How Easy is it to Build a Dental Group?

Across the UK an interesting phenomenon is occurring in the UK Dental landscape, more and more dental groups are emerging all in search of quality dental practices to purchase.

They are searching high and low for quality dental practices that will contribute to the group’s EBITDA.

Increasingly, we are hearing from clients stating that their turnover is around £2m and they would like to build over the next few years to sell it for £20m!

Sounds great. However, the key factor some of the groups have not thought about is the debt-level funding they require. If you need to borrow £19m in order to sell it for £20m, I don’t think you would be so inclined to build a dental group.

Click here to listen to our podcast episode on whether now is the time to grow a dental business.

It’s not about how much you sell for

The thing you need to really care about is not the total amount group sells for, but ultimately what you actually receive into your bank account after paying off all the debt and taxes.

In other words, if you worked that hard over five years to build your business and sold it for £20m, but only put £1m into your bank account, would it have all been worth it?  Probably not.

In simple terms – it’s the net figure you are interested in, not the headline figure.

This is actually the number you need to start with. So, instead of saying you want to sell your business for £20m, it’s essential to state what you want to receive net of debt and taxes.

Click here to read our guide on How to Sell a Dental Practice.

So how do you plan to achieve your net goal? Is it via acquisition, start-up or a combination of the two?

If you’re going to make acquisitions over the next five years, do you know:

  1. how much revenue on average they should each be generating?
  2. how much you’re going to pay for a typical acquisition?
  3. how many acquisitions you’ll have to make each year?
  4. how much you’ll need each of those practices to grow after you’ve acquired them?

Click here to read more about choosing between starting and buying a dental practice.

Growing the EBITDA is essential

If you haven’t really thought about the answers to those questions, in other words: if your business is generating £2m in revenue today at an EBITDA margin of 20% and you want to sell it for a net £5m in five years, you’re probably going to have to grow your business at a rate of around 40% annually.

Is that really achievable in the current market? Especially as there are many more buyers than sellers currently in the UK market for quality dental practices- some of whom are willing to pay over the odds for them?

On exit, the net amount you will receive will ultimately be determined on the EBITDA being generated, and the real key is to grow the EBITDA faster than the revenues of the group. Through margin expansion is where groups can achieve a higher multiple and, hence, a higher valuation on exit.

This will mean centralising many costs as the group scales and keeping a close eye on keeping costs tight, whilst still delivering a quality service.

Click here to read our guide on How to Grow a Dental Practice.

Buying multiple dental practices – What to consider

Expanding your current dental practices is not the only way of building a dental group. I have worked with many clients who found that the best option for them was, instead, to buy more dental practices.

The one thing I will say is that this can be a complex process and it’s one which is not always easy to get right. No one wants to put an already successful business at risk, so considering mergers and acquisitions carefully is important.

Click here to read our guide on How to Buy a Dental Practice.

Have the right team in place

No matter how long a dental professional has been in business, they are not best placed to make the most well-informed choices when it comes to legal and financial implications.

It’s important to put a professional team in place, before entering into a deal to buy further practices and merge them with the current one.

The team should include dental solicitors and dental accountants who can make sure that the deal is a solid one, that all relevant information is disclosed and that contracts include all agreed aspects of the deal.

Click here to read about the 10 things to look for in a dental accountant.

How to ensure a successful merger or acquisition

There are several tasks that should always be completed, if an acquisition or merger is to be completed successfully and you want to build a dental group.

  • A plan should be created that helps with the purchase of further surgeries and deals with the structure of the business after the acquisition.
  • An analysis should be completed of the services currently being carried out at the surgery that is to be acquired. Is it a good fit in the current plan for the business?
  • A detailed review of the proposition should be drawn up, so that any potential issues can be identified.
  • An implementation plan should be drawn up, so that any acquisition or merger can happen without any significant negative impact on the business as a whole.

Over the years, I have seen the value of this work first-hand, working with clients to ensure that building a dental group is the positive experience that it should be.

Click here to find out more about acquisition finance.

It is not easy to build a dental group

So whilst, many groups are trying to do this and doing this well, I have a funny feeling that there a few that may have jumped on the bandwagon, not actually understanding the numbers and not realising the effort required to reach the heady heights of their desired exit value. 

Building a dental group is not as easy as everyone thinks, but achievable if you focus on understanding the numbers.

You can read more about accounts and tax for dentists here.

Sign up for one of our business training events

Sign up now for one of our events and webinars, designed to teach dentists how to build a better business.

We run free webinars twice a month, covering everything from compliance to raising finance. We also host live events across the UK, like our Setting up in Practice Bootcamp, which has been running for over 10 years and the first step for 100’s of the UK’s practices.

Check out our events calendar to see which of our webinars, courses or bootcamps are right for you.

Join the Samera Alliance Buying Group

The Samera Alliance is our growing network of dentists, practices and leading industry suppliers, designed to help you save money, grow your profits and build a better dental business.

Join today for free to be a part of our dental buying group, which gives you access to exclusive discounts and offers on the consumables, equipment and products you need in dentistry.

Further Information on Buying a Dental Practice

When buying a dental practice (especially if it’s for the first time), you need the competent hands of qualified professionals. Not only have we been helping the UK’s dentists to buy, start and sell dental practices for nearly 20 years, we are dental practice owners ourselves!

With Samera Business Advisors you can rest easy knowing that your investment is secure and your future is brighter. Contact us today so we can help plan for your tomorrow.

For more information please check out the articles and webinars in the buying a dental practice section of our Learning Center, like our Guide to Buying a Dental Practice.

For all our previous articles, webinars and video updates, subscribe to our YouTube channel and follow us on Facebook and Instagram.

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