Let’s begin by looking back 20 years and speculate what your practice might have been worth in 1995. Where do we start? There are no collated records to show goodwill values of dental practices back in 1995.
The National Association of Dental Accountants and Lawyers (NASDAL) didn’t start its quarterly goodwill survey until 2007 and, indeed, this only includes practice sale values from a fraction of those sold across the UK.
The Office for National Statistics (ONS) provides some interesting numbers, not least that the average house price in 1995 was £66,000. Had this average house increased in value at the average rate of inflation (3.6%) then it would be worth £114,580 today. In fact it is worth in excess of £250 because, as we know, house prices have outpaced inflation by a considerable margin.
The changes so far
The value of dental practices has risen steeply in the last five-10 years. There are a number of reasons for this, not least the rationing of NHS money that came with the 2006 contract. Currently, NHS contracts command a premium in the market with some practices changing hands for in excess of 180% of turnover.
The rise of goodwill values may also be correlated to the rise of corporate dentistry. While not all practices are suitable for a corporate acquisition, the marketing message tends to err on the positive side and the general outcome rightly or wrongly has been to drive prices upwards.
As ever, the value of a business is dictated by market demand.
NHS practices, especially those in urban areas, are highly sought after. Furthermore, there doesn’t appear to be many things on the horizon that will threaten demand – funding is readily available and, as in 2006, the prospect of new contracts looming is not putting potential purchasers off.
On a final cautionary note there may come a point at which goodwill values become unaffordable for the average buyer. This would be in the event that the cost of financing the purchase reduces profitability below an acceptable level. We haven’t reached this stage yet, but in 20 years’ time, who knows?
For more information, visit www.pfmdental.co.uk.