Buying or selling a dental practice in 2021

Published: 30/11/2020
By Chris Mayor, Lily Head Dental Practice Sales

We asked Chris Mayor from Lily Head Dental Practice Sales to talk us through some of the key dynamics affecting the dental practice market as we head into 2021

How is dental patient demand holding up since the first lockdown?

Demand for dental services is positive and we are seeing practices operating at 80 to 110% of pre-lockdown revenue.  This is not just the result of people needing emergency treatment. Many patients are joining the private sector because of capacity issues in the NHS and some are using money saved during lockdown to take control of their oral care through private treatments.

What determines the value of a dental practice?

Location is a critical consideration – which is of course fixed.  There are many other factors that are taken into account by a specialist valuer such as opportunity for treatments, practice reputation, goodwill and the patient database.

However, the key driver for a practice valuation is return on investment or ROI which looks at the potential financial performance. It compares current and pre-COVID practice revenues and makes projections on when previous levels of turnover, profitability and throughput are anticipated.

Striving to achieve pre-COVID levels of business is therefore critical for dental practice Principals. Many are implementing smarter ways of working to reduce costs and coming up with innovative uses of resources to drive a positive ROI.

Has the value of dental practices changed?

Despite the pandemic, there has been no significant impact as demand is still strong and values are holding up. We’ve seen evidence that offers are continuing to be made above the asking price and our cautious prediction is that this will continue into next year. 

How active is the dental practice market heading into 2021?

Conversations with many dentists tell us that any previous indecision around buying or selling and subsequently moving forward with life and career plans have been energised by the COVID crisis. This is reflected in a 12% increase in new vendors since March this year compared to what we would expect to see.  There has also been an uplift in new buyer registrations as increasing numbers of professionals look to take the reins in their own practice.

Experienced buyers tested the market early during the pandemic by making speculative low offers, but the market did not respond and we were quick to reinforce the fact that this tactic would not bear fruit. However, a more realistic demand from these buyers has since remained strong.

There is still finance available to borrow against buying a practice, but more rigorous and extensive information is required by lenders to prove a buyer’s credibility and asses their risk profile. Lenders are particularly focused on data around recovery of the debt and its sustainability. Therefore buyers need to clearly qualify their eligibility, business objectives and borrowing potential. Deposits are now running anywhere between 10% and 25% and vendors are required to support their buyers’ loan applications with accurate, up-to-date accounts.

Why involve a dental broker?

There are many reasons to warrant involving a reputed broker when selling a practice and three of the most important are set out below:

Operation

Financial and operational advice on all types and groups of dental practices can be provided by a good broker. They can benchmark areas of the account that may be dragging down the valuation and provide advice on maximising the value of the business.

Market knowledge

Day-to-day dentistry can cut you off from a wider knowledge of the dental business market.  A good dental broker provides valuable market knowledge and has a critical inside track on current and historic transactions. They are able to profile the types of buyer who would be attracted to your practice and have solid market penetration by actively networking with groups of potential buyers.

Value

A good broker will be able to advise you on the current value of your practice. Many organisations advertise their ability and desire to buy dental practices and they attempt to lure vendors in by portraying a particular culture. However, their messaging never includes the fact they will pay market leading values.  A good broker will provide the leverage that is needed to achieve this, which on its own will far outweigh their fees.

What are your top tips for 2021?

• Buyers must get their financial house in order and be ready to provide clarity around their limits and borrowing capabilities. (Download Lily Head’s ‘Free Buyers Guide’)

• Sellers should seek out objective and expert advice and get to grips with their dental practice valuation. (Download Lily Head’s ‘Free Sellers Guide’)

• Both buyers and sellers need to step aside from the day-to-day practice management and understand what is happening in their market. Make this a priority in 2021 by listening to Lily Head’s ‘Dental Business Transactions’ podcasts on Podbean, Apple iTunes or Spotify.