Luke Moore, co-director of Dental Elite, shared his top tips for selling a dental practice and getting the best deal with Dental Republic. Here’s the snippet:
If you’re looking to sell your practice, there are various different agreements you can enter into with the buyer, and the structure of the deal created can actually be more important than the ultimate purchase price.
Deferred consideration refers to when an element of the purchase price is retained and only released in the event that the business performance is maintained at an agreed level post-completion. More common for independent practices selling to a corporate, or for vendors who earn excess of £300,000 per annum, deals can be made on practice or individual turnover targets, or the business’ post-sale EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation). But if you’re offered deferred consideration, how do you know whether it is right for you? How do you decide whether a deal of £2.4m to be paid entirely at completion is better than accepting £2.5m with £450,000 to be paid over three years following completion, based on the practice’s performance?
Aside from the obvious financial computations, there are a number of additional factors that must be taken into account:
- What the deferred consideration is linked to – vendors are strongly advised to accept a deferred element associated with their own personal turnover, as opposed to the practice’s combined turnover or EBITDA. You will have little control over the associates’ retention and performance and, also, the cost structure of the business once the practice is sold.
- Protocols to be followed in the event that you fall ill or under perform – if someone is covering your appointment book, ensure you can influence who this person will be and that you don’t forfeit consideration. It is also important to understand exactly how underperformance will affect your remuneration, and how likely this is to happen.
- The present net values or the time-value of money – due to unearned returns, you will not have money to invest, and with regards to inflation, £20,000 is worth more in your bank account now than in a year’s time.
For practices that are predominantly NHS, deferred consideration is rarely used and although some corporate may try to offer a 70/30 deal, vendors should strongly consider not accepting this as it is quite uncompetitive in today’s market. Gaining the necessary advice from a team of experts who are currently working in the market is essential.
The second largest specialist practice sales agency in the country, Dental Elite employs a team of highly skilled practice valuers and finance experts who have nearly a century of combined experiences across all sectors of the dental industry. They can advise you on all aspects of selling your practice and help you to negotiate the correct deal for you.
Unfortunately, selling your practice is not a simple procedure and many aspects need to be explored when negotiating deferred consideration. With the right information and expert advice however, you can be confident that the best deal will be attained. Find out more about selling your dental practice with Dental Elite.