The Way to Get (Like for) Likes
If accumulating likes on social media has become a laudable and legitimate business goal, it’s a fair bet that excessive use of accounting jargon in your posts would be a good way to lose them again. However, it need not be that way, and, as Oliver Acton of Frank Taylor & Associates points out, understanding just some key principals can help you ensure that your practice is valued accurately and fairly.
Oliver explains, “A practice valuation, similar that of any business depends on several variables. However, a key part of that valuation is understanding the ability of the practice to make money, and in valuation terms this measure is called the reconstituted net profit. Of course, to get a fair and accurate valuation, we need to be able to compare to other practices on the market with a degree of consistency) in other words, “like for like”) and that is why we must use the measure of reconstituted net profit. Essentially the reconstituted net profit is the EBITDA with some personal or discretionary costs added back. Put simply, this means we remove any items from that profit calculation that are unique to, or a choice of, the practice or the owner. In this way, the reconstituted net profit means we can compare the performance of different practices and get an understanding of how well any individual practice is performing.
“A lot of people just roll their eyes when I mention EBITDA” agrees Oliver “but there’s really no need to be daunted by the terminology. EBITDA stands for Earnings Before Interest, Tax, Depreciation and Amortisation and is usually the bottom-line profit reported in a business’ accounts. In short, it means the profit or earnings a practice makes (the E) before (B) deducting interest and tax and payments (I and T) and before deducting depreciation and amortisation (D and A). These latter two terms refer to the decrease in value of assets in the business, be they tangible assets (machinery e.g.) or intangible (goodwill e.g.). The reason we look at the profit before these deductions (i.e. before the I, T, D and A items) is that they may vary from practice to practice. A like for like comparison is a better way to compare practices, and to understand their relative financial health, and therefore we compare profit before such deductions”.
“We then need to add back some other cost items which are often personal to, or at the discretion of, the current owner, for example salary, pension, travel expenses and any one-off items. Having added these cost items back we have a reconstituted net profit, which is a better indication to any potential buyer of what the financials will look like for the practice. Of course, there will be other deductions from this, but these will vary according to the buyer’s circumstances”.
“The key objective in the calculation is to get a like for like measure so we can compare practices” concludes Oliver, “so the simple principle is to add back to the profit any costs you deduct that would differ under a new owner”.
For more information on getting a professional valuation of your practice, call us on 0330 088 1156.
Practice - Surrey
Practice location: This practice is situated in one of the most popular and affluent areas of Surrey and captures both the commuters and local residents. The town is large and attractive with a thriving community and a bustling local economy. Great transport connections, road and rail, and continuing development means an ever-increasing population.
Practice type: This is a two-surgery high-end private practice and is being sold as leasehold. It is shop fronted in a highly visible location and has been kitted out to a very high standard.
Practice financials: The gross fee income from management information for the past 12 months is in the region of £575,000 per annum and is generated by the principal working three days a week, a part-time associate, and a hygienist working three days a week. The team are supported by three full and part-time dental nurses and three part-time receptionists.
Price achieved: A price of £1,275,000 was achieved which was in line with the asking price.
Agent's comments: This practice has seen continual growth in new patient registrations for the past three years with an incredibly successful uptake of recommended treatment plans. Current surgery utilisation stands at 76% which provides the opportunity to develop and continuing to grow which every new owner wants.
Number of people looking in the area: 2,050
Practice - Greater London
Practice location: This practice is situated in a predominantly residential area of a busy London suburb. The area offers a wide range of amenities and is home to a diverse community. It appeals to families in particular as there are many good schools in the vicinity.
Practice type: This is a very well-established three-surgery mixed income practice and is being sold to facilitate the retirement of the principal. The existing leasehold is about to be renewed with a 15-year lease to be in place. It is a shop-fronted premises with ample street parking.
Practice financials: The gross fee income from management information for the past 12 months is in the region of £600,000 per annum and is almost split 50/50 between private and NHS. The income has been generated by the principal working two days a week and four associates working a combined ten days a week and a hygienist working 2 days a week. The team are supported by two part-time receptionists and four full-time and part-time nurses.
Price achieved: A price of £880,000 was achieved which was in line with the asking price.
Agent's comments: This practice has been established since 2015 having been set up as a squat by the current principal, and with a UDA rate in excess of £32 per UDA has a healthy mix of income. This is a turnkey practice and has been exceptionally well looked after which allows the incoming principal to be free from the burden of Capital Expenditure for the next few years.
Number of people looking in the area: 2,925
Practice - Hertfordshire
Practice location: The practice is situated in a popular village with a population of over 5,000. There is a healthy mix of residential and commercial properties, and it is located close to the high street. It is well connected with public transport and has the benefit of ample parking around the practice.
Practice type: This is a three-surgery, fully private practice that is being sold to facilitate the retirement of the current principal. It has been established for over 40 years and being sold as freehold and to release the current owner from the burden of practice ownership. It occupies two floors of a shop fronted property.
Practice financials: The gross fee income is in the region of £950,000 and has been generated by the principal working four days a week, three part-time associates working a combined nine days a week, and two hygienists working a combined three days a week. The team are supported by a practice manager, two part-time receptionists and two nurses who work full-time.
Price achieved: A price of £1,125,000 was achieved which was in line with the asking price.
Agent's comments: With almost 50% of the income generated from a capitation scheme, this allows the buyer to feel confident that the turnover could be maintained if not increased. And, with chair occupancy in the region of 75%, there is an opportunity to grow and develop with additional services and longer opening hours.
Number of people looking in the area: 2,093
Practice - Cambridgeshire
Practice location: This practice is situated in a charming and affluent town in Cambridgeshire. Being within the town centre, it is in a prime spot close to all amenities and benefits from excellent footfall.
Practice type: This is a three-surgery, mixed practice being sold as leasehold. It has been established for over 15 years and is being sold to facilitate the retirement of the current principal.
Practice financials: The gross fee income from management information for the past 12 months is in the region of £750,000. The income is generated by the principal working three days a week, three part-time associates working a combined six days a week, and a hygienist working four days a week. The team are supported by a full-time receptionist and three full-time dental nurses.
Price achieved: A price of £880,000 was achieved and in line with the asking price.
Agent's comments: This practice evidences a solid income stream and has a history of steadily increasing turnover year on year (aside from the Covid year). The incoming principal has the benefit of knowing the area and can see the potential of developing the practice as currently only two surgeries are fully utilised.
Number of people looking in the area: 785
