITDA with all the updated income.
Any updated costs will also need to be included, such as staff costs now – not what were previously in the accounts. Any personal costs and tax reducers should also be removed. The practice may also need to be ‘normalised’, in that if the Principal is not working full time with Associates also working at the practice, then a valuation will want to take into account of a full-time Principal (shifting around Associate costs).
Bank valuation
Typically, a bank will require a valuation of the practice; one that they instruct. This bank valuer will then undertake an up-to-date valuation of the practice, and it is important that the details provided are clear for them – as to updated income, costs that have been removed and why. Typically, a bank valuer will contact an agent and request a reasonable amount of information, but in fact we would supply them with more information than they may request – things that affect the valuation in a positive light.
Purchasers’ funding is reliant on the bank valuations, so if these come in less than the offer placed, the buyer may not have the surplus cash to cover the difference. The bank valuation is a very important part of the process and care needs to be taken to ensure that this matches what is being paid. Otherwise, there can be a significant loss in the sale price being achieved.
Business changes
Ultimately, the sale of the practice is not achieved overnight. The typical legal process can take four to six months and things will change in the practice during this time. For example, what do you do if you need to undertake staff appraisals/wage rises during the legal process? The buyer will have had their calculations based on the previous staff costs. What if an associate is looking to leave – do you replace them? This is quite normal, due to the length of sales. However, you should tread carefully with any changes and ideally keep to a minimum. With staff changes, and especially increases in hourly rates, we do suggest involving the buyer to some degree. This may be as simple as running the suggested increases by the buyer before agreeing with the staff, giving them the feeling of being involved. However, you should always remember that the deal is not agreed until signed on the dotted line, so you must do what is right for the practice until this time.
This then follows on to what happens if an associate leaves during the process? It may be that the buyer wishes to come and work in the practice post sale so can fill the position. However, what happens if the sale drags out or falls through? You may have experienced a significant drop in income which will affect the valuation going forward, or how the bank assess. Care should always be taken.
Conclusion
During the sale of your dental practice there will invariably be events that occur that need to be considered or change the practice in some way. The minimising of this is key, and where things need to be changed, seeking guidance to ensure that the sale and the value are not impacted are important. As you would imagine a good agent, who has vast experience of matters like these, can advise and assist throughout.
About the author
Martyn Bradshaw is a Director of PFM Dental and undertakes hundreds of valuations each year. With more than two decades of experience, Martyn understands the intricacies of dental practice sales to corporates, private buyers, partners and associates alike.
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