Education Week: Dental practice valuations – The MediEstates way
In today's guest blog, Dean Barker, Director of MediEstates, explains the benefits of annual practice valuations and provides exclusive insight into the unique MediEstates valuation process.
Protecting futures and stimulating growth
It is never too early in a dental-business owner’s career to seek a practice valuation. In fact, regular valuations can boost profitability and provide the best possible setup for the next career stage.
Knowing the value of a business provides options for the future should anything unexpected occur. It is a crucial time for many business owners and an increasing number are working to protect themselves against further disruption. However, this does not mean dental-business owners should get a valuation then batten down the hatches in anticipation of another storm. Valuations can be used to grow portfolios by providing leverage for up to 100% funding for another site. Practice owners looking to expand may have no need for lending services – an attractive prospect, particularly in the current market.
The MediEstates valuation process
The benefits of annual valuations can be seen in our comprehensive valuation process. We cover everything about the business to ensure we reach a true valuation and identify any areas for development. Our Practice Valuation Managers (PVMs) take the time to build a relationship with the client and gather the information we need, which is generally two years’ worth of accounts, alongside a multitude of information to understand how the practice operates. The subsequent document we compile will detail all aspects of the business including staff costs, associate pay rates, capitation schemes, equipment and cost lines you will see throughout sets off accounts. The PVM will process the data to find the practice’s adjusted net profit and EBITDA (earnings before interest, taxes, depreciation and amortisation). The final part of this initial stage will be to calculate two multiples – one for the adjusted net profit and one for EBITDA – to reach two valuations for the business. These multiples are essential to the valuation process. They are derived from real-time market activity and evidence from our in-house system, which houses data on all factors that affect practice values including practice size, location and income. By comparing information gathered from our client against in-house data and current market activity, we can find true, evidenced-based valuations that ensure a more accurate market value.
Two valuations are better than one
One valuation is only partly useful to clients. We need to calculate two valuations, each of which focuses on a specific buyer type. The price for a dentist who plans to oversee the day-to-day operation of a practice will be different to the price for a multi-site operator adding a practice to a larger portfolio. In the latter case, the vendor can expect a post-sale agreement in which they could leave on day one, or agree to be tied into the business for anything up to 5 years. It is therefore vital to take this factor into consideration when valuing any practice.
Democratic processes and complete transparency
Following calculation of the two valuations, the PVM will submit these along with the full practice details to a panel of six Valuation Managers and myself. We review and assess each case to ensure the multiples applied are the most appropriate for each practice, after which we cast our deciding votes on the most accurate valuations. Once we have taken a practice through this rigorous process, we are ready to share the information with our client through a combination of documentation and one-to-one communication. Our aim is to ensure the client understands exactly how we have reached the valuations and why they are some of the most accurate on the market. But our work does not stop there. We offer expert advice to improve the efficiency of dental businesses with the use of benchmark figures relevant to their practice type.
Benchmarking to analyse costs and increase sales
The extensive practice information we gather allows us to retrieve benchmark figures for virtually every part of a business from virtually any part of the UK. For example, we can compare staff costs against those of similar practices, revenue streams of same-size practices, or the average UDA rate for different regions. We can even compare insurance prices for various types of practice to see if our clients are getting a good deal. As well as working to analyse practice costs, we also use benchmark figures to help business owners boost revenue by, for example, comparing regional treatment prices or chair time percentages per practice type. Even small changes can yield good results. Our guidance is also backed by a superb support network, with Henry Schein and Software of Excellence ready to cover the financial, software and supply needs of any practice.
Empowering practice owners
Benchmark comparisons and annual valuations give a practice the best chance of maximising value in every area, from property rental yields down to the cost of a bur. In addition, MediEstates can provide an overview of the entire market, including current conditions, information on private equity and corporate activity. Business owners can use these insights to understand the market and gain confidence from the knowledge they are running their practices as efficiently as possible. In short, benchmark comparisons and annual valuations from MediEstates can inform and empower practice owners.
Helping dental practice owners develop an exit strategy, group sales, corporate and group acquisitions, increasing business EBITDA. Background in accountancy, operations and commercial management.
Lead the MediEstates business which values 350+ dental practices per annum and is the Leading Dental Practice Broker in the Sector.