Buying a dental practice: due diligence, valuation and affordability guide

Before you start

Buying a dental practice is typically the largest financial decision of a dental career. The purchase price is only part of the picture. The structure of the acquisition, the NHS contract, the lease or freehold, and whether the practice can generate enough profit to service the debt all matter as much as the headline figure.

This guide gives you a framework for evaluating a deal. Use the Excel model that came with it to sense-check the numbers, then work with a specialist for the actual due diligence.

How practices are valued

Most dental practices are valued as a multiple of normalised EBITDA (earnings before interest, tax, depreciation and amortisation). The goodwill element typically accounts for 60 to 80% of the purchase price, with the balance being tangible assets.

The multiple used depends on three factors.

NHS/private mix: NHS-heavy practices trade at lower multiples (roughly 0.65x to 0.95x EBITDA) because NHS contract values are fixed and cannot grow with the market. Mixed practices trade at 0.85x to 1.15x, and private-heavy at 1.05x to 1.45x.
Region: practices in London and the south attract a premium of around 5 to 10% on the multiple. Those in the north, Wales and Northern Ireland attract a small discount.
Demand: a practice with a waiting list, strong patient retention, and clear growth capacity commands a higher multiple than one with structural challenges.

These are indicative ranges. The actual transaction value is negotiated, and a corporate buyer may pay a premium for synergies or strategic fit that an individual buyer cannot match.

What normalised EBITDA means

Reported EBITDA is not always the right starting point. The seller may include their own salary, drawings or benefits in the figures in ways that inflate or deflate reported profit. Normalisation adjusts for owner-manager remuneration, one-off costs and items that will not continue under the new owner.

Common adjustments include adding back an excessive principal salary (replacing it with a market-rate associate cost), removing one-off capital expenditure that was expensed, and stripping out personal items charged to the practice. Always commission an independent accountant's review of the management accounts before placing any reliance on reported EBITDA.

The NHS contract

If the practice holds an NHS contract, the contract itself is one of the most important things to check.

Novation on asset sale: when a practice is sold as a business (asset sale rather than share sale), the NHS contract does not automatically transfer. The new owner must apply to novate the contract to the new entity. Some commissioners reduce the contract value by 5 to 10% at the point of novation. Check the local commissioner's policy before assuming you acquire the full contract value.
UDA performance: a contract that has been consistently under-delivered carries a risk of future clawback or reduction. Review at least three years of UDA performance data.
Contract type: GDS (general dental services) and PDS (personal dental services) contracts carry different obligations and rights. PDS contracts expire on their end date and are not automatically renewed.

Financial due diligence

Before exchanging contracts, your accountant should review the following at a minimum.

Three to five years of practice accounts and management information.
Revenue split by NHS and private income.
Payroll: associates on the right terms, associate percentages, compliance with employment law.
Outstanding liabilities: deferred tax, any CQC enforcement actions, lease dilapidations.
Goodwill and fixtures split: this matters for tax (see capital allowances below).

Capital allowances on fixtures

The purchase price of the practice goodwill is not tax-deductible. However, the portion of the price allocated to plant and machinery (dental chairs, compressors, X-ray equipment, fit-out) qualifies for capital allowances, which reduce your taxable profit.

A section 198 election must be made jointly by the buyer and seller to fix the value of fixtures for capital allowance purposes. Without it, you lose the ability to claim allowances on those fixtures. This election must be made within two years of completion. Do not overlook it.

Can the practice service the debt?

Most dental practice purchases are partly funded by borrowing. Lenders typically require a debt service coverage ratio (DSCR) of at least 1.25x: the practice's post-acquisition profit must be at least 1.25 times the annual debt repayment. Below that level, the practice is at risk of cash flow stress if trading conditions deteriorate.

As a rough sense-check, take the normalised EBITDA and deduct a market-rate principal salary. The remainder should comfortably cover the annual principal and interest repayments on the loan you are considering, with a buffer for maintenance capital expenditure and unexpected costs.

Asset sale vs share sale

Most dental practice purchases are structured as asset sales: you buy the business assets (goodwill, patient records subject to GDPR consent, equipment) rather than the company shares. This limits your exposure to historic liabilities of the entity and simplifies the CQC registration process.

Share sales are less common but can be attractive where a large deferred tax liability sits inside the company, or where a corporate seller needs a cleaner exit. They carry more due diligence risk because you inherit all the company's history.

Next steps

The Excel model that came with this guide will give you an indicative value range and a rough debt service sense-check. Use it to assess whether a deal is in the right ballpark, then commission a specialist for the detailed financial due diligence before any offer is made.