With 20 years’ experience within the healthcare acquisitions sector, Alison Bates from Henry Schein Dental Practice Sales shares her thoughts on the rising costs facing dental practice owners.
With the planned increase to national living wage and employers’ national insurance coming in the new financial year, we’re finding that many principal dentists are concerned about how it’s going to impact their profitability. In fact, 75% of dentists we asked feel concerned following the autumn budget – one of the highest tax raising budgets on record.
It’s easy to assume that if your turnover is growing, your business is performing well and so your value is maintained. However, as dental practice valuations are based on profitability, these cost increases could have a big impact on your valuation, and therefore mitigating those costs is key.
1. Monitor staffing costs
Amid ongoing recruitment challenges, many practices have been maintaining higher staffing levels as a buffer. While staff are an invaluable asset to any business, paying them fairly is crucial for morale, motivation, and retention. Unfortunately, being overstaffed can pose a challenge when it comes to valuations, as it may negatively affect the overall business value.
In April 2025, the national living wage for workers aged 21 and over will rise by 6.7%, to £12.21 per hour. For many dental practices, these changes will have a significant impact on wage bills.
Striking the right balance is key. Do you fully understand the ratio of clinician to nursing hours? Is there adequate cover on reception? If your practice is overstaffed, and staff members leave, it’s important to pause and assess whether replacing them is necessary.
For those considering a sale in the coming years, it’s essential to ensure staffing costs are reasonable and aligned with industry benchmarks. Excessive staffing is a significant factors that can negatively impact valuation during a sale process.
2. Manage clinician efficiency
Practices tend to understand the efficiency of their associates, but we see a lot of hygienists not being used efficiently, particularly if they’re paid an hourly rate and their chair is sat empty for periods within the week.
Where practices have a large capitation scheme, the plan might be in the name of the associate dentist who may not be paying a recharge for use of the hygienist’s time. Ultimately, that means the practice is paying two separate performers for the same appointment.
3. Evaluate marketing spend
We talk a lot about marketing spend at our weekly valuation panels. Some practices rely heavily on a large marketing budget which effectively drives patients through the door and contributes heavily towards the growth of the business. But if it’s a very large spend, this can impact the valuation quite negatively. Many practices fail to review the effectiveness of their marketing spend and if it isn’t significantly driving turnover, it can become a cost-drain to the business.
Whilst turnover growth is a key indicator of business success, profitability is the most important measure when valuing a practice for sale.
4. Grow into your cost base
For practices with a high-cost base through over-inflated rent/rates payments or over-staffing, growing turnover into your cost base can be an important way of protecting profitability. Turnover growth can be achieved by increasing clinical capacity if chair-time allows or by offering new higher-grossing treatments in-house.
5. Consider increasing treatment prices
Some practices are passing increasing costs on to patients by increasing treatment prices. It’s a strategy that can work well if you have very small increases each year to your fee per item or your plan prices that can easily be absorbed by patients.
However, for some practices that might not be the right strategy. If you have recently converted from NHS to private, look to grow turnover in other ways rather than amending treatment costs too soon.
Get a true valuation of your practice
If you’re thinking of selling over the next couple of years, getting a valuation now is vital.
A valuation will allow you to see how your value is going to be impacted by the coming cost increases. It will also help identify chances to mitigate those increases, as well as opportunities you may have missed.
As experienced valuers we look at the practice in a unique way. Our goal is to give you insights into how you can save costs and grow value, especially during this difficult time.
To book a dental practice valuation visit hsdpracticesales.co.uk/valuation.
This article is sponsored by Henry Schein Dental Practice Sales.