For established dental practice owners, the most useful question is not simply what the practice is worth. It is which strategic choices the current financial and operating model can support.

By Rizwan Akhtar, Director, RA Accountants

A valuation is an output, not a strategy

An owner may receive an indicative dental practice valuation and assume the next decision is whether to accept it. In reality, value depends on the quality, sustainability and transferability of the earnings a buyer expects to acquire.

The same analysis is equally important if the intention is to retain the practice, invest in organic growth or acquire another practice.

Sell, hold and grow are not permanent positions. A practice can strengthen its financial and operating model while preserving all three options. The strongest position is one where performance, debt or owner dependency does not force the decision.

Rizwan Akhtar, Director at RA Accountants, says:

“Practice owners often ask what their business is worth, but valuation shouldn’t be the starting point. The more important question is what you want the practice to do for you over the next three to five years. Once we understand profitability, cash generation, owner dependency and the investment required, we can properly model the options available.”

Understand sustainable dental practice profitability

Turnover alone does not show what a dental practice produces for its owner or a potential buyer.

The financial review should normalise one-off and non-commercial items, distinguish owner remuneration from operating profit and establish a sustainable level of adjusted EBITDA or maintainable earnings after allowing for the resources required to operate the practice.

Accurate management information should provide visibility over revenue by income stream, clinician, site and treatment category, alongside laboratory and material costs, payroll, associate costs and cash generation.

When considering the value of a dental practice, headline figures should never be viewed in isolation. Income mix, sustainable profitability, location, tenure, deal structure, owner dependency and the overall risk profile of the practice can all influence value and buyer appetite.

Deal structure can be just as important as headline price. The amount payable on completion, any deferred consideration, performance-based earn-outs, ongoing involvement of the principal and property ownership arrangements can all have a significant impact on the overall value achieved.

Assess your NHS and private income mix

NHS, private and plan income can each bring different financial and operational characteristics.

Rather than focusing only on the percentage split, owners should understand the profitability and demand within each income stream.

Increasing private revenue does not necessarily improve profit if clinician, laboratory, marketing or other costs rise faster. Equally, reducing NHS activity without understanding patient demand, capacity and the resulting cash-flow impact can create additional risk.

The important question is not simply where revenue comes from, but what each part of the practice contributes.

Reduce owner and associate dependency

A practice that depends heavily on the principal’s clinical hours, referrals or personal relationships may generate strong income today but be harder to transfer to a new owner.

Potential buyers and lenders may look at clinician retention, chair utilisation, recruitment history, patient allocation and the strength of the wider management team.

Reducing dependency does not mean removing the owner from the business. It means building a practice whose performance is not entirely dependent on one individual.

That can make the business more resilient whether the objective is to sell, hold or grow.

What does dental practice growth require?

Opening another surgery, acquiring a practice or expanding clinical services can create opportunities for growth, but revenue ambition needs to be separated from cash reality.

Equipment, refurbishment, recruitment and working capital may all be required before additional income is established.

Financial modelling should therefore include base, downside and upside scenarios. What happens if patient numbers build more slowly than expected? What if recruitment takes longer? Can the practice comfortably service additional borrowing?

Growth should strengthen the business rather than leave it dependent on optimistic assumptions.

Preparing a dental practice for sale

Even if a sale is several years away, preparing early can improve both decision-making and transaction readiness.

A buyer may examine UDA performance, plan income, associate arrangements, complaints, compliance, property, equipment leases, related-party costs and the reliability of management information.

Preparation should therefore include reviewing sustainable earnings, tax and ownership arrangements, key contracts and the owner’s likely role following completion.

Good financial performance matters, but so does the ability to demonstrate that those earnings are sustainable and transferable.

Sell, hold or grow: assessing your next move

The right strategy depends on more than valuation.

Dental practice owners should consider five areas together: financial performance, operational dependency, investment requirements, personal objectives and transaction readiness.

A weakness in one area does not automatically determine whether you should sell, hold or grow. It identifies what may need to change before your preferred route becomes financially realistic.

At RA Accountants, we work with dental practice owners to understand sustainable profitability, model different strategic options and prepare the financial information needed for growth, funding or an eventual sale.

Considering the next stage for your dental practice? Speak to our dental team about modelling the financial implications before making your next move.

This article is for general information purposes only and does not constitute accounting, tax, legal, financial or professional advice. Individual circumstances vary and professional advice should be obtained before taking, or refraining from taking, action based on the information contained in this article.