It is interesting to see that the latest NASDAL survey reports that demand and not profitability is driving dental practice values.
There is no doubt that demand is incredibly high and has been for some time, with no signs of this abating any time soon. It is also true to say that there are rare occasions when the profitability of a business is not a primary driver when buying a business. Where the buyer has a significant cash contribution, the basic rules of business can go out the window.
Frank Taylor & Associates always values goodwill using three methods, and one of these is focusing on profitability. The underlying profit of any business is crucial – as the old saying goes, turnover is vanity, profit is sanity, and cash is king.
The three methods used are to review the financial accounts for the past three years, review the performance for the most recent twelve months and the adjusted net profit (EBITDA) for the past three years. Taking this approach ensures that the goodwill value has veracity.
NHS practices are still the most sought-after. Whilst the NHS contract will be reformed at some point, the ‘when and how this will happen’ has been kicked around for years now. The NASDAL average of 125% for an NHS practice continues to be below the Frank Taylor & Associates experience, which is 195% for the past quarter, which is slightly down on the past quarter, but this could well be a quarterly blip, as there is no sign of the market quietening down.
Private practices are building in value and demand, as reported in the most recent survey. The value of private practices is very sensitive to location, and as Alan Suggett rightly says, it is dangerous to base your own value on an average. You are strongly recommended to get your own practice valuation.
South Wales is an area with growing demand, with a recent NHS practice achieving two offers above the asking price offers which delighted the vendor.
David Brewer of FTA Finance thoroughly agrees with the view that ‘there is no problem with funding’ – he regularly works with 14 banks who all consider dentistry as a green light sector.
Andy Acton
Director & co-owner, Frank Taylor & Associates
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