By Hayley Robins, Senior Accountant at Hive Business.
As we’ve reported here, goodwill prices are up and it’s getting harder for associates to turn themselves into wealthy and happy practice owners.
I speak to loads of associates and two things drive them to buy:
- Internalised pressure — it’s the next expected step, a status thing. Dentists have a way of keeping their bearings by looking around them and doing what others do. If your mate is buying and they’re the same age as you, well then you should be buying.
- Lower associate wages — we saw 50% deals for the longest time, then 45% in the past few years, and now 40% is becoming normal. There’s also the introduction of sliding scales where you can earn 50%, but only above a certain gross, and so on.
Overheads have been going up forever, one of the reasons why making a profit in dentistry is harder. Rising costs have hit single-handed practices especially hard — NASDAL reports a 12% decrease in their profits in the past two years, which it attributes to compliance burdens.
But it’s not just compliance, it’s power, materials, lab bills, auto-enrolment, business rates, pretty much everything. That is obviously going to affect what a principal can pay an associate, and it explains why in real terms associates are worse off than they were in the noughties.
Life as a principal isn’t all that either. They are being squeezed too. The younger generation seems to be missing this though, and I keep watching them rush in, happy to overpay with only a cursory glance at the business accounts, which they might not understand anyway.
One guy I know put down a £10k non-refundable deposit before speaking to us. When we did the forecasts after factoring in the £500k of debt he was going to have to take on, he wasn’t going to be able to draw anything for three years. Makes earning slightly less as an associate sound more appealing doesn’t it?
The reality, if you’re serious about buying something expensive, is that you’re going to have to live off other funds because you’re going to be breaking even for the first couple of years minimum, assuming things go well, and your debt repayments will continue long into the future.
People don’t realise this, and I’m often the one to bring them the bad news. It can feel like I’m killing their dreams, yet it’s for the best — the banks will always say yes until they get down the road and see the forecasts, and if they don’t look so good they will pull out.
That’s why, when you decide you want to buy something, it’s better to start properly. We can make it work, but we’ll need to do something different to the last principal.
We see people make the same mistakes before they come to us. Associates tend to seek mixed practices, seeing the NHS contract as guaranteed income, and banks like that too. But if it’s your aspiration to be a private dentist then an NHS contract will only hold you back. It drags standards down and it’s harder to grow your private base. You’ll end up over-servicing NHS patients.
Remember to ask yourself, who are you doing this for? It’s not the bank, not your colleagues or professional rivals, it’s you. So rather than rushing in, consider a squat or a private practice with a smaller patient base and headroom.
Strategic thinking is needed before you even start looking, and sadly when people call me it’s often already too late. You might want a practice that’s held by a limited company, yet there’s a whole analysis that needs to be done right at the beginning to understand if you actually do want it, and how you can go about buying it. We can do all of this for you, but due diligence takes time.
Remember, you won’t necessarily be richer when you own a practice, and you could be a lot worse off financially and in terms of stress and work-life balance. Depending on your personal goals, you might be better off working four days a week and enjoying your life.
I know a few dentists who have bought, sold and then gone back to being an associate. I can guarantee one thing: if you go into ownership with the attitude of an associate, it won’t end well. But if you want to go in with a realistic plan for growth and profit, get in touch on01872 300232 or email us at firstname.lastname@example.org.