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Challenges when buying and selling dental practices

7 min
Female dentist wearing a mask with patient

Nigel Jones (NJ), Sales and Marketing Director of Practice Plan, joined Practice Plan in 2008, but has worked in the dental industry for around 30 years. He believes we are in the midst of a huge amount of change and uncertainty, which poses several challenges for anyone looking to buy or sell a dental practice.

Together with Lis Hughes (LH), Managing Director from Frank Taylor & Associates, they discuss some of the challenges faced by dental practitioners when looking to buy or sell a dental practice - from the practice sales market to fulfilling NHS contracts and exit strategies.

NJ: Lis, what is your take on the current dental market, and your specialised subject within that, the sales market?  

LH: Frank Taylor & Associates has been operating for around 35 years now - the core part of our business is to value and sell dental practices.

I joined the business back in 2008 and for as long as I can remember, it's been a seller's market with incredibly high demand. Even in 2008 when the banks slowed down lending for a while, and as a result private dentistry took quite a hit, many people recognised the benefits of NHS practices, such as the security of a steady income.

Dentistry has historically been a safe industry for the banks, and there has always been a demand to buy. Associates have always wanted to be practice owners and that hasn't changed. However, what we have seen, particularly over the past 12 months, have been the challenges caused by interest rates.

When people look to buy a dental practice, they are not only thinking about the cost of buying a practice, but also about their own personal outgoings and the increases to mortgage rates, utility bills and so forth.

Therefore, affordability has become a real question for many of our buyers, and although it hasn't stopped the market, it has definitely made it somewhat slower. We've also seen a shift in the desire for certain types of practices, and this obviously influences the market.

NJ: Could you explain how this shift is manifesting itself? What sort of things are owners and potential owners concerned about?

LH: One concern that many current and potential practice owners have with NHS or mixed practices is being able to find associates to fulfil the NHS contract. If the NHS contract is quite large or the practice is located in an area where recruitment is difficult, the concern for potential buyers is getting associates to fulfil the contract.

NJ: We are working with a lot of practices at the moment who are handing back their NHS contracts. In some cases, it is purely because the practice owners have had enough. However for many, it is the practicality of trying to solve the recruitment issue. In other words, where the owner has basically said we cannot recruit an NHS associate, and the only way we could recruit more dentists into this practice is by offering them private positions. This must surely have an impact on the valuation of NHS practices?

LH: Absolutely, and I think one of the biggest challenges we're all seeing - and it's quite a paradigm shift - is what do the associates want to do? There are two things here. One is that we very rarely come across an associate who wants to work five days a week. And the other is that we rarely come across someone who has the ambition to be an NHS dentist. That is quite a big combination.

If you own a practice with a large contract that is dependent on associates to fulfil, then anyone looking to buy your practice will be questioning whether or not they will be able to fulfil the contract. And yes, this does impact on the value. If we don't have people who want to buy the contract, it will ultimately influence the value.

NJ: What motivates practice owners to sell?

LH: When we talk to practice owners about why they want to sell their business, we typically find that they are either moving towards some sort of future plan, or they are moving away because of distress.

We come across more owners who want to move away from the burden of practice ownership and to be relieved from it, rather than any other motive. Sometimes owners want to sell to enjoy doing only clinical work, but in these cases, we've often found that they are not referring to NHS work - rather their specialist private work where they've built relationships with their patients and so on.

NJ: There are many people wanting to move away from practice ownership, however to achieve this, they have to find someone who wants to move towards practice ownership.

Therefore, what advice would you give to a practice owner looking to sell, in terms of sourcing a buyer or potentially preparing their own associates to take on the practice?

LH: I would say it is important to get specialist advice from the right people and to start the process as early as possible. There is a lot of preparation involved.

There are always people who want to sell and people who want to buy. It is the buyers that will actually drive up the value. If people don't want to buy the practice, then we have to reassess the value we attributed.

Quite often when we get involved with the sale of a dental practice, we may have had a relationship with the seller for maybe two years before it goes on the market. If the owners then decided they would now like to sell it, we would have to revisit not only the value and the turnover, but also how attractive the practice is. What does it look like and what are our buyers looking for?

Many buyers still like the security of a mixed practice. However, when it is predominantly NHS, it is far less attractive due to the question of fulfilling the contract and finding the associates to do the work.

For those looking to buy a practice, we have to look at affordability. Anybody interested in buying a practice will need to put a 20% deposit down, and with costs continuing to rise (mortgage rates, personal bills and so forth), the 20% deposit that may have previously been relatively easy to obtain has become tighter for many. This is why it's important to get a good overview from the start and seek specialist financial advice.

Another risk of being a practice owner is that sometimes owners only start to think about the burden of ownership – running a business - when they become owners. There is a massive shift between being an associate and going home at five o'clock, to being that practice owner who starts their other job (looking after the business) after five o'clock.  

NJ: Do you think that one of the perceptions that some people may have, because of the financial pressures you mentioned, is that most practices are actually being bought by dental groups or dental corporates? Or is that a misconception?

LH: I think the corporates have been on an acquisition trail for quite a while, but they are also stopping to think about the profitability of their practices. This is because interest rates are affecting everybody. The one thing that we have never lost is the desire from associates to become practice owners - not even in the first lockdown.

Therefore, overall, I would say there is still the ambition to buy, and there always will be, but there is also always the ambition to sell. Perhaps what we're seeing at the moment is a softer market due to the external influences that none of us have any control over.

NJ: Indeed, these are interesting times. I think you are offering great value to practice owners by supporting them to help see some of the positives in their practice and prompting them to re-evaluate. There are many options, and it is often a case of seeking the right specialist support and exploring the right avenues. I think that's why both of us are doing this - to ultimately help people feel happier and less burdened.

Seek advice from specialists

If you are considering buying or selling a dental practice and would like support with your financial planning, you can speak to a Specialist Financial Adviser at Wesleyan Financial Services as part of a no-obligation financial review. We can also help if you're thinking about moving from NHS dentistry to private practice.

Your mortgage is secured on your property. Your property may be repossessed if you do not keep up repayments. 

About the author
Lis Hughes profile
Lis Hughes

Managing Director of Frank Taylor & Associates

Lis Hughes is Managing Director of Frank Taylor & Associates, the UK’s most successful sales agent. Lis has worked in the dental sector for many years and offers a depth of understanding in what does and does not work, and which pitfalls are best avoided when buying or selling a dental practice.

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