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Dental Practices

Our experienced dental valuation team provides formal valuations of hundreds of practices each year. We provide valuations for loan security purposes to facilitate the purchase and refinance as well as going concern valuations for partnership incorporation and set up. We work with corporate and SME dentists as well as most high street lenders advising on all aspects of dental practice valuations. Our medical team values both Leasehold and Freehold dentists ranging from private to mixed and fully NHS practices.

Dental Sector News


Changes to the Use Classes Order: Amended and simplified with greater flexibility for businesses

The Government recently announced further planning reforms with significant changes to the Use Classes Order. The Use Classes Order was introduced in 1987 and has been amended a number of times since. However, this time round we have seen a complete overhaul of the previous regulations. One of the main focusses is to create vibrant, mixed-use town centres by giving businesses greater flexibility to adapt and respond more quickly to changing demands and the needs of local communities.

From 1st September 2020 there will be the following new Use Classes within The Town and Country Planning (Use Classes) (Amendment) (England) Regulations 2020 (2020 No. 757):

  1. Class E (Commercial, Business and Service)
  2. Class F.1 (Learning and Non-residential institutions)
  3. Class F.2 (Local community)
The residential (C classes), General industrial (B2) and Storage and distribution (B8) Use Classes remain predominantly unchanged.

Class E (Commercial Business and Service)

The introduction of Use Class E is the most radical change to the Use Classes Order. It will incorporate the previous shops (A1), financial and professional services (A2), restaurants and cafes (A3), offices, research & development and light industrial (B1) Use Classes as well as nurseries and health centres which formed part of the (D1) Use Class and gymnasiums which were formerly (D2) use. Changes to another use or mix of uses within this class will not require planning permission. 


“This new class allows for a mix of uses to reflect changing retail and business models. It, therefore, recognises that a building may be in a number of uses concurrently or that a building may be used for different uses at different times of the day. Changes to another use, or mix of uses, within this class do not require planning permission. Bringing these uses together and allowing movement between them will give businesses greater freedom to adapt to changing circumstances and to respond more quickly to the needs of their communities”.

It is no secret that the high street retail sector has been struggling for some time due to the disruption from e-commerce, amongst other factors, and more recently the Coronavirus pandemic. As a result of this new Use Class, we will likely see a much more varied use of our high streets and town centres as current vacant units and future units become available to a wider array of businesses. For instance, it will be much easier, to convert an office or shop into a dental practice or a light industrial building or office into a day nursery.

Class F.1 (Learning and Non-residential institutions) and F.2 (Local community)

These two Use Classes have been created to ensure that uses that are important to local communities are protected through the planning system. Changes of use within each of these classes will not require planning permission.

The F.1 Use Class incorporates former (D1) uses which are regularly in wider public use such as schools, libraries, places of worship and museums.  

Class F.2 is for local community uses and is the most varied in terms of the building characteristics which fall under this Use Class. A new introduction to the Use Classes Order within Class F.2 is essential shops that would have previously fallen under (A1) use. To qualify as an essential shop it must meet the following criteria:

  • Trade as a shop mostly selling essential dry goods and food to visiting members of the public
  • Not have an area greater than 280m2
  • Be situated at least 1km from a similar shop

Other uses that fall within F.2 Use Class include former recreational (D2) uses – swimming pools, skating rinks and areas for outdoor sport not involving motorised vehicles and firearms. There will likely be less frequent repositioning within this Use Class due to the disparity in uses and characteristics between these properties, especially compared to Class E uses.

Sui Generis 

Former (A4) Drinking establishments and (A5) Hot food takeaways have been removed and will now be considered sui generis as well as cinemas, concert halls, dance halls and bingo halls which were (D2) use. This means that changes to and from these uses will be subject to full local consideration through the planning application process.

These changes will be welcomed by both landlords and many businesses due to greater flexibility to reposition properties, particularly within the new E Class, and the ability to adapt to changing market conditions. This will play an important role in the economic recovery of our town centres following the Coronavirus pandemic, as mentioned in the Explanatory Memorandum.

Perhaps we will see more businesses utilising a mix of former uses concurrently? Or will landlords start introducing more restrictive user clauses in their leases?

Speak to a member of our Development Team if you have any enquiries surrounding this topic.  
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Dental Sector Market Update | December 2020

After a relatively brief period of dental practice acquisitions and sales being put on hold, we have noticed a gradual increase in transaction activity. We have seen an increase in purchases by corporate groups as well as SME practices looking to expand. There also been a growing trend in a number of associates acquiring their first dental practice looking to secure themselves an income. Supply still remains limited, and, as a result, the multipliers achieved are broadly reflective of pre-COVID levels with a number of practices achieving above the asking price.

Since the reopening in July, most dental practices continue to struggle keeping with demand. According to The Association of Dental Groups’ (ADG), eight million patients waiting for an NHS dental appointment this Christmas. As a result, there has been an increase in the number of private treatments from patients who were unable to access NHS appointments.

Higher-end treatments such as adult orthodontics have also experienced a growing demand. While some people were affected financially by the pandemic, some found that they have more discretionary income that would otherwise be spent on holidays and going out. This demand for private treatments is likely to continue, which creates an opportunity for practices that are looking to expand the private dentistry in their practice and work more independently of the NHS.

With regard to the NHS, there are big challenges relating to future contractual structures and funding. Large debt accumulated during the COVID-19 pandemic means that it is unlikely that funding for the NHS dentistry will increase.

Going forward, it is still unclear if the Christmas holidays will lead to an increase in transmission rates or if the effects of the COVID-19 vaccine will be widely felt in the community. It may take a while for the authorities and regulators to relax the dental patient journey.

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How to Value a Dental Practice?

Whether you are looking to acquire your own dental practice or interested in selling or refinancing, you need to know how to calculate the value to facilitate the transaction. This article aims to discuss the methods used and critical aspects when valuing a dental practice.

Methodology

The most common methodology and the one used by Chartered Surveyors to value the dental practice's goodwill is the 'profits' method. It involves establishing the EBITDA of the business based on the performance of a reasonably efficient operator (also known as Fair Maintainable Operating Profit) and then applying a multiplier or using this as a basis of forecast cash flows to establish the value.

Fair Maintainable Operating Profit (FMOP) and Fair Maintainable Trade (FMT) may not necessarily represent what the business is actually achieving. Instead, it reflects what could be achieved by an average competent operator. For instance, if the principal dentist in the subject practice only works two days a week, you will need to consider if there is a scope to increase the turnover or perhaps have lower associate costs. Also, 'unnecessary' costs will need to be added back, and these may include salaries paid to family members, not business-related memberships and subscriptions and travel and vehicle expenses.

Other costs that will need to be analysed and compared with industry benchmarks include Materials and Laboratory Fees, Wages, Associate Fees and other costs. Therese are usually assessed as a percentage of turnover and costs that are above/below industry norms will need to be adjusted to arrive at a FMOP.

You will also need to establish the market rent of the subject premises and assess if it is different from the passing. If, for instance, you believe that the unit is under-rented based on the recent comparable data, the net profit may decrease at the point of a first lease event such as a rent review or a lease renewal. If it is a Freehold practice, you will need to establish the market rent and deduct it from the turnover as a cost.

Multipliers

The multipliers used are normally derived from comparable sale transactions of similar practices in the market. The most common aspects to consider when selecting a multiplier are as follows:-

  • Geographic Location 
  • Contracts (is it private or NHS and proportion)
  • Quality & Condition
  • Size
  • Trading Demand
  • Historic Trading Profile
  • Competition
  • Number of customers

The resulting capital value can then be analysed as a percentage of turnover for the most recent full accounting year and compared with that of similar recently sold practices.

Property (Bricks and Mortar)

It is essential to ascertain if real estate is involved, i.e. if the dental practice is sold subject to a commercial lease of say (10-15 years) or a Freehold/Long Leasehold title.

When analysing a Leasehold practice, it is crusial to assess the probability of relocation, considering the potential loss of profit and costs involved. This means checking the length of the term, identifying if there are any Landlord's breaks and if the lease provides statutory renewal rights i.e. is drafted inside the Landlord & Tenant 1954 Act. An important consideration is that although the lease may be 'inside the Act' the Landlord may still exercise their right to oppose a lease renewal on grounds such as redevelopment and owner-occupation.

If you are analysing a Freehold practice, you will need to establish the value of the property. Depending on the nature of the asset, it can be valued using investment or comparable methods of valuation. An important consideration is that some dental surgeries have higher alternative use value (for instance converted houses in high-value residential areas) and will need to be carefully analysed to arrive at an accurate figure.

Conclusion

Dental Practice valuation is a complex process that requires a detailed analysis of the market and the practice itself. However, establishing your dental practice value is vital if you are looking to purchase or sell your dental practice. It is essential to have trusted advisors on your side to help you identify and address these matters. Copping Joyce Surveyors are committed to providing you with expert advice throughout the lifecycle of your practice, from acquisition to disposal.
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