There is a significant problem with this; a valuation through percentage of turnover is an increasingly unreliable way of valuing a dental practice. It only works on the assumption that the practice that is being sold is just like other practices in the area which, unless it happens to be a predominately NHS practice, is unlikely. Yet the majority of practice sales agents work with this method – and will charge from anywhere between 2-4% for doing so, equating to thousands of pounds in fees.
The fundamental issue with percentage of turnover is that it disregards many important factors that may affect the actual value of a practice – factors that you can be sure a buyer (and the buyer’s bank) will be quick to scrutinise, like the type of dentistry being delivered, the quality and state of equipment, the sustainability of the practice and the potential for expansion. In fact, by disregarding these factors, valuation through percentage of turnover begins to look a great deal like guesswork – particularly expensive guesswork – which completely ignores one essential aspect that will ultimately mean more to any buyer than any other: profitability! By failing to take a practice’s overall profitability into account, as well as the assets and the liabilities on the balance sheet, any valuation is bound to be unreliable, unrealistic and, ultimately, unachievable.
Why, then, do many practice sales agents continue to use this method? Firstly, it is quicker – a valuation based on turnover can be calculated relatively easily as long as the practice’s accounts are well-maintained. Secondly, the agent’s main objective is to acquire the initial commission to sell the practice, collect the fee and move on. They are not required to become invested in the priorities that the vendor might have – like ensuring the welfare of patients and staff or finding a buyer who can continue to uphold the standards and ideals that the practice has come to represent. Their remit is to find a buyer who is willing to pay and complete the transaction; they have no real reason to search with you for the ‘right’ buyer.
Therefore, finding the right practice sales agent – one who will provide you with a service which is truly represented by the fees charged – is one of the most important elements of selling a dental practice. It can ultimately save a great deal of time, anxiety and cost if you find an agent who is willing to go the extra mile in the first place. Ideally, you need someone who is sensitive to the specific features of your practice and the individual needs you exhibit as a vendor. You need someone who has taken the time to understand your motivations for selling, who understands the overarching philosophy of the practice and duly considers a buyer on these terms and, most importantly, who has the expertise and experience to thoroughly analyse the practice’s accounts in order to establish a realistic and achievable sales price.
For more information about joining the Portman Dental team, please visit www.portmanhealthcare.co.uk or call Gary Chapman on 0207 281 9489 or 07966698130
Gary Chapman is the Head of Mergers and Acquisitions at Portman Dental. A qualified dental technician with over 30 years’ experience in the dental industry, including running his own dental laboratory and a Harley Street facial aesthetics clinic, as well as working as the Director of Acquisitions at James Hull Associates, Gary has a unique understanding of the profession. He now uses his extensive expertise to help the Portman Dental Group grow and, to date, he has identified all but two of the practices acquired by Portman Healthcare.