An annual valuation

26 February 2021

Maja Thompson explains the benefits of having a practice valued every year.

Maja Thompson explains the benefits of having a practice valued every year.

Every practice owner should have their dental practice valued yearly, as this will help them stay in tune with the market and take action to achieve a desired outcome. If you start with this process early in your ownership tenure, you will feel more in charge of the end result than if you leave it to the last few years. To put this into context, if each year during your ownership you improve the profit by 10 per cent, in 20 years your profit would have grown by 215 per cent.

Using the example of two practices with a starting yearly profit figure of £100k, if one practice has 20 years of continuous five per cent growth, this will yield nearly £1.5m more profit compared to no intervention. However, in the second practice there is a 10 per cent continuous growth and over 20 years this business yields £4.3m more profit than with no intervention. 

Continual growth is not easy, however by valuing the business every year you can identify parameters where growth is possible and act on those to continue the cycle. Small changes over a long period amount to a large change. This works in all businesses and positive impact builds over time.

Start with a valuation, as this is an in-depth analysis of where the business is and how it compares to other dental businesses of a similar size and location. To value a dental practice you will need:

  • Accounts for the last two to three years, with income breakdown preferably organised by:
    - Income stream (NHS, plan, private and so on)
    - Clinician/associate/hygienist
    - Associate/hygienist payrates, working hours and lab/materials percentage
  • Practice team list, including: 
    - Hours worked
    - Hourly rates
    - Pension details
    - Approximate value of the freehold or leasehold annual rental

This looks like quite a list, but these are some of the basics you should be on top of to ensure you are actively and effectively managing the business. If you get into a routine, having the terms above will become second nature. Most of the items listed are readily available from accounts and practice management software, and if you are using Software of Excellence then the data access could be even quicker as a partner company, always only with your permission.

A practice valuation manager will analyse the data and tell you what the value of the practice would be in the current market, taking into account market conditions in operation at the time. Most importantly, the practice valuation manager will:

  • Benchmark your practice with similar practices in the area and be able to tell you whether the parameters you operate under are in line with the market.
  • If you are looking to grow the business revenue but are unsure how to, practice valuation managers can help recommend revenue growth routes which you may not be aware of.
  • If the cost of the services you utilise are high, a practice valuation manager can suggest partners who will be able to optimise service costs.
  • If you are looking to expand your practice, or acquire an additional practice, a practice valuation manager can recommend financing options and engage our partners who can secure funding for you. This ensures the best lending rate is secured for you, increasing the profitability and value of the business.
  • If you are looking to expand a specialist service, our practice valuation managers can work with our partners to secure the right team and equipment for you.

Each dental practice is different and each dental practice valuation is unique, so the solution to help you reach your end goal will depend on your personal circumstances. Regardless of the starting position, we can work with you to find the right path for your dental practice.