Dr James:
Fans of the Dennis who Invest podcast. If you feel like there was one particular episode in the back catalog in the anthology of Dennis who Invest podcast episodes that really, really, really was massively valuable to you, feel free to share that with a fellow dental colleague who’s in a similar position, so their understanding of finance can be elevated and they can hit the next level of financial success in their life. Also, as well as that, if you could take two seconds to rate and review this podcast, it would mean the world. To me, what that would mean is that it drives this podcast further in terms of reach so that more dentists across the world can be able to benefit from the knowledge contained therein. Welcome.
Andrew:
Welcome to the Dennis who Invest podcast.
Dr James:
Hi everyone. Welcome back to another episode of Dennis who Invest. We’ve got a very special guest with us today. This is episode number five, would you believe. I can’t believe we’re cracking on at the rate we are. I think it’s more than I’m. I think I enjoy them more than anybody else listening enjoys listening to the video, because I just love making them. I hope everybody else is getting some value from them as well. But this is why they’re coming thick and fast these days. I’m hoping, when we get a little bit more consistency, to make it a weekly thing. Having said that, I’ve said that for the last four episodes. But what’s this face? That is the eventual plan. That is the eventual plan. We’ve got a very special guest with us today. I’m going to give him a little bit of an intro. You may or may not have heard of him. I’m sure lots of you have. He’s a specialist in dental practice brokering. He does this regularly. He does this every day. He knows a lot about buying and selling your practice, Something that we’re left in a little bit of a of the lurch at the minute because we don’t know whether that’s a good idea, a bad idea, given the way COVID is. Does that affect our NHS practices or private practices or mixed practices? We’re going to delve into this in just a moment. He’s an expert in practice broker ship. He also runs Frank Taylor and Associates, of which you are a director. Is that correct?
Andrew:
I am, I’m one of the owners and the director.
Dr James:
Wow, one of the founders as well, so we’re very privileged to be joined by him tonight. I’m sure he’s a very busy man. Much insight to come during the course of this show. His name, in case you haven’t heard of him, is Andrew Acton. Welcome to the show, andrew. How are you this evening?
Andrew:
I’m very good, very good indeed. James Terrific, thank you for having me on.
Dr James:
Absolutely no problem whatsoever. Complete privilege, like I say, with the guests that we’ve had so far. Yeah, we’ve been. They’ve been of such a high caliber. They really have all very busy businessmen, so I’m just really glad that they’ve been able to take the time out to talk to us. On that note on the topic of business, frank Taylor and Associates, what’s your journey been into dentistry? Am I right in saying that you were a lawyer originally, andrew A banker.
Andrew:
Yeah, okay, they both ranked very low on the social scale at the moment.
Dr James:
Right down there with dentists then. So you’re in good company. You’re in good company.
Andrew:
But that was many years ago. Yeah, no, I used to work in the system and then back in 2000, along with Chris Shevins, my co-director and shareholder, we thought it would be a really good idea to buy a business. We were both involved in funding dentists and healthcare, working with different banks in the city. So we approached Frank Taylor and Associates as a business to see whether we could acquire the business, and that was back in 1999. The business was originally established back in 1988. We approached them. The business wasn’t developed on the market, but I guess you know, if you make an approach and your timing is right, things work out well. Yeah, and that’s what happened for us. So we approached them and then in 2000, we took the business over. There was a Frank Taylor and his business partner, sandra, wrote and they continued to work in the business. But, importantly, what happened was we thought, in our naivety, because this was the first business I got involved in, I was 28 years old, I was buying my first business thought it was a really good idea and at the time I thought, well, what I’ll do is I’ll keep working in the city. You know, both Chris and I had good jobs in the city. We’ll have a business on the side, or personalized dividend what could be better? And then we realized that about three or four months in there wasn’t the money to pay the salaries, and that was a real way Well the thing is, the people we bought the business from had their money. They were still working as consultants in the business, but it wasn’t their business. They weren’t interested in driving it forward and, like I say, it was a real, you know, sharp shock. It’s like a lightning bolt coming across us and we said, look, this isn’t going to work. We either take it seriously or we don’t bother. So we took it seriously, roll forward a few years we’re both full time in the business and back then it was just Frank Tane and associates and all we did is we valued and sold dental practices, which is what the business still does today. But if you think about a business, that really is a one-legged stall, because if all you have is a single proposition, if something goes wrong in that market, you’re sort of stuck. You’ve got nothing else to do. So we started on a strategy that said yes, frank Tane, and so is, we’ll always value and sell dental practices, but we need more than that. We need more things that we can offer our clients. So we said, okay, so we should start positioning ourselves as being the provider of business services to dentists. So out of that, we created FGA Finance. So in 2010, we created FGA Finance. That’s headed up by a guy called Dave Ibrahim. He was at RBS for 20 odd years. He was a leading healthcare guy in the country. That business now ranges about 160 million pounds worth of funding for dentists to buy dental practices, so it’s, without doubt, the leading broke in the country. Absolutely, dave has done an amazing job. We bought a business, but actually we ended up with FGA recruitment. So we got a recruitment business that provides associates and hygienists, in the main, into dental practices. Because when somebody buys a business, whilst the hope is that everything in that business stays and they all grow together, inevitably there’s going to be some churn. So we thought it would be a good idea to have a recruitment offering. So, when people buy a business, is there was a need to change associates or somebody needed to load them on additional hygienists, we could be the person that steps in to help them do that. Okay, and then we looked to me. So okay. So now we’re kind of going deeper into the business services for dentists. So onto that, we then included a residential mortgage offering, because people need residential mortgages. In 2016, we set up FGA Law, so we’ve got a full service law firm based in Leeds doing transactional employment, hr, property litigation. Then we set up an FGA wealth, which is a wealth management business so you can arrange your protection if you’re a purchaser that’s required by the bank, but we can also help you invest the money that you get when you sell the dental practice. We then created FGA media, and that’s a video marketing proposition for dentists to create show wheels of their practices and patient journeys and patient testimonials. And then, more recently, we’ve created FGA media, which is a platform to effectively showcase all the all the content and all the learnings that we’ve produced over the years by way of articles and videos, and that’s going to be available very soon. So we’ve narrowed it up with a complete set of business services that all started out from that business of Frank Taylor and associates.
Dr James:
I love that, yeah, a lot of the chaps that I’ve spoken to it. Well, I think it’s probably true of most businesses. They grow organically and, yeah, in the same sort of respect, it sounds like that’s what’s happened with Frank Taylor too. Somewhere along the line, frank Taylor has just become a specialist in all things dental. So so I gather anyway, is that fair to say?
Andrew:
Well, most things a little bit of everything. Well, we certainly don’t want to go anywhere near clinical because that’s not our bank. Yeah, if it’s a business service that dentists need, I’d like to think that either we can deliver it or, if we can’t, we can introduce you to somebody that can, and that’s that’s kind of where, where we’ve positioned ourselves, but like I say it started out with the valuation of sales business.
Dr James:
Wow, interesting, interesting stuff. Well, I’m sure that you could talk at length about much of those businesses and I’d love to ask about them as well, but what we’re going to try to do in the interest of time because it is of course half it over here and both of us have to get up early in the morning I’m sure let’s stick to broker ship for tonight, as much as I’d love to flash those light and, on that note, practice broker ship. A lot of people ask me when they heard that you were coming on the show, what is the state of the market right now? Do time to buy by time to buy NHS?
Andrew:
private. What’s the split? I mean it’s been a crazy year, absolutely crazy year, because what happens is whenever there’s major change, it always drives people to want to buy dental practice. So in 2006, there was a new NHS contract. Loads of people wanted to buy practices because they were concerned if they would be vulnerable as an associate. 2008, there was a recession. Loads of people want to buy dental practices. You know COVID comes along. The same thing happens again, because what’s happened this year for associates is lockdown came 23rd of March, no one can work, you can’t do anything till the eighth of June at the earliest. So through that period associates were kind of left high and dry Because the most associate most of associates were only more than 50,000 pounds a year. So there wasn’t any government support. They couldn’t work. And it got worse when dental practices were able to reopen. Because of the slowness that practices reopened and also because of fallow time, practices didn’t need associates back straight away. So there was this extended period where they weren’t working and they weren’t earning money. So hundreds of associates in addition to the 5000 that were registered with Frank Turner and associate to buy practice, hundreds more sat there and said hold on. I’m feeling really vulnerable. You know, I feel that I’m I have no security, I have no asset to return to because I’m self employed and I’ve got a practice I used to work at that’s coming back slowly and, to start with, it’s a principle that’s doing the dentist tree. I need to make a change. I need to take control of my future somehow, and lots of associates see the way they’re going to take control of their future is to buy dental practice. Oh, interesting. Then it puts yourself to the top of the food train.
Dr James:
Yeah, it’s always like it’s served as a call to action, almost, so I guess what you’re going with this is business has been good kind of kind of intuitively Real quick guys. I’ve put together a special report for Dentist entitled the Seven Costs and Potentially Disasters Mistakes that Dentists make whenever it comes to their finances. Most of the time, dentists are going through these issues and they don’t even necessarily realise that they’re happening until they have their eyes opened, and that is the purpose of this report. You can go ahead and receive your free report by heading on over to wwwDentistInvestcom or, alternatively, you can download it using the link in the description. This report details these seven most common issues. However, most importantly, it also shows you how to fix them. I’m really looking forward to hearing your thoughts.
Andrew:
It has. So what you’ve added, you’ve had a real surge of buyers coming to the market. So we’re now sitting with about five and a half thousand people wanting to buy a practice the whole depth of internment of buyers. On the other side of the coin, you see, there’s about 1200, between 1200 dental practice change hands every year, but because of lockdown there was about three or four months period where nothing could happen. So those people who had plans to sell that couldn’t now have suddenly come into the market. So we’ve got a good supply of practices coupled with nearly five and a half thousand people wanting to buy. So it’s a good time to sell because values are holding up really well and you could argue it’s not necessarily a great time to buy because values are high. However, if you want to buy a practice, you need to jump on and do it at some point, and there’s no better time than doing it now if the reason you’re buying a practice is for long-term security, because if you wait you just continue to feel like you’re in a vulnerable position.
Dr James:
I have to say I did not see that coming at all. I thought you were going to say that it was going to business has been terrible, super slow, but there you go, interesting. And then the second part of that question was yeah, just what’s? Have you noticed that there is a trend in terms of NHS and private? Is there a demand more than one for the other?
Andrew:
or so historically, nhs has always been way more desirable than private practices and that’s because it’s government banked the money comes in from the government. However, it’s starting to change. I think people are starting to see the longer term future being in the value of private practices and I was reading a positioning paper this week from NHS England and explaining about what’s happening with urgent care and hubs and spokes and I think there’s always going to be NHS available or density will be accessible through the NHS, and I think there’s going to be a changing model where we’re going to have urgent hubs that are dealing with the urgent care and then the more preventative mainstream dentistry and dental practices. So if you want to do more creative dentistry, that is naturally going to extend further down the private route, which has been happening for for many years anyway, and we are seeing more people wanting to buy private practices because it gives you more freedom in terms of the dentistry you can do. But something that’s interesting that has happened in the last 69 months is the increased demand for plan based practices. So dent plan practice, plan D pass patient plan direct because of the nature of the recurring income. So NHS is still the most desirable and private is desirable, but now what you’ve got is squeeze between private and the NHS. You’ve got this plan based income and that’s because it comes in on, you know, direct debits and standing orders that recurring income that comes through is now being seen as something that’s coveted, and I put that down to COVID. You know, through the pandemic, if you were a private practice you receive no income, but if you have plan based income, those payments continue to be received.
Dr James:
It’s rocked everyone’s world, hasn’t it? It’s made us it’s made us re-evaluate and I can see your logic 100% on there, I think a lot. You sort of touched upon this anyway, but from my sort of colleagues and the people that I chat to or I have been chatting to my friends here at Dentist a lot of them who still work in the NHS they’re anxious as to what the new contract will be and will constitute. Will it be such a bare bones version of dentistry that there will be no scope and variety there whatsoever and the working conditions of the dentist decline even further? It’s looking like that’s probably going to be likely to a degree from according to what they say, you might have a take on this, but it’s because of how they reimbursed the dentist last year. They give them the full values with the contract. What they reckon is they’re going to take with one hand and give with one hand, sorry, and take with the other. Is that kind of what you that was? That’s probably what you meant anyway, isn’t it?
Andrew:
To be honest, you know we’re three trillion in debt. You know the money’s going to have to come back from the country, anywhere and everywhere you know we’re going to see there are. Every tax will be changed. We’ve already seen entrepreneurs relief altered into business asset disposal rate relief. That’s been reduced from 10 million to 1 million. There’s lots of talking conjecture at the moment about capital gains tax and that being changed. I think income tax is going to be affected. Tax is going to go up across the board and I think where there’s an opportunity to reduce government spending they’ll take it. And whilst dentistry as part of the overall NHS budget isn’t huge, I think it’s probably naive to think that there isn’t going to be some swings. It just depends on where and how it comes, and I’m a firm believer that the patients aren’t going away, so the teeth are still there and they need to be treated. Yeah, there will possibly be a restructuring of how dentists are rewarded. I think we’ve seen this year going from units of dental activity to units of dental assessment, so whether it’ll be more KPI based in terms of seeing patients. There were some pilots approaching on a KPI basis before, but one of the issues that NHS England had was that not enough patients were being seen and the treatment was quite slow. However, through this year with the pandemic, one of the things that the increased PPE and the phallotimes bought about is a need to slow down and treat patients in a slower way. I think it might be difficult for the NHS to say to dentists no, you now need to speed up because through this year everyone’s been told to kind of, you know, slow down and make sure things are being done appropriately. So it’s going to change, but I take heart. Dentists have always been able to make it work for them in one way or the other. They’ve always been able to make it profitable. It might mean that things need to be re-engineered. It might mean there’s a greater use of hygienists and therapists, and dentists do a different work than what they used to, but I’m confident as a profession, they’ll find a way of making it work oh yeah, most definitely there will.
Dr James:
There will be dentistry pre-COVID. There will be dentistry after COVID. Yeah, the the big question is because of the inherent constraints of the NHS, how might that look? Private is more peace of mind. Because it affords these liberties, you can kind of play with it and mess around with it a little bit more. You can put your fees up if you want to. You know, yeah, yeah, yeah, yeah, so there’s, there’s a lot more scope there. Smashing my next question on the topic of practice brokering. I know that this is maybe a contentious one. From what I know about the matter there are correct me if I’m wrong. Obviously, andrew, you are the man in the know. Of course, there are two types of practice brokers in terms of the structures of their fees. There are the individuals who will charge you, the seller, a fee upfront, and there are also the individuals who will say they are zero fees to the seller. However, they will charge a fee at the other end, to the buyer, on completion of the deal. Which side of the argument do you stand on? Which one is better? Which one is more preferable?
Andrew:
I’ll tell you I stand on it like my position is. Is is really black and white. There’s no gray on this at all. I think that if you’re being engaged as an agent to sell someone’s dental practice, you have a duty of care to deliver them with the service that they’re engaging you for. What doesn’t work for me is then taking the fee from the opposing party. I don’t understand how that cannot create a conflict of interest. So if I was engaged by you to sell your dental practice and we we signed the heads of terms to meet right on your behalf, under law of agency I have a duty of care to deliver that service for you. So if I’m taking a payment from the buyer, I don’t know how I can truly be delivering a service for you but taking a payment from somebody else? That for me it just makes no sense. And I recently watched the, the, the Netflix program social dilemma and there’s a great phrase in there, great phrase, and it said. It said if you’re not paying for the product, you are the product, and it made me think so. Facebook, facebook, they always let us access their platform for free, and the reason we get to access their platform for free is because they effectively can sell us in terms they can sell our data, and they can also sell us as eyeballs to advertisers. And I think the same with selling a dental practice. If you’re being encouraged to sell your dental practice for free, it’s enabling a broker to earn money from somebody else and that’s the buyer but also it could actually potentially cost you more money by selling for free, which I know you’re probably sitting there scratching your head saying I don’t understand. That makes no sense, because, as a broker, let’s say that I engage with you and, just for argument sake, let’s say your practice is worth a million pounds, just because it’s an easy number to work with, and I charge you 2.5% to sell your dental practice, which is 25,000 pounds. If the broker’s not charging you, but they go to the buyer, sometimes the broker might charge the buyer up to 5% of the purchase price, so they could be charging the buyer up to 50,000 pounds. That’s wrong In my world, that 50,000 pounds should be added to the purchase price of your practice and then I charge you for the service. But in that scenario you would end up with 25,000 pounds more by paying a broker than not paying a broker. Yeah Right, it’s crazy. So for me it’s really back and why. I think anybody who’s considering selling their practice for free just needs to ask another two or three questions and be really comfortable and understand what service they’re getting and who’s actually paying for that service.
Dr James:
Because somebody has to be paying for that service, yeah that’s the small print, I guess, and when it comes back to the Facebook thing, it just makes you wonder really how valuable your data is to these companies, that they can afford to run these massive companies as well, polished website, just how much income they must be able to generate from this. But that’s a whole debate, or interest and subject for another day. So, on top of what you’re saying there, andrew, if I’ve grasped that correctly, yeah, so it can mean that it works out more. Does that mean as well that these people who offer these zero fees to the seller do they have to be up front with what percentage they’re taking from the buyer, or is that a separate negotiation between them and the buyer?
Andrew:
One of the issues that we have as commercial brokers is we’re not regulated in any way. So whilst a broker may disclose a fee, there’s no obligation on them to disclose a fee. So the conversation and the negotiation that could go on behind the scenes between an agent and a buyer you wouldn’t necessarily know about. And that’s where the issue comes, that if a buyer is after a particular practice and they think they can get it for a very low price, there’s a potential that they can incentivize an agent with a large sum of money to secure the practice at a lower price than them and that may not necessarily get disclosed.
Dr James:
Well, I mean, if I didn’t know any better, it kind of sounds a little bit like a bribe that couldn’t possibly say Wow, okay, Well yeah but that’s why we don’t want to let.
Andrew:
That’s why, like they, for me it’s back, and why I think as soon as you start to go into shades of gray, you’ve lost, because I just think you’re always open to interpretation, whereas if it’s really straightforward, then you know you can sleep well at night, knowing that you’re charged with people to service you delivered.
Dr James:
And it will of course mean, if you, if this, the people who charge the seller, they have to be up front with the percentage, of course, because that’s an agreement between them and the seller.
Andrew:
Yeah, exactly Right, just to spell it right.
Dr James:
Just to spell it right.
Andrew:
Fair enough, right. And also I just think from the service point of view, I think there’s something quite right. If you go somewhere and you’re expected to receive a service, life has kind of taught us that you would pay for that. And I think when you pay for things, you value it as well. And I know we all love free stuff. Whenever there’s a survey on what people like is they love free stuff. But free stuff if you’re picking up a free breakfast bar train station because they’re doing a promotion is one thing, but trying to sell your priced asset, which is your dental practice, for free to me just doesn’t make sense.
Dr James:
Interesting stuff. Well, there we go. I have come across that before. It’s something that I knew of, but I didn’t really know the ins and outs off, so that is really useful. Thank you so much for that. I want to ask as well we’ve sort of touched upon this already, we’ve sort of touched upon it I wanted to know about the common pitfalls that you would have brought. You as a broker would tend to be conscious of and you quite often see and you tend to advise dentists against what are those common pitfalls and selling the practice.
Andrew:
So I think to start with, it’s about planning. It’s about time and time and time again. What happens in it and it really frustrates me is people come and they want to value their practice and then they want to put it to the market straight away and sell it. We do, and we do that most of the time. But if people would talk to me a year, 18 months before they actually wanted to sell their practice, we could have a look at their practice. We could see where they’re at, how it’s performing. Are there some little tips and tricks that we could drop into the pot to improve performance and a practice? So when they come to sell in a year or 18 months time, we could have made some suggestions to improve the performance and make sure they sell in the best possible shape. For example, the amount of people that have three surgery practices but their chair occupancy is only at 40-50%, so it’s effectively looking like a one and a half two surgery practice. If they came to me a year before they were going to sell and we could have a conversation about introducing a therapist or a hygienist and improving the fees and the profitability with their practice, that’s going to add value to the business. But because people come to me quite late in the day, there’s nothing I can do effectively. All we can do is evaluate and set it. So making sure that there’s some planning and preparation that goes on before you decide to sell really is time well spent. Another thing that people very often do is there’s also corporates operating in the world of dentistry and they contact dental practice all the time and buy us so often that the person who’s going to be buying the practice either corporate or anybody else set the value. So I approach you and I say I’d like to buy your dental practice. I believe your practice is worth five hundred thousand pounds, which is a really good price. Would you like to sell your practice? And what people don’t do is they don’t go out and get that value checked by somebody else. If you were the situation where you were trying to buy something, you probably wouldn’t be overly generous with your offer, because why would you? Yeah, and I urge people to own practices go and get your practice valued Independently so that you know what it’s worth, because it might be that the buyer was being generous and that will give you peace of mind. It may be that the buyer wasn’t being particularly generous, and actually there could be another. You know, 20, 30, 50, a hundred thousand pounds worth of value seem smart. Another one that people do as well is they. They don’t work out in the beginning how they’re gonna sell their practice. So and by that what I mean is they try to sell the practice themselves. It doesn’t go particularly well, and then they go to a broker. If you think you may need the help of a broker, it’s worth talking to one at the beginning and deciding whether you think that’s a good idea or not. You know, yes, you’re gonna have to pay for that service. I’m not, I’m not kind of trying to hide away from that, but there’s nothing worse than trying, not doing a good job and then somebody else having to pick up the pieces, because the people you’ve already talked to, they will now have a preconceived idea about your practice, whereas if your practice was presented in a slightly different way, you may get a different result. So it’s it’s always worth just thinking about exactly how you’re gonna go about selling, commit to that route and, you know, get it away in a good fashion so the earlier you’re having these conversations, the better, absolutely absolutely yeah. The last try I’d say in terms of corporate falls is Don’t have a skewed expectation. So if you’ve heard about a mate that sold their practice for I don’t know say a Multiple of ten times, which may or may not have been true, don’t go and apply that multiple to your business and say, oh well, that’s great because that’s gonna be worth two million pounds. That’s not a realistic expectation. So it’s good to understand what your practice is worth, as in your practice, not based on what your mates sold for or what you heard from a friend or what may or may not be true. So that kind of expectations is is important. And then the last thing is use specialist advisors, and whether you use a broker or not is is your choice. But look for people like specialist solicitors, work with the specialist accountant, because these are people that have walked down this path before. You know. For them, this is a well trodden path. They know what they’re doing. So what you don’t want to do is go to a, say, a local solicitor that typically does conveyancy who says, yeah, I’ll, I’ll, I can help you. So you have dental practice. They don’t really know what they’re doing. It’s gonna take them more time and because lawyers charge for time, it could cost you more money. And, particularly on the NHS side of things, there’s certain things you need to do in a particular order to make sure that NHS contract migrates from the person selling to the person buying In a safe manner and, as a solicitor, if you don’t know how to do that, there’s a risk to the seller that their contract could be compromised, and that’s where your good, real value sits. So using specialists works as well. But those are. Those are probably the most common ones where people people kind of trip themselves up. But you’re right, a lot of it is just around planning.
Dr James:
When you were talking about the tweaking and getting the you know a broker in maybe a few months beforehand, just to look at the practice. What did you have in mind Is that? I mean, is it as simple as a lick of paint? Is it things of that nature?
Andrew:
it is. It is it’s. You know, if you think about curb appeal, if you think about when you go and view a house, it’s not that different. You know, when you go and view a house you want it to look nice and clean and tidy, because that kind of says these people look after it and from a business point of view it means it’s probably in good shape. The stupid things are when you’re standing outside the practice. Are there weeds in the front garden? If there’s weeds in the front, pull the weeds out. You know it’s not that complicated. Does it benefit from a lick of paint? Could you tidy the practice up? You know, we all know what, when we go to a restaurant, what a nice restaurant’s like. If you go to the, you know the washroom, the bathroom. When you go in and there’s, there’s nice hen folded, rolled up flannels to dry your hens, and there’s there’s nice soap and moisturizer. It feeds into the overall experience and those sorts of things Make a difference in a dental practice. But also there’s other things that you can do, like as I mentioned about therapists and hygienists. It’s just trying to raise the overall game but also what you need to do if it’s going to be something that affects the business. It needs to be allowed a few months for that to filter through to the numbers, because ultimately someone’s buying the numbers of that business so they can see that it’s working.
Dr James:
So it’s from the point of view of the numbers. But then I’m going to say, as well as that, there are going to be things that you can do. You can undertake changes that you can undertake to your practice that would make it more appealing to other dentists, rather than having specific Procedures, layouts that might only be useful to you. It’ll be inside of that nature, I’m sure. I’m sure there’s a hundred things you could go into, but I suppose that’s where your expertise comes in, when you’re involved in the process.
Andrew:
Yes, yeah, it does. I mean there are things that you can do, though. For somebody who isn’t necessarily currently the end of their dental career, there are things that you can. You can build into the process to make sure that it gives you a better exit value. So, for example, practices that are very heavily dependent on the principal Are slightly more difficult to sell than those that have a mix of income. So if we say, for example, the practice has a gross income of a million pounds, if 500,000 pounds of that was being did by the principal but that principal setting and looking to go, that’s quite a chunk of income to replace by one person, whereas if, over a period of time, the gross produced by the principal could be reduced to, say, a couple of hundred thousand pounds, it makes it much easier for somebody else to come in and replace that income. I appreciate that the less the work done by the principal, that does have an impact on the profitability. However, towards the end of your career you would more than gain that in your exit value. So it’s those sorts of things that require slightly longer term planning and going back to that half running gross. You know it’s it’s it’s crazy. You know I see people that can gross, you know, uh, eight, nine hundred thousand and million pounds in a year. It’s quite phenomenal, the ability for some dentists to generate income, and good for profitability, bad, bad, bad for exit. Yeah, of course, because there’s going to be some disruption there and that’s something that will take.
Dr James:
That would need to be taken into account, of course. Smashing yeah. Next question how has cove it changed the game? Short and sweet and to the point how has chock cove it changed the game?
Andrew:
It’s actually made it better for everybody, which is the most bizarre answer I guess I could be giving. I think it’s made practice owners Lean more heavily into digital workflows. I think AI and digital workflows were coming, but I think that’s really accelerated, particularly on the On the orthodontics, the Invisalign side of things. I think the, the virtual consultations that are taking place, are springing up all over the place. I think that embracing of technology has been really good. I think it’s made people have to really think about the, the natural and physical workflow within the practice in terms of the efficiency of booking patients, in how patients pay for treatments and the movement around the practice. So actually I think that’s that’s been a really good thing. I think dentistry as a as a professional and as a business owner, it would typically throw off a profit of somewhere between 22 and 25 percent of gross fees. That’s typically what your average general dental practice will produce 22 to 25 percent. I may get shot down for this, but actually lots of practices are distinctly average and can produce 20 percent of profit. In the current environment and going forward, I’m not sure that’s still going to be the case. So from a Business performance point of view, I think we’re going to see better businesses and better dental practices come out of this, because people are going to need to tighten up and improve how they work to Maintain their profitability. I think on the other side of the coin, I think associates who’ve been left out in the cold to a certain extent because of the lack of government support, I think they’re going to have to up their game. I think they’re going to need to make sure that they up skill and they become a really Integral, valuable part of that dental practice and make themselves indispensable. So, whereas before it may have been associate just turned up, did their work, packed up and then went home, I think they may be looking to get more involved in promoting the practice on social media or improving their business skills or Doing some postgraduate courses to make sure that they can up their clinical knowledge and really Make themselves valuable to that practice. So when I say it’s been a good thing, I think it’s made everybody kind of stop in their tracks and say, right, are we? Are we good enough? Are we good enough in all areas? You know our business process is good enough. Yeah, should we be using more, more digital workflows? You know, do I need to invest in some equipment? Do I need to improve my clinical skills? That’s what I mean by it’s been a good thing. I think it’s gonna. It’s gonna raise the game of everybody and everything across the board and that that’s actually good for the businesses. I think it’s. I think it’s a better environment for people to work in and, ultimately, I think that’s actually good for patient care as well. I like that positivity. We’re in short supply of that these days.
Dr James:
Tell you what that was nice to hear. That was nice to hear. Thanks for that.
Andrew:
I’m glad I asked that and thank you very much.
Dr James:
We are well. We’ve done a wonderful job of flashing out loads of things tonight. I’m certainly learning loads. I don’t know about anybody else I was wanting to. We’ve come today with some set questions that I wanted to ask you. Of course, the final one of those is then we’re going to come on to some questions from the group. Of course, the final question that I had prepared beforehand was what are Andrew Acton’s top tips to sellers for selling a practice? We’ve already all these questions. There was a little bit of gray in between them. You know what I mean, and you’ve kind of little bit of a gray area because you kind of covered some of them already. I’m just wondering is there anything more nice to think that you can chuck on top of that than anybody who sell in a practice out there? That you can chuck on top of that than anybody who’s selling a practice out there might find useful to know.
Andrew:
Let’s work through them. I think, to start with Simon’s sign, it does it really well. I think you need to know why you’re selling. Are you retiring? Are you moving to a new area? Are you unable to work anymore? Unfortunately, back and neck injuries arrive in dentistry. Are you stuck at work because you’re just fed up with running a business? You need to really understand why you’re selling, because selling a business can take nine months and you’re going to have to go back and remind yourself on that journey from time to time why you’re selling. Knowing why you’re selling and being comfortable is a good enough reason to sell. You don’t sell because you had a bad Monday. You don’t decide to sell on a Tuesday that you had a really rubbish Monday and said I’m going to sell. That’s not a good enough reason. You’ve really got to be comfortable with why you’re selling. The next thing we’ve already talked about is timing your sale. The more of a run-up you can take, the better the value you’re going to get. If you can time your sale, you’re going to get a better exit. The next thing is think about who your audience is to buy your practice. You may have an associate in your practice who’s an eminently suitable person to buy your business. That can be really good. They’re known by the team, they’ve been known by patients, so that could be good. It’s worth being in mind as well that if you’re in a partnership or you have a sharehold in your business, you probably already have a legal obligation to offer it to your partner in the first instance, and that’s really important. So, like I said, if you’re an expensi, probably a partnership or an limited company with a shareholder, there probably is something within the agreement that says you have to offer it to them in the first instance. So bear that in mind. And then the other audience are the independent dentists out there just looking on the open market and corporate owners who might be interested. So that’s kind of your. The tips of sale is understand the breadth of who’s in that marketplace as to who would want to buy a practice like yours. Next, assemble the documentation that you’re going to need when you sell your dental practice, because this is going to crop up later on when you get to the due diligence. But starting to pull together your employment contracts, service contracts, your NHS contracts, your lease, your title deans, get carrier bags and fill it up with the paperwork. Get it all pulled out and done, because when you sell your business, you’re probably going to want to do this in a discrete way, but that’s probably going to mean you’re doing this stuff evenings and weekends. If you just invest an hour here and an hour there over the course of a month or so, it will all be done. If you’ve got to do it in one week, that means you’re going to be burning the midnight oil and you don’t really want to be doing that. So I would say get that documentation pulled together. You then need to work out how you’re going to do it. So you either need to work with a sales agent or you’re going to go alone. Definitely get an independent valuation. You need to know what that practice is worth for yourself. You then got to find the buyers. If you’re working with an agent, the agent will find a buyer for you. If you’re going to go alone, you need to speak to friends. You need to put an advert of some sort out there so that people know that you’re available. Remember I mentioned about getting that documentation in the carrier bags. That’s when you get into the due diligence process, and if you’ve got your paperwork pulled together early on, the due diligence process with the solicitor is going to be absolutely easy. It’s going to be a piece of cake. And then the last tip is you’re going to complete. Enjoy it and remember why you were setting the practice and go on to the next phase of your life and enjoy yourself.
Dr James:
Lovely job, lee. I like that final one. I wanted to ask as well again something we spoke of a little bit earlier, frank Taylor and Associates what do they do specifically to help us dentists sell a practice?
Andrew:
So, to start with, we’ll value it for you. We’ve been doing it since 1988. What’s really important is we cover the whole country. We’ve done nearly 11,000 valuations. So what we have is our pool of comparables is, without doubt, the best in the country and the comparables are important because their practices that are similar to yours that we can benchmark against. That we’ve valued and sold to make sure that you get the very best price possible. What we’ve also got as well, we’ve got a team of valuers that go out and see practices, which is kind of what people would expect. But what’s slightly different as well is we do have an office-based team, because valuing practices is one thing, that sending them is another. Once you’ve found a buyer, people shouldn’t underestimate the work required to drive that deal through to completion. And what we’re not in the business of, we’re not in the business of flattery. So what we don’t do is we don’t produce valuations. We actually produce valuations that can be achieved in the open market and practices sold. But to get them sold and for that to work effectively, what we need to do is we need to have a team, an office-based team, to drive those sales through, make sure that things happen and those deals get pushed through. And I think the other thing that we’ve got as an organization is we’ve always got time for people. We’ve always got time to have a conversation with people if that’s what they want, to make sure that they’ve got all the information and they’re as informed as possible before they make a decision. There’s nothing worse than not having information, making a decision and then getting information. So if anybody wants to have a conversation, wants to have a talk, it’s all going to be highly confidential because I appreciate the world that we work in. I’ll give anybody 20 minutes and a half now if they want to have a chat about their practice.
Dr James:
Brilliant stuff. Thank you so much for that. And now, as I’ve built earlier, we’re moving on to my favourite part of the podcast. Really, we’re going to go slightly off-piste a little bit On the topic of skiing has anybody allowed to ski these days? I don’t know if that’s permitted in the post-COVID world. I don’t know if the slopes are open.
Andrew:
I don’t know. It’s outdoors so you’d hope so.
Dr James:
I was just thinking that Outdoors with an inbuilt mask Does it get?
Andrew:
any safer. Does it get any?
Dr James:
safer in the COVID world? I don’t know. So we’ve got a few questions here from the group. These questions they’ve been typed out. They’re a little rough and ready so I might have to decipher them. First of all, I’m going to do my very best to just withdraw the relevant information and translate that across to you. Let me see here. Will you test your?
Andrew:
translation skills.
Dr James:
I think so. Yeah, I’ll do my best, so if the questions aren’t right, then it’s on me. Apologies, guys, I can take this one verbatim. I think this is nothing too sensitive in here. I would like to know if Andrew has any data on the effect of goodwill values for NHS and private practices, or is this 80-20 private NHS specifically?
Andrew:
Okay. So we do have data. We’ve got lots of data on practices like that. Where a lot of people focus too quickly is on the spitt of income and the level of fees. The biggest determining factor that’s going to set the upper and lower limit of what your practice will achieve in terms of a value is the location, and so the 80-20 spirit is useful. But without knowing which county it’s in and whether it’s in a town, a village or a city, that has a huge bearing on the overall value of that practice. So, for example, if it was a rural practice in Devon or Cornwall, as a multiple of profit it might be down at two to three times. If it’s a predominant NHS practice in North London, south Hertfordshire, that could be up at six, six and a half times. So on that question, it’s impossible to answer without knowing the location. But there is a wider point here in that. Don’t jump straight into the numbers. A valuation is always considered in the context of where the practice is in the country.
Dr James:
Can I just ask, referring to that question, the term goodwill. I believe it has a legal definition rather than our general everyday colloquial definition. Are you able to define that for anybody listening?
Andrew:
Yeah, effectively it’s the intangible asset within the business. So it’s not something you can see, it’s not something you can touch, it’s not something you can put in the cupboard and say, you know, I’ll go and have a look at that goodwill later on. It’s effectively the intangible asset of that dental practice and so within there, whilst it’s represented as a percentage of the fees generated, it’s actually it’s the patient base, it’s treatments delivered, it’s the team that work in the practice, it’s the software that’s used. What are the workflows like? What’s the quality of the building? Is it freehold, is it leasehold? How much are people paid? How much are spent on materials and labs? There’s about 30 to 35 elements that get considered in assessing the goodwill, but it’s effectively it boils down to the intangible asset that you’re buying and what’s that worth in the dental practice.
Dr James:
I have heard it used before in the practice, sort of broker ship sense, but I wasn’t actually sure as to the definition, so I thought it would be nice just to spell that out extra clear. Next question how has COVID generally affected the value of the practices? We did talk a little bit about this earlier. I’ve got one specific example here. It’s not giving away any sensitive information. We’ve got some rough figures to give an idea. We’ve had a practice that was agreed to be sold pre COVID. The deal did not go through because of COVID. The turnover of the practice actually beg pardon, to use the specific term in this question the gross is 10 to 15% less than it was pre COVID. Presumably the practice is now valued less, or is it as black and white as that?
Andrew:
So the approach that we’ve taken is the practices were shut for minimum three months and they’ve reopened, so it’s fair to assume that the income over 12 months period is going to be down because practices weren’t open three months. So you could be, you could take one point of view that says well, they’ve been shut for three months, so they’ve only produced effectively nine months income over 12 months period. Those numbers are down. I’m going to pay less for your practice. However, we know that’s an extraordinary situation and we know that fees are coming back. Since practices reopened. Whilst people could open for the 8th of June, lots of people didn’t really get into their stride till July. But when you look at the numbers for July, august and September, or August, september and October, most practices are back to their pre COVID income levels. So your question was about gross fees, gross fees, turnover, practice income, income. They’re all the same thing. That’s the top line on the account. So what you’ve got in there is you’ve got the income in the practice, but for many is recovering to where it’s at. My view is that over the purchase period or the sale period whichever your point of view is there is a responsibility on the practice owner to make sure that they get their monthly income levels back to pre COVID and if they do, then it’s reasonable that somebody would pay the pre COVID price for their practice. If they don’t and there’s an explanation for it then it may be that there might be a price concession. But if that price concession is because the practice cannot get back to pre COVID levels for whatever reason, that’s reasonable. But if the practices performances is coming back to where it was before, then by the time you take that practice over, it’s more than likely going to be the same as the practice that you thought you were buying six or nine months ago. The other side to this and it’s really harsh and it’s brutal there’s five and a half thousand people in the country wanting to buy a practice and in a given year there’s only about a thousand practices change hands. So unfortunately at the moment the chips are being held more by people selling practices than buying practices. And if people buying practices want to negotiate on the price, there’s a danger for them that the seller could go and find another buyer, because there’s a lot of demand out there to buy dental practices.
Dr James:
I see what you mean. So it isn’t necessarily the issue for the price that it could be, because surely because of demand at this point, Exactly, but equally it can go the other way.
Andrew:
So I’ve seen practices that have had a sensational last quarter, I mean a really phenomenal last quarter. So if that practice had a phenomenal quarter, would it be reasonable to increase the price based on a good three months? I’d say probably no. I’d say that that wouldn’t be fair to it to increase the value of a practice based on three months performance, because we know there was pent up demand during lockdown and that practice has probably just delivered some extra dentistry which is relieved that pent up demand and that might not be sustainable. So I don’t think it will be right to increase the value of that practice based on a good three months. Like, I’m not sure it follows that you should reduce the practice based on a poor three months and that’s because this year has just been so, so exceptional.
Dr James:
It’s a two-way street, there’s many shades of grey and it’s not black and white, and it might be best to have a conversation on that one. Effectively, we’ve touched upon the next thing. I the next question. We have received from the group a little bit how busy is the market? We established that it is busier than usual, as compared to most years. What are the corporates? What is their level of activity? Are they still buying? Have they slowed down?
Andrew:
Some and some. Some corporates are still active in the market and they’re still looking to acquire practices. Others have completely withdrawn from the market and some of them actually withdrew pre-COVID. They got to a point where they decided they didn’t want to be acquiring practices. They wanted to focus on their existing portfolio, and that’s not unusual. Within the corporate market. They’re not always acquiring practices, so there’s two or three at the moment who aren’t acquiring. They’ve actually got rid of their M&A teams and they’re just focusing on the existing practices they’ve got. Others are still looking to to grow and some of this comes down to just the strategy they’ve got. You know, some are still quite young. They’re looking to acquire practices but it, in my experience, 95% plus of what we sell goes to independent dentists. An interesting change that has come about through COVID that your listeners might be interested in is pre-COVID, it was always the large cities that were the most popular. So if you think of the large cities in the country, and particularly ones that have got dental schools, they were always super high prices. They were the areas that were really, really desirable, but it’s been reported in the press that people aren’t spending as much time in city centres as they did pre-COVID. People are starting to shop locally and stay more local, and what this has started to we’ve seen this come through in the numbers in terms of behaviors is that some of the more rural dental practices are getting more viewing and higher offers than they would before, and I think this is because people are saying do I really need to travel into the city centre or could I buy a practice which is more local? And because so many more people are working from home, people aren’t necessarily going into the city centre where they work, which is where they might have seen their dentist. They’re staying local.
Dr James:
So some of the more rural practices are actually seeing more demand from them than they were six or nine months ago, which is an interesting shift, that’s an interesting one, and because there will be a degree of that sentiment that still remains even when we do, fingers crossed, get this vaccine and get COVID sorted out. So that might be a long term shift, might that? One Time will tell, I suppose. Do you notice any differences in terms of how the corporates are range to buy practices? Will they be a lot more along the lines of I’m going to, I’m a wealthy corporate, I can give you all this money up front? Do they structure it slightly differently to minimize their liabilities? Is there any difference on that one?
Andrew:
There is. Yeah, part of what you said is right, but what they say is I’m a wealthy corporate, I’m only going to give you some of the money up front.
Dr James:
So let me say that there’s two different structures.
Andrew:
So if you sell to an independent dentist, so this is just more than likely an associate working somewhere else on on the dab completion you’ll get all of your money up front. You may or may not need to stay for a handover period. You collect your money, you hand over the keys and you move on to the next part of your life, and that’s typically how that how that deal would work With a corporate. The way that it works is they would agree the value. You would typically receive 70% of the purchase price up front. The 30% that’s deferred would normally be paid to you over a three to five year period, based on certain KPIs being achieved, which might range from maintaining income to maintaining income plus RPI or maintaining income plus an agreed increase in fees, or there may be a profitability threshold that’s put in there and if you don’t achieve those agreed parameters, the 30% deferred might not be paid out. So, on the typical million pound practice, you receive 700,000 pounds up front and then the 300,000 will be paid over three to five years. So long as you hit certain trigger points you get the deferred.
Dr James:
Consideration Is there a trade off that the deal might be worth more in the long run. So let’s use your million point practice. Let’s say we’ve got family run business down the road. They want to move into your premises. They give you the million pounds up front, just as you said. I grass that correctly, didn’t I? Yeah? And then you’ve got the corporate competitor. They might say to you right, well, we’ll give you 700,000 pounds up front, 400,000 pounds over a course of three years, and often like that. Or the valuations are still the same, generally speaking.
Andrew:
Yeah, the valuations tend to be the same and the difference is that an independent dentist will buy using their heart as well as commercial assessment. The average dentist may buy one, possibly two, practice in their life and if that’s schools in the right location and it’s near where their kids are going to school, they will make a judgment, and quite often it’s a gut judgment, and they might pay a bit more than a corporate. A corporate tends to value purely off a spreadsheet. You know they’ve done this 20, 30, 50, 100 times before and it’s just business. And I’m not making the corporate out to be bad guys. There are. There are corporate out there that operate exceptional models and they do it really well. However, for them it is a business and the numbers need to work from day one and, from an independent dentist point of view, they can sometimes be a bit more emotional in how they make the decision. There is an important point as well that you can value a practice with two different multiples, and sometimes people get very hung up on the multiple of a practice, but the multiple isn’t as important as what the practice is worth. And let me give you an example. So if you had a practice, so there’s a term which is EBITDA, and EBITDA is earnings before interest, tax, depreciation and amortization. So the earnings in a business is the profitability and then the before bit is what you add back to the earnings is the interest, the taxes paid, depreciation and amortization. And amortization is effectively another word for depreciation, but it relates to the goodwill. So what you do is you add those back and that gives you your EBITDA figure. And a corporate may have an EBITDA figure of, say, 200,000 pounds and they would give you a nine times multiple on the 200,000 EBITDA figure. So a nine times multiple on the 200,000 EBITDA. That’s a 1.8 million pound valuation. But when somebody buys a business and they’re going to be working in the business, the EBITDA number isn’t really appropriate Because when you work in the business your reliance on associates isn’t as great, because I’m probably going to be delivering dental fees of, say, 300,000 pounds myself. So on a like for like, where the EBITDA was 200,000 pounds, the adjusted profit when I’m working in the business would increase to 350,000 pounds. So the corporate’s paying a nine times multiple, which is really exciting. But actually when you increase the adjusted profit to 350,000 pounds but you might only get a six times multiple six times 350,000 pounds is 2.1 million. So people get very hung up on the multiple. The multiple is important, but what’s equally important is the number it’s being multiplied by, because nine times 200 isn’t as much as six times 350. That makes sense. So you actually end up with a lower multiple. But it’s about pound notes in your pocket. It’s about the money that you get out of the deal. So, as again, as a warning, I’d say don’t get too high on the multiple. The multiple has to be linked to the number that’s being multiplied by it. That’s the value. The value isn’t the multiple. The value is the actual pounds.
Dr James:
I was using my logic of the football world in that question. I thought it would be the sort of situation where we can give you 70 million for Ronaldo up front or we give him 80 million over three years, something like that, depending on goals. The goals are the KPI, but no, the football world and the dental practice blind world. It may surprise you to learn there are two entirely separate things. There we go, guys. If we’ve established nothing else than that we have established that smashing stuff. Andrew, we’re going to wrap up now. Thank you so much for your time. Do you know what? I think that’s up where? We’re one of the best ones, and I handle my heart Honestly. I learned so much there tonight and you’ve got your words out so well and clear and concisely. It’s been brilliant to talk to you. It’s been very nice to meet you. We’ve never met before, until this evening as well.
Andrew:
No, no, it’s been really interesting, it’s been really interesting.
Dr James:
Yeah, it’s been smashing. Thank you so much for coming on the show. We’ve wrapped up pretty nicely there, 15 minutes ahead of schedule. Smashing, we’ll be able to get to bed on time tonight. Smashing stuff.
Andrew:
We will Pleasure to have you on the show, andrew, and hopefully speaking in person, you’re very welcome. Lovely Cheers, james. That’s great, thank you.
Dr James:
If you enjoyed this podcast, please hit, follow or subscribe so you can stay up to date with information on new podcasts which are released weekly. Please also feel free to leave a positive review so others can learn about this podcast and benefit from it. I would also encourage any fans of the podcast to sign up to the free Facebook community from which the podcast originated. Please search Dents who Invest on Facebook and hit join to become part of a community of thousands of other dentists interested in improving their finances, well being and investing knowledge. Looking forward to seeing you on there.