Quite often, when they are thinking about buying a dental practice, dentists come to us for advice. We’ve written here about why we think buying into the NHS can be a false economy see here and here. But I thought it might be useful to show you how the conversation actually goes. This is taken from a real email exchange with one of my clients. Like most dentists, he was initially quite bullish about going NHS.
Hi Xxxxxx
As we discussed, here are the headlines as to why an NHS practice may not be the right purchase for you at this stage.
1. There is a commercial reality that suggests you should only buy a practice if you can grow it. Let’s imagine you are buying a practice with a £500k turnover…
£500k turnover implies a price of c.£750k (if not more)
£500k turnover implies a profit which will be less than 10% (i.e.£50k)
A loan of £750k over 15 years is £50k per year capital repayment (not even considering interest at this point).
This means that the best case for you in terms of remuneration is to be paid for your work as an associate…unless you grow!
2. If we imagine the practice is NHS, there is no way you can grow that list, so your only way to increase profit is reducing costs and shortening treatment time. These have natural limitations, and commercially the potential reward would not be worth the effort.
3. Your only way to grow would be by selling private dentistry. You can cross-sell private work to NHS patients, but to remain compliant and do this in any meaningful way is difficult. So again, for much effort, the commercial returns are limited.
4. To grow your private list significantly you would have to invest in marketing, patient journey, technology and maybe the look and feel of the practice. These expenses will mean you are now over-servicing your NHS list, further squeezing any profitability it may have had, and will likely result in the NHS dentistry becoming loss making.
5. It is not just a commercial problem to have NHS and private delivered from the same site, it is bi-polar in terms of service delivery. Much like it wouldn’t make sense to have a Rolex counter in a B&M store or a Travelodge room at the Savoy, it doesn’t make sense to have a cost-cutter efficiency-led business in the same premises as a differentiated, high value experience. There are many issues that come from this. If you are seriously engaging with the business something will have to give and you will ultimately have to choose to be one or the other.
6. If you do successfully build a private practice on top of your NHS list, the private income will subsidise the now loss making NHS work and you’ll begin to run out of capacity. You’ll notice that a full day of NHS generates £1,000 per surgery whereas private generates £3,000 (this can be more). So the capacity issue is really down to your inherent problem of delivering low value dentistry.
This conflict has led to a number of our clients simply handing their NHS list back to allow them to become fully private, give them room to grow and develop a service line that allows for a potential 20% EBITDA. The caveat here is there are strategies whereby the NHS can make sense, but given the resources, capabilities and experience at hand they are not relevant for your case. You could make a success by buying an NHS practice but it will cost more, take longer, be harder than buying a private practice and, perversely, all of the success of the venture will be the private business.
So there you have it. A real world example of how we advise people to be wary of entanglements with the NHS. And, looking at the macro picture, why would you want to hobble yourself to a stagnating behemoth in either the public or private sector anyway when evidence abounds that agile independent operators are strategically best placed for success? If you’d like to begin planning the best decade of your business life, get in touch, we have a unique approach that serves the entrepreneurial dentists who are redefining the sector.
