Short, Sweet and Super Important
The use of acronyms is commonplace in most walks of life, and many have just become accepted as part of the language, even the oracle itself, the Oxford English Dictionary, is known in its shorter form of OED! To the uninitiated these abbreviations can seem overly complicated, daunting even, as the fuller and more easily understandable term is truncated into what appears to be a new language. Ask a non-dental professional what UDA stands for and you’ll likely get a blank look, likewise the term EBITDA might elicit a similar reaction from anyone outside the finance community. Nevertheless, its importance in understanding the health and value of any business should not be underestimated.
The full title is earnings before interest, tax, depreciation and amortisation. Earnings is simply revenue less costs. Interest is the cost a business pays for any financing in place, for example on loan agreements. Tax is what that business pays to the government or other state bodies. Depreciation and amortisation are similarly treated as they reflect the decrease in the value of an asset over time. Depreciation typically refers to tangible assets (cars and machinery, for example) and amortisation to an intangible asset (like goodwill). In a very simple example, you purchase a computer for use in the practice for £2,000 and you expect it to last four years. The asset (the computer) gives you economic benefit for four years, so you depreciate it over that period, thus the cost to the business’ profit and loss account (P&L to use another acronym) is £500 each year (£2000 divided by four).
Of course, the I,T,D,A in our EBITDA (namely interest, tax, depreciation and amortisation) may vary from business to business and even from practice to practice, as they depend on the individual arrangements in place for financing, tax and the purchase and useful life of their assets. Therefore, looking at earnings before deducting these amounts gives a better indication of the health of the business and enables comparisons with other business or practices to be done more easily on a like for like basis. Of course, this is critical when it comes to valuing a business.
Andy Acton of Frank Taylor & Associates continues, “We are very focussed on EBITDA when it comes to valuing practices, but as always, the devil is in the detail. We often find there are other costs that are unique or personal to the principal, for example training, travel and entertainment or the cost of the full-time principal themselves, that are still included in the EBITDA figure. These too will vary from practice to practice. Therefore, we find it beneficial to add these costs back to get a ‘reconstituted net profit’ and therefore a more accurate basis for any like for like valuations we do. For those not familiar with this I can fully appreciate it can seem daunting, but we are very experienced in helping people through the process, understanding their business’ costs and revenues in order that we can get the best, most accurate and most transparent valuation for them.
If you want help in getting a professional valuation of your practice, please get in touch on 0330 088 1156 for further advice.
Practice - Midlands
Practice location: This well-established practice is located in the centre of the country, established for over 50 years and is a single storey corner site property situated between residential and a shopping area.
Practice type: This is a three surgery mixed practice and is being sold to facilitate the retirement of the principal. It is being sold as leasehold with a 20-year lease in place that has 14 years unexpired. It is inside the Landlord & Tenants Act 1954.
Practice financials: The gross fee income from management information for the past 12 months is in the region of £650,000 per annum and the NHS-GDS contract has a UDA rate of £34 per UDA. The income is generated by the principal working three days a week, with two associates working a combined 7 days a week and two hygienists working a combined three days a week. They are supported by a part time receptionist and five full time dental nurse/receptionists.
Price achieved: A price of £1,300,000 was achieved which was slightly in excess of the asking price.
Agent's comments: The existing principal had worked and owned this practice for 25 years and wanted to find the right person to take over the practice, and as a result, he turned away the highest offers as he recognised values in the new principal that he liked and admired. This is far more common than people expect and the biggest driver when selling a practice is, “will this person/corporate look after my patients and my team as well as I have done?” – not a bad maxim to live by either.
Number of people looking in the area: 973
Practice - Hertfordshire
Practice location: This practice is situated within a short drive of a bustling town in Hertfordshire and has been established for just over 10 years having been started as a squat practice by the existing owner. It has been running as an associate led practice for the past two years.
Practice type: This is a very well established four surgery fully private practice which is being sold to reduce the responsibilities of the practice owner. The practice occupies the ground floor of a purpose-built commercial property and is complimented by other tenants who offer therapies and treatments. It is being sold as leasehold with 8 years remaining on a 10-year lease which is held within the Landlord & Tenants Act 1954.
Practice financials: The gross fee income from management information for the past 12 months is in the region of £600,000 per annum. The gross has been generated by three associates working a combined nine days per week, and two part time associates working four days a month specialising in implants, and a hygienist working three days a week. The team are supported by a full time practice manager, a full time receptionist and three full time nurses.
Price achieved: A price of £775,000 was achieved which was in line with the asking price.
Agent's comments: The new owner is an established practice owner who has wanted for some time a fully private practice to become the flagship of his small group – this one fitted the bill as it was the perfect location and with the opportunity to expand the practice in the future with additional surgeries should the practice grow as he desires.
Number of people looking in the area: 2,352
Practice - Dorset
Practice location: The practice is based in one of the largest towns in the region and has excellent road and rail links, it has been established for over 40 years and is being sold to release the current owner to focus on other business interests.
Practice type: This is a five-surgery, associate led and mainly NHS practice and is being sold as leasehold and the landlord is prepared to create a new 20 year lease inside the landlord and Tenants act 1954.
Practice financials: The gross fee income is in the region of £700,000 and 96% of the income is generated by a NHS-GDS with just over £25.00 per UDA. The income is generated by three full time associates and a hygienist working 1 day a week. The team are supported by a practice manager, two part time receptionists and four full time and two part time dental nurses.
Price achieved: A price of £825,000 achieved which was in excess of the asking price.
Agent's comments: This practice had been on the radar of practice owner who was based very nearby. His existing practice building was no longer fit for purpose, and with the blessing of NHS England, he was able to move his existing contract into the new premises – he paid a premium for the practice and believed it was worth every penny.
Number of people looking in the area: 711
Practice - Northamptonshire
Practice location: This practice is situated in an affluent village on the outskirts of a major town in Northamptonshire. There are no other dental practices in the village and having been established for over 50 years it is a well known and respected practice with a very strong and loyal patient base.
Practice type: This is a three surgery, mainly private practice being sold as a share and asset sale. The NHS contract is held in the name of the existing principal and the income and expenses of running the contract are kept separate to the private element which is run through the limited company. It is a leasehold sale with 13 years remaining on a 15-year lease which is inside the Landlords & Tenants Act 1954.
Practice financials: The gross fee income from management information for the past 12 months is in the region of £595,000 of which 97% is private and 3% is NHS with a UDA rate of £27.26 per UDA. The income has been generated by the principal working three days a week, an associate working three days a week, and a hygienist working 1.5 day a week.The team are supported by a full time receptionist and three full time nurses.
Price achieved: A price of £775,000 was achieved and was slightly in excess of the asking price.
Agent's comments: This is a first purchase for the new principal and he is buying a very well run fully private practice with a small element of NHS dentistry. Interestingly, he originally wanted a practice which had a higher percentage of NHS dentistry however, the changing climate of finding associates wanting to work in NHS dentistry caused him to rethink which indicates a paradigm shift rather than a personal choice.
Number of people looking in the area: 946