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Dental Times - Keep Calm & Seek Expertise!
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24 June 2018

Keep calm and seek expertise


Although not applicable to everyone, for some dental practice owners this November’s rise in the Bank of England’s base rate is the first they will have experienced as business owners; anyone who has bought a practice since 2007 has only ever witnessed interest rates going in one direction – down! November’s rise, however small (0.25%), must therefore seem like unchartered waters and uncertainty about possible future rises and the subsequent effect on their business is bound to be a worry

Why the risk?
In his base rate rise announcement on 2 November, Bank of England governor Mark Carney identified the aim of bringing UK inflation levels back to target as the main reason for the rise in interest rates, rather than what he called short-term temporary factors such as ‘the referendum-related fall in sterling’ which the Monetary Policy Committee (MPC), who control the base rate, are expecting to dissipate soon.
He went on to comment that: ‘Households are in general well-positioned for an interest rate increase. More people are in work than ever before. Only about a fifth of people with mortgages have never experienced a rate increase’, suggesting that the rise shouldn’t phase too many people.

Effect on UK business
As always with central changes, the effect of a base rate rise takes time to permeate through the economy and in truth such a small rise will have little real impact on business bottom lines. The more important question is whether this is the start of a series of rises, the cumulative effect of which would make itself felt on the cost of borrowing and therefore businesses’ ability to afford future investment, and patients’ willingness to find the disposable income necessary to fund more complex and therefore expensive treatments.
Carney went on to assert that: ‘Further rises will be at a gradual pace and to a limited extent’ so there is little call to fear an uncontrollable rise on variable or tracker mortgages, for example. In fact, with interest rates being so low for so long, there is an argument that banks may become more willing to give loans for ventures which they previously rejected as they will receive a better return from lending at the higher rate.
With so many factors at play, predicting the future requires a crystal ball. In the absence of this, the advice of knowledgeable experts is a prudent resource to turn to.

The benefits of experience
Medifinancial has helped our customers weather many an economic storm, and although the situation today is very different from the stratospheric interest rates rises of 1989, we are still facing economic uncertainty around the impact of Brexit. In such circumstances it is right that dental professionals want to be supported by a team with experience and intimate knowledge of the sector. We believe it’s still a great time to invest and press on with any plans you have been working on, whether that’s to purchase your own practice for the first time, or expand your existing business.
Whether buying or selling your practice, it’s important to get the best deal and that’s where the advice of a broker can be invaluable. For dentists, it’s daunting unchartered territory, but it’s what a broker does every day, and just as your patients can put their trust in your knowledge and experience to provide them with the right treatment, so you can trust your broker to find the best deal and know all the questions that need to be asked will be, providing advice and guidance so you can make an informed decision.
When the future is uncertain, it’s also prudent to get advice about insurance to protect your business should the worst happen. This can seem like another minefield for busy dental professionals but financial advisers can offer guidance with their in-depth knowledge of the different options available. And it’s good to know you’re covered.

Don’t panic
The 0.25% addition to the Bank of England base rate hit the headlines because it was the first in a decade, however we believe it is no cause for panic. The prediction is that any future rises will be few and gradual and that they are a temporary measure to bring inflation back to target. In fact, far from holding back on future plans for fear of uncertainty, perhaps now is actually the right time to remortgage and take advantage of the competitive fixed rates available just now and protect against possible future interest rises. Or why not undertake that practice renovation to make sure you are ready for whatever the future holds.




PRACTICE ONE
Practice Location
- established over 30 years ago, the current principal acquired the business in 2004 as a going concern. The practice is located within a village approximately 10 miles from a large home counties town and serves a discrete residential community. The premises comprises of a detached converted residential property over two floors with plenty of parking for both staff and patients.

Type of practice - this is a mainly private, two surgery practice which benefits from a good mix of income and a strong capitation scheme. There is plenty of room for expansion through the addition of a third surgery and further maximising chair-time. The premises are occupied on a leasehold basis with a 13-year term remaining on completion of the sale.

Financials - annual turnover of £400,000 comprises £211,000 fee per item treatments, £128,000 capitation income and a £61,000 NHS contract for provision of 2,350 UDAs. The practice is efficiently run with income generated by one Hygienist alongside the Principal and modest staff costs.

Buyer Appetite - the practice was marketed to our general market buyers resulting in a significant level of interest. We arranged 15 viewings and subsequently multiple offers were received.

Reason for sale - the principal’s long-term plan was to relocate away from the area but they were happy to stay on part-time post-sale to support a transitional period. The successful purchaser was a husband and wife team purchasing their first practice.

Price achieved - £605,000 inclusive of goodwill, fixtures/ fittings and equipment.
PRACTICE TWO
Practice Location
- this practice was established in 1935 within a market town in north Yorkshire and was acquired by the outgoing principal 15 years ago. It is located within walking distance of the main shopping area and in the vicinity of good transport links.

Type of practice - this is a mainly NHS practice with two surgeries and plenty of expansion space for additional surgeries. There is also potential to increase chair time and further extend opening hours to include evenings and weekends. The vendor owned the freehold premises worth c.£225,000 which was offered as part of the sale.

Financials - the annual income of £197,500 is made up of 88% NHS treatments and 12% fee per item treatments. The UDA target of 6,070 can comfortably be delivered by a single-handed principal and with a UDA rate of £28.63 the practice benefits from good profitability. The practice is efficiently run with two members of staff and low operation/ administration costs.

Buyer Appetite - the practice was sold on our general market tier. Typically, this area in the country has fewer buyers looking to purchase, however there was still a good level of interest in the practice with multiple viewings taking place and offers received.

Reason for sale - the vendor had reached retirement age and did not want to continue working in the practice postsale. The successful purchaser already owned shares in other dental practices, however this was the first practice they were purchasing as a sole trader with the intention of working as the full-time principal.

Price achieved - £512,500 inclusive of goodwill, fixtures, fittings and freehold.
PRACTICE THREE
Practice Location
- located within a small village in west Yorkshire this well-established practice has been operating for over 50 years, and was purchased by the current principal in 2008. The practice is located on the main high street close to a range of local amenities, with plenty of free parking available.

Type of practice - the practice has two surgeries and serves both NHS and private patients, with approximately a 50:50 split of income. There is plenty of room for additional surgeries to be added within the converted residential premises, owned by the vendor and available for sale on both a leasehold or freehold basis.

Financials - the turnover of £360,000 is delivered through a healthy NHS Contract of £191,500 with a significant UDA rate of £29, a small capitation scheme worth c.£7,000, and the remaining income from fee per item treatments. The net profit of the practice was reduced as a consequence of half of the income being generated by an associate; the practice would therefore benefit from having a full-time owner occupier principal in place post-sale.

Buyer Appetite - the practice was marketed to our general market buyers, with detailed sales particulars sent to over 280 prospective purchasers. The mix of income and location within the country resulted in a high level of buyer interest, with thirteen viewings arranged and multiple offers received.

Reason for sale - the outgoing principal was planning their eventual retirement, however was happy to remain at the practice post-sale for a maximum of 12 months. The incoming buyer was purchasing their first practice and was able to benefit from the experience of the vendor post-sale.

Price achieved - £540,000 inclusive of goodwill, equipment, fixtures/fittings.
Posted by: Dean Barker on 07 Dec 2017