Christie & Co recently published its annual Dental Market Review which showed there is still a strong appetite for practice ownership. Buying a practice can be a long and involved process with the average time from an offer being accepted to exchange in 2022/23 being 201 days.
The process of acquiring a practice can be frustrating and stressful. So, what can a potential buyer do to make the journey more efficient? “The main piece of advice I would give to someone looking to buy is surround yourself with advisors,” says Paul Graham, Head of Dental at Christie & Co. “Find experts who have tried and tested experience in the dental sector who can give you independent and honest, straightforward advice.”
Do your research
He feels that having an understanding of the steps that need to be taken along the way to completing the purchase will stand buyers in good stead. “Buying a practice can be a stressful process,” he admits “and if you do not know what is coming next, and what to expect, you will find it 10 times more difficult. So, I advise people to educate themselves. If you have spent the time arming yourself with knowledge in the years and months before you buy the practice, you will find the whole process both slicker, cheaper, faster and generally less stressful.”
One area in which prospective buyers may wish to do their homework is the financial viability of the practice they’re interested in buying. Accountant, Mike Blenkharn of UNW, advises that in the current economic climate, it is crucial to carry out a viability forecast on your target practice. “In most cases there isn’t a requirement to do this. However, it’s a useful and powerful thing to have. It gives you peace of mind, and it helps with lenders.”
According to Mike, the current economic climate has ushered in a change to some of the old certainties about practice ownership and he advocates caution. “In the past practices generally have been profitable,” he explains. “They’ve nearly always generated enough profits to service their debt. However, we now have higher interest rates and we’re also seeing higher energy costs in sets of accounts, along with higher wage costs. By preparing a viability forecast, which is a very straightforward financial forecast, you get a chance to look at all the income, expenditure and loan repayments (both the interest element as well as the capital element). It should also include the prospective principal’s drawing requirements. So, you get a great overview of the business’ financial health.”
Despite dental practices still being considered favourably by many lenders, he has seen his advice to have a viability forecast prepared justified over recent times. “The default rate where a potential practice purchase wouldn’t pass a viability forecast test was always historically very low; probably about one in four,” he continues. “Now we’re seeing between 50% to 60% of these financial forecasts failing the required tests our lenders require to fund such a purchase. So I would urge prospective buyers to ask a specialist accountant to prepare this viability forecast for any practice they’re considering.”
Understand your goals and objectives
However, before embarking on any of these steps Paul advises spending some time thinking about your own goals and motivation. “Make sure you understand why you’re acquiring that business,” he urges. “Then focus on a few key areas of the business: reputation, finances, the patient base growth potential, and then lastly the infrastructure, including the team. And those are pillars that, when we see them perform well, can produce some of the best performing dental businesses in the marketplace.”
He suggests taking some time to make a dispassionate assessment of the prospective purchase. “A sense of realism that not everything is going to be perfect is important. I’d also suggest considering something that is probably the last thing on the mind of a purchaser, which is: what’s the intended end result of all of this? Is it a five-year growth plan and then sell out? Is it 15 years? Are you securing your career in dentistry for 25 years? Always have one eye on what the end goal is as well.”
So, in conclusion, given the current interest rates and the squeeze on personal finances, is now a good time to buy a practice? Yes, according to Mike Blenkharn. “Out of adversity comes opportunity,” he says. “As long as the homework’s done, there are opportunities. There’s a chance here to strike while others are on the sidelines worried about interest rates.
“So, if you are in a good strong personal financial position, which will be important for bank lending purposes, then you’re in a good position. As long as you do the homework and you run the numbers, I believe now is a fantastic time to buy.”
Paul Graham joined Christie & Co’s Corporate Medical team in 2014. He was made Director in 2017 and was later appointed as Head of Dental in the UK, leading an expanding multi-disciplinary team of agents and advisors across the country, spearheading the brokerage side of the dental business and driving significant high-profile transactions.
Mike Blenkharn is a Chartered Certified Accountant and Head of Dental at UNW LLP and has over ten years’ experience in working with dental professionals. He has overall responsibility for more than 300 practice clients and is actively involved in advising clients in respect of accounts, practice purchases/sales and restructuring.