Selling your practice - use tactics!
This is according to Alan Suggett, a member of the technical committee of the National Association of Specialist Dental Accountants (NASDA) who says that thanks to acquisitive dental corporate chains, dentists should review their tactics when selling.
Profitable practices should no longer base their goodwill valuations on a percentage of turnover, says Alan, but on practice profits. If your profits are high, he advises, sit down with an accountant who understands dentists and corporate finance, and estimate what your practice is worth to the corporate.
Alan continued: “Work through an adjusted profits model for your practice, and see what a valuation based on a reasonable profits multiple would look like. If this indicates that your practice is worth more than the usual percentage of fee income valuation, then be robust in your sale tactics.”
“I recently finalised the accounts for an NHS practice with fee income of approximately £2 million with a net profit of £550,000 based on the activities of a principal and several associates. The “market” value of the practice is approximately £2m. But by adjusting the profit to reflect what the business would make if the principal was paid to carry out his work, profits would be reduced to £400,000, and applying a profit multiplier of 8, conventional in the wider commercial world, the value of the practice would be in excess of £3m.”
On the other hand, he said, in a dental practice with modest profits, then the dental business owner would be better off using the traditional system of valuing goodwill, a percentage of turnover (it seems everyone is trying to get 100%, but the current average, based on the NASDA October 2009 survey is 85%)
Alan added: “Until the generally accepted method of calculating dental goodwill changes, you should use either method, depending on which is advantageous to you. Just make sure you have a good adviser and a trusted specialist accountant working on your behalf.”
Alan Suggett can be contacted at unw by telephone (0191 243 6009) or e-mail (alansuggett@unw.co.uk)
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