Associated costs that buyers will scrutinise

It’s not just the basic value of a business that factor in to a potential buyer’s decision. I have certainly noticed over the last few years, that buyers are a lot more savvy when it comes to the business aspect of owning a dental practice. Profit is king. This is why there are so many other associated costs which are scrutinized by anyone looking to buy a dental practice, and which sellers need to be aware of.

The value of an NHS contract

For any practice that has an NHS contract in place, it’s not that just the value of the contract that will come in for scrutiny. Units of Dental Activity (UDA) performance is also likely to be considered by most buyers. They want to see that performance is good, as poor performance can put pressure on funding. If a UDA target has been missed by more than the 4% tolerance level it’s possible that any offer made will be based on the level of performance and not on the value of the contract.

Cost of support staff

It’s important to look at staffing costs before a dental practice is placed on the market. These costs represent significant outlay, and potential buyers could be put off if they are higher than would normally be expected. Generally, it’s normal for the cost of support staff to be around 15-16% of total revenue. Most successful practices should already have a measure of this situation as operating costs should already be optimised.

Associate costs

Associate costs are an essential factor when determining the profitability of a practice. This is why they are likely to be one of the first costs that is scrutinized by potential buyers. When selling a practice, it’s important to be able to provide a breakdown of the salary of each dentist, as well as the income created by their activities.

Hygienists and therapists’ income and costs

The income and related costs associated with hygienists and therapists employed at the practice will normally be considered separately by buyers. This is because some of the services they provided come at a lower cost than when they are provided by associates and can generate a similar level of income.

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Retained principal and property costs

There are other costs which may factor in the decision making process of a buyer. Two of the main ones are:

• The cost of a retained principal who will normally take earnings as a dividend, or from the profits of the business.
• Associated rental costs. Most buyers will check to see if they are competitive.

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