Hazy recollections of an ageing dental accountant
Alan Suggett
Where did the last 20 years go?! As a longstanding NASDAL accountant I wait each year with baited breath for our publication of the annual Profit & Loss account benchmarking statistics. This annual survey began in 1998, so not quite the 20 year GDPUK yardstick, but as good as we can get.
How have the annual numbers changed? When the survey first started it didn’t differentiate between NHS and Private practices, and it was produced on a per dentist basis (i.e. if the practice had a principal and two associates, the practice numbers were divided by three). Nowadays we produce figures both per dentist, and per Principal, and split between NHS, Private, and Mixed practices.
So, the figures I’m about to illustrate should be taken solely on a broad brush basis, some estimation has been used, but this is just for fun – don’t shoot the statistician!
The table below shows the key statistics:
What can we interpret from this? As the growth in fee income is greater than the growth in profits – are dentists working harder for less profit? As the growth in associate pay is less than that of principals – are business owners getting the upper hand in bargaining power? You can form your own conclusions from the data. What else has happened in the dental financial world in the last 20 years? Self-assessment By coincidence it is exactly 20 years since the introduction of income tax Self Assessment (implemented in tax year 1996/97). For most dentists this hasn’t caused any issues, although I remember at the time some clients asking me “Does that mean I have to prepare my own tax returns from now on?” However, Self Assessment did lead to the most usual dental practice financial year end to change from 30th April to 31st March, as this made the new tax basis much easier to work with and understand. The “new” NHS contract Introduced with effect from 1st April 2006. From a pure ‘profit per principal’ point of view, NHS profits rose steadily from 2006 to 2009, and have been declining steadily ever since.
Goodwill values Twenty years ago practice goodwill values were invariably based on a percentage of gross fee income – EBITDA was unheard of in the dental sector! The going rate was in the region of 30% of gross fees, and didn’t vary much between types of practice or geographical location.
The situation now is that typical goodwill values are very much more, and the evolution of a profit multiple based valuation is considered the norm.
Specifically, based on the NASDAL Goodwill survey for q/e 31 July 2017 (which I prepare on a quarterly basis), the average NHS Goodwill as a percentage of gross fee income was 171%, and the corresponding private figure was 113%. Typical profit (EBITDA) multiples are 5 for a single practice and 6 or 7 for small groups.
City money, in the form of Private Equity, is increasingly keen to invest in the sector with an expectation of buying at these multiples, with an eventual sale expectation of many times more.
For example the sale of Oasis to BUPA was approximately twice the normal dental multiplier.
Dental Bodies Corporate In 2006 the law was changed to allow “Dental Bodies Corporate”, since then the number of practice incorporations has mushroomed.
Virtually all dental incorporations have been carried out with an eye on tax efficiency, as it was initially possible for some practice owners to make significant tax savings.
Chancellor George Osborne brought in measures in 2014 and 2015 which severely restricted this potential.
So, the figures I’m about to illustrate should be taken solely on a broad brush basis, some estimation has been used, but this is just for fun – don’t shoot the statistician!
Alan Suggett Alan is a Chartered Accountant and partner in UNW LLP chartered accountants.
He is a member of the National Association of Specialist Dental Accountants & Lawyers (NASDAL) and a member of the technical committee, and chair of the NHS Superannuation committee. Alan is the editor of the quarterly NASDAL goodwill survey which analyses all member client practice sales, purchases, and valuations.
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