When preparing to organise the sale of your dental practice, there are a number of important considerations to ensure your valuation truly reflects all the investment and hard work you have put in to build the success of your business.
Historic accounts don’t necessarily reflect the effects of positive changes you have made more recently, and don’t show up-to-the-minute trends that predict future performance. Your accounts from the previous financial are a year are out of date, so you need a snapshot of how the business if faring currently.
Management information (MI) is essential operational data, generated through accountancy software such as Sage, Xero or QuickBooks. It gives a real-time, comprehensive breakdown of income and expenditure for the practice in a profit and loss breakdown. Management information shows the top-line metrics of your practice on a quarterly basis but also – essentially – other details needed to demonstrate the real value of your investments, like the cost of sale line (more on these below).
Management information is important for analysing trends for your own strategic planning as well as providing evidence to prospective buyers and lenders. Having this current data helps you accurately forecast future performance, and enables you to intervene when things aren’t working. Regularly assessing where you are with the help of MI also enables transparency, building potential buyers’ trust in your business and in you as the owner.
Some metrics explained
The top line refers to your gross figures based on primary revenue. This headline information is an important metric, as it reflects the income potential of your practice before costs have been applied. Pure, top-line data clearly demonstrates any growth achieved from one accounting period to the next. It can show the success of any improvements or changes you have made, such as the addition of surgeries, or introducing specialisms to the practice.
The cost of sale line is the accumulated total of all costs used to provide your services to patients without general, marketing or administrative costs. This focus on the precise cost of delivering services is a very helpful metric to analyse how your investment in services has worked, but it also provides information for benchmarking the efficiency of your operation.
Benchmarking
Benchmarking is defined as the process of measuring the services you deliver against industry leaders, or collated comparative data that demonstrates reasonable average costs. Important standards can be set for your own analysis around expenditure such as your lab, material and staff costs, and your revenue versus chair occupancy. This data is not just important to you as the business owner, but to lenders and potential buyers. Standards enable principals or practice managers to set key performance indicators (KPIs), that relate to the wider industry as well as in the specific context of your own practice.
Instant performance reviews
An effective MI system can show the profitability of a dental practice at a glance, and provide data for meaningful analysis. For example, if you’ve done a campaign to push a specific plan, your recent statements might show a £10k increase on the previous year. This figure can be extrapolated, and annualised based on current patient numbers. This means an addition of £120k on to the top line, which trickles down into net profit, creating a more accurate reflection of the value of your practice.
Equally, if you’ve managed to increase chair occupancy, and grow your private element through the specialisms you’ve introduced, for example, those can be clearly and concisely broken down for the buyer.
Banks will also require the most recent information. Vendors need to provide them with 12 months of fee per item, income, their latest NHS pay statement, and their plan statement. Having up-to-date MI ensures everything relevant is accounted for, and that nothing undermines the valuation that has been calculated.
Help is available for dental practices wanting to achieve an accurate valuation that accounts for their strategic planning as well as their investment and ongoing hard work. For example Dental Elite produces up-to-the-minute benchmarking data to assist businesses in optimising their operations in readiness for the most favourable sale possible.
Management information is a vital tool that provides a key snapshot, both to support an accurate valuation of your business, and to provide current performance data for the buyer, helping them to assess their own potential strategies to take the business forward. With this information, they can make a more convincing case to lenders, and buy with a greater sense of confidence.
References available on request.
For more information email info@dentalelite.co.uk or visit www.dentalelite.co.uk