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MediEstates - EBIDTA Explained: An Overview for Dental Practice Buyers
EBIDTA Explained: An Overview for Dental Practice Buyers

EBIDTA Explained: An Overview for Dental Practice Buyers

 

When you’re looking to buy a dental practice, you must understand the true profitability of the business. This is often an area of confusion or misunderstanding, as many buyers focus solely on the net profit in the accounts.

 

However, this doesn’t paint a complete picture of the financial health of the practice due to potential inconsistencies in the accounts, such as paying a spouse or personal expenses which won’t be relevant for the new owner. When it comes to funding, the numbers are, of course, key to the success of any application for lending.

 

So what should you be looking for? And what are the lender's considerations when assessing the profitability of the business? In this blog post, we’ll discuss EBIDTA and why it’s a more reliable measure of profitability for dental practice buyers.

 

What is EBIDTA?

EBIDTA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. This metric subtracts expenses that aren’t directly tied to the day-to-day operations of the business, and also takes into account depreciation and amortisation, which are non-cash expenses that can skew net profit numbers.

 

It’s therefore a measure of a company's profitability of the operating business only, i.e. before any effects of indebtedness, state-mandated payments, and costs required to maintain its asset base.

 

As a buyer, EBIDTA can give you a much more accurate indication of the potential earnings, profitability, and value of a dental practice. This also allows for a more accurate comparison between businesses and industries because it eliminates factors that may not be consistent across all companies.

 

EBIDTA is also a key consideration for lenders when assessing funding for a dental practice acquisition.

 

What is a Good EBIDTA?

The definition of a good EBIDTA can vary based on the specific goals and plans for the future of the business.

 

For funding purposes, a good EBIDTA would show sufficient profitability to comfortably repay the bank loan whilst providing the incoming Principal with a wage which allows them to sustain their current lifestyle and cover outgoings.

 

Calculating EBIDTA Accurately

Agent listings generally provide accounts detailing the turnover and net profit of a practice and usually show their own estimate of the current EBIDTA based on the most recent financial accounts and remodelling to suit an owner-occupier (usually one full-time principal) or corporate model (fully associate-led).

 

However, as a buyer, it’s advisable to do your own due diligence to ensure you are clear on the true EBIDTA for yourself and potential lenders. This can be done with the help of a dental specialist accountant or finance broker, who can review and project EBIDTA based on your personal plans for the business, rather than relying on the agent’s estimations and cost assumptions.

 

While lenders will need to know about your plans for the future of the business, they will base their calculations and assessment on the current trading position rather than forecasts.

 

Conclusion

In summary, EBIDTA is a crucial metric which provides a more comprehensive and reliable indicator of the profitability and potential value of a dental practice. As a buyer, it’s important to understand EBIDTA and calculate it accurately, as this will have a significant impact on your funding application success.

 

Remember too, that each dental practice is unique and will have its own expenses and profit drivers therefore it’s advisable to seek professional advice when making your assessment and determining the value of a potential acquisition.

 

When assessing EBIDTA and other financial metrics, working with a team that understands the complexities of dental practice acquisitions can be a determining factor in the success of your funding application and overall acquisition journey.

 

At Henry Schein Financial Services, we have a dedicated acquisitions team who are on hand to provide expert guidance and support during the buying process – get in touch with us today to find out more.

 

Posted by: Shannon Loonam on

General Buyer Terms 

This agreement is in relation to MediEstates Limited whose registered office is at 1st Floor, Pacific House, Stanier Way, Wyvern Business Park, Derby, DE21 6BF acting for and on behalf of our clients ("the Vendors"); and yourself (Buyer's Name) in relation for an introduction to a prospective sale of a business as a going concern. By registering through this agreement I agree to all terms set out below:

  1. Definitions
    In this Agreement the following terms and phrases shall have the following meaning unless the context otherwise requires:

    Business
    Dental Practice business providing dental care. This business is under the MediEstates Ltd sale terms.
    Confidential Information
    Means the actual Vendors identity and all confidential information in respect of the Business, including, but not limited to, any ideas, business methods, prices, accounts, finance, marketing, research, development, manpower plans, processes, market opportunities, intentions, design rights, product information, customer lists or details, employees’ details, trade secrets, computer systems and software, and other matters connected with the products or services manufactured, marketed, provided or obtained by the Vendor, and information concerning the Vendor’s relationships with actual or potential clients or customers and the needs and requirements of such clients’ or customers’ operations.
  2. Obligation of Confidentiality
    The Prospective Purchaser agrees to treat as confidential, information supplied by or on behalf of the Vendor in connection with the sale of the Business.
  3. Exclusions
    The obligation of confidentiality set out in clause 2 does not apply to:
    1. any information received from a third party who was legally free at the time of disclosure to disclose it;
    2. any information which was already lawfully in the Prospective Purchaser’s possession prior to receiving it from MediEstates Ltd on behalf of the Vendor; and
    3. any information which is in its entirety already in the public domain.
  4. Duties of Prospective Purchaser
    1. The Prospective Purchaser shall take such a reasonable security measures to protect the Confidential Information and trade secrets.
    2. The Prospective Purchaser shall not, without the prior written consent of the Vendor, permit any of the Confidential Information:
      1. to be disclosed, other than in confidence to its legal or professional advisors;
      2. to be copied or reproduced;
      3. to be commercially exploited in any way;
      4. to be used for any purpose other than in connection with the prospective purchase of the Business;
      5. MediEstates is registered under the Data Protection Act 2018. Upon Signing this agreement you agree to follow the legal obligations of this act to protect the details of the information supplied to you, with it no to be passed outside of the control of you the prospective purchaser.
    3. The Prospective Purchaser agrees to keep a record of Confidential Information received.
    4. The Prospective Purchaser will return to MediEstates or the Vendor all documents containing Confidential Information and all copies of those documents on demand at any time which are in its possession or under its control, and for this purpose the term “documents” includes computer discs and all other materials capable of storing data and information. The Prospective Purchaser agrees that such documents remain the property of the MediEstates on behalf of the Vendor.
    5. The Prospective Purchaser must not jeopardise or re-direct the sale under any circumstances.
    6. The Prospective Purchaser must not contact the Local Area Team or CCG regarding any practice sale, by any means of media unless written permission is granted from the Vendor.
    7. To carry out own due diligence on practice purchases and accepts that any information MediEstates has supplied is information provided by the vendor and is not responsible for its accuracy or completeness.
  5. This Agreement
    The existence of this Agreement and its terms are confidential and neither MediEstates nor the Purchaser may disclose anything about this Agreement or its subject matter or implementation to any person other than in confidence to their legal or professional advisers.
  6. Duties of Prospective Purchaser
    When buying Dental practices, finance is normally needed. Our organisation operated over more than one of the MediHoldings brand, by completing this from you agree that the information can be shared to our other organisations to avoid the need to register independently and provide the best possible service.

    MediEstates will refer you to the specialist dental lending team and MediFinancial who will contact the necessary banks, whom have preferential healthcare lending rates in some cases, to ascertain which funding is available to you.
    By signing this agreement you do not have to use any of the banks MediFinancial contact, it is just another service which we provide.
  7. Deposit for Dental Practice
    If you are interested in putting forward a formal offer in for a practice, once the offer is accepted there will be a deposit required to secure the practice sale which is dependant of the practice size. This deposit is held in a client account and will be returned to the buyer on completion of the practice sale. You the buyer, will be required to sign a deposit schedule which will cover the buyer and the seller in the event that the practice sale does not proceed.
  8. Changes to this Agreement
    Any changes made to this agreement must be authorised and signed by one of MediEstates Ltd Directors.
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