How Easy is it to Start, Scale or Sell a Dental Group?
More articles in the 'Starting a Dental Practice' section:
- Starting a Dental Practice
- 5 Key Steps to Starting your Dental Practice
- Choosing the right practice or starting one up
- Creating a business plan
- How Easy is it to Start, Scale or Sell a Dental Group?
- Putting a team in place
- Registering with the Care Quality Commission (CQC)
- The 3 Stages of the Life of a Dental Practice
- Why Dentists Want Their Own Practice
- Why start your own dental practice?
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.
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 the group.
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 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.
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:
- how much revenue on average they should each be generating?
- how much you’re going to pay for a typical acquisition?
- how many acquisitions you’ll have to make each year?
- how much you’ll need each of those practices to grow after you’ve acquired them?
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 who 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.
Building a Dental Group is not easy
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.
For further assistance in buying, selling, financing, managing the central costs and/or the taxes around this subject please get in touch with the Samera Team, we can assist you.