A dentist recently asked me to sort out the rest of his business life.
I’m going to share with you our conversation as it may be of benefit.
So the participants are me (CB) and the dentist (JS) – the dentist’s initials are fictitious.
JS – I would like some clarity on where I am going and how to get there.
CB – What age are you now?
JS – 51
CB – What age do you want to retire?
JS – 60
CB – what age do you want to put down the drill?
JS – I want to stop doing dentistry as soon as possible – I have achieved everything I want to achieve clinically. To quote Michael Gerber, I want to progress from “technician”, through “manager” to “entrepreneur” ASAP.
CB – what do you want to do with the business at 60?
JS – I want to sell it.
CB – NHS/Private mix?
JS – 100% Private please.
CB – are you happy to accept a 3-year earn out?
JS – yes – so I want to complete the sale at age 57 and finally walk out of the door at 60.
CB – how much do you want to sell the business for?
JS – I don’t know.Where do I start?
CB – if you invest the proceeds, what pre-tax income do you want the sale proceeds to generate?
JS – I would like £90,000 per annum pre-tax from 60 onwards – index-linked and at low risk.
CB – OK well I’m not a financial planner but I’m going to suggest that you target a 5% return on investment, which means that you need to sell the business for a net (90k x 20) £1.8 million – let’s round that up to £2 million.
JS – sounds good, so how do I create a £2m dental business?
CB – to confirm – you will not be doing any dentistry?
JS – correct.
CB – OK so I’m going to assume a combination of associate dentists and therapists – each generating £200,000 of gross revenue. The therapists will be delivering the preventative maintenance under direct access and the associates will be delivering more complex dentistry. That means you will need 10 chairs altogether. How many chairs would you like per practice?
JS – I like the idea of 3 or 4 chairs per practice.
CB – That means we are looking for 3 or 4 locations around your county with 3 or 4 chairs in each, ultimately grossing £200,000 per chair.
JS – where do I find the dentists and therapists?
CB – you recruit apprentice dentists who are a year out of FD1 & FD 2 and looking for an alternative to bashing out UDA’s for the corporates. Offer them fixed salary of £34,000 plus clinical mentoring with you and the senior dentists in the group. You will be inundated with applications. The successful apprentices will become associates on a sliding scale starting at 35%. You will recruit therapists who are being used as hygienists in their current practice and pay them 35%.
JS – are you suggesting private squats or purchases?
CB – definitely purchases – private squats will require £300,000 of investment each (Ed – see yesterday’s blog post) and will take too long to get off the ground.
JS – so where will I find the purchases?
CB – they will all be existing 3-chair practices, grossing £400,000 currently and owned by dentists over age 50. The dentists will have “had enough” of the GDC, CQC, employment law, patients, competition and ownership and will not have the time, money or energy to refurbish, re-equip and re-brand. They will be looking to leave with honour and not sell to a corporate or get chipped on the deal by a dental stranger.
JS – but how do I identify them?
CB – by getting off your butt and looking – using local market knowledge and networking within your local dental community.
JS – will I not keep losing out to the corporates?
CB – no – they are mainly focused on bigger practices and, in any event, some of the corporates are closing down their acquisition teams. There isn’t much big fry left to buy and the small fry aren’t worth it to them.
JS – and how am I going to finance all this if I’m not wealthy and I don’t have a rich uncle?
CB – the bank will lend you 60% of the goodwill on most decent deals – if you buy the freeholds as well you will have a property portfolio as a bonus later on. You will have to negotiate a deal with the vendor to pay 60% up front and the balance over his/her 3-year earn out with you. The growth you create will pay the earn out and pay off the loans.
JS – and this growth?
CB – good question – each £400,000 practice purchase will need some refurbishment, re-equipment and re-marketing – you may well also have to change some team members – but you can take each of those practices to £200,000 per chair within 3 years – so you need to complete all practice purchases by the time you are 54 (3 years from now).
JS – so how much will I make before I sell?
CB – the group overall will generate 17% net profit before tax – that’s £340,000 per annum at maximum cruise.
JS – any advice on making the ultimate sale easier?
CB – good systems, excellent marketing, good managers and a membership scheme in place.
JS – and what about tax on the sale of the business?
CB – add a couple of extra chairs into the mix.
JS – can you help me identify purchases?
CB – NO – you have to use your own local knowledge.
JS – so what can you help me with?
- the negotiation on each purchase
- change management when you take over – dealing with the existing team(s)
- re-branding of each acquisition
- recruiting the dentists and therapists
- re-marketing to existing patients
- referrals from existing patients
- attraction of new patients
- teaching the team to deliver an exceptional patient experience and sell treatment
- recruiting and coaching the managers that you will need
- showing the managers the systems they need to deploy
- coaching you to be a great leader
- ultimately helping you with the sale of your micro-corporate
JS – when do we start?
CB – we have started.