Financial health: How to survive this year

Dentistry has proved to be impressively resilient during the recent years of economic uncertainties and squeezes on the cost of living.

Nevertheless, it is not immune to growing financial pressures and rising practice costs such as the price of lab and materials, heat, light, and staffing so how can practices survive financially?

Experts say it often boils down to working smarter and ensuring that practice owners never become complacent.

 

Earnings

Dentists are still more than able to make a good living from their work and according to Dental Elite’s recently published Benchmarking Report 2024, the average turnover of a dental practice (apart from NHS) increased across the board in comparison to the previous year from £814,313 in 2023 to £906,083 in 2024 – a 11.3% increase.

The average turnover for an NHS practice was stable and only fell slightly by 0.68% from £392,157 to £389,466 over the same period.

Dental Elite said the overall increases could be due to various factors including rising treatment prices, demand to see a dentist, and practices diversifying by offering more private treatments and using space for hygienists and therapists because they have struggled to recruit dentists.

Johnny Minford, Media Officer for NASDAL (National Association of Specialist Dental Accountants and Lawyers) says this is still a good time for dentists to be making a decent living.

“It is because there have been some changes in the NHS system over the last couple of years which have made it slightly easier to work within the NHS and those changes have generated more of an interest. There is more enthusiasm for it and dentists are encouraged.

“For different reasons, the private side had a great time immediately post COVID. That fell away slightly and there was a worry that they would fall off a cliff. That didn't happen.”

 

Financial pressures

This financial success, however, does not mean that dentists are not operating in a challenging time and there are real financial pressures at play.

Minford, who is also Commercial and Development Director for DJH, specialist dental accountants, says: “Financial pressures are getting harder. The higher interest rates are a problem. One of the reasons why young dentists are finding that a struggle is that there are practices that have been bought at too high a price and now we have repayment terms that were not envisaged at the time.

“Another financial strain that is happening is the cost of staff, not just the associates, but also the nurses, therapists and hygienists. The costs of trying to retain staff is an issue.

“There are some practices, particularly in the metropolitan areas, where they are over-paying for their associate work and once you’ve put somebody's price up to a certain level, you can't go back again.”

Some dentists are finding it harder than others, sometimes because of how they operate, says Mike Marigold, Chief Executive Officer for financial planning advice specialists Montgomery Charles Wealth Management.

“Where people continue to do what they've always done, it will feel difficult financially,” he explains. “Dentists have to evolve in the way they work and the way they promote themselves in the same way that any other business has to. Anyone running a business has to continue to assess what's happening and respond to it.

“If someone is doing what they’ve always done, they're going to be finding it hard financially. If they are someone that is embracing change, they will find it easier after a period.”

Examples of dentists who are not evolving include those who don’t know how the money is going, don't know what everyone is being paid compared to the market, and don’t know whether they've got particular gaps in the books, he continues.

“Those people will be a little bit blind to what is coming down the line. They are the kind of people who end up having to take out a loan to pay their tax bill.”

 

Delayed demand

One ongoing consequence of the cost of living pressures on the population at large is a resulting frugality with some people delaying dental treatment that they deem to be an unnecessary expense.

Marigold explains: “We’re seeing a greater resistance to proceeding with those more expensive procedures and what that means is you have to put a greater effort into the explanation of the procedure and the benefits that a patient will enjoy, but the other thing is to highlight the implications of not acting, which tend to be worse.

“There needs to be a bit more effort put into the delivery of treatment plans in a way that they're explained and in the positive impact they'll have and the value for money in the longer term. There needs to be more chasing through by someone who is allocated to be the treatment coordinator.”

Nevertheless, there is still demand for dentistry, he argues, because there are still shortages nationally of NHS dentists and some people will want to use private dental practices instead.

“There is opportunity there, but you have to make yourself visible and have a good digital presence,” he adds.

 

How to deal with rising costs

If costs are rising, then dentists need to find ways to mitigate these expenses and there are solutions, according to the experts.

Marigold says: “The first step is to analyse where your costs are coming from, then to understand what type of work you do that is most profitable and put more focus on it.

“Often principals are the most skilled within the practice, but they are still running their own book a bit like an associate and what they should be doing is moving more of their less skilled work to the associates and focusing on the high end stuff that they are good at, and which is a higher payer.

“I’d also advise that dentists try to create time, so they've got buffer days where they're not clinically working. They can become strategic in what they are doing, and they aren’t a ‘busy fool’.”

Another good idea is to make someone within the practice responsible for the cost of materials being used with a remit to see whether they can improve on it.

“This is about being more profitable in the work that you do and making sure you price  appropriately,” adds Marigold. “If you are delivering well and you have that trust with patients that you’ve earned over many years, they will stay with you.

“It’s also important that you have plans that patients can come on to, typically a maintenance plan where they are paying a monthly amount for their check-up and a hygiene visit, if they need it, each year.”

Minford also advocates a proactive approach, saying: “Dentists should continue to look at how they engage with their patients in order to retain them and keeping their list tight.

“That relates to not just the treatments they do, but how they engage and relate to the patients. They should keep the recalls coming and the friendliness to the patient because the patients will come to the dentist because they trust and know them.

“That is human nature and if you want to try and keep your patient base tight even though somebody else is offering stuff cheaper, stay engaged with your patients and they're less likely to go.

“The big thing with patients is often how soon can you get an appointment. It’s looking after your patients and having them understanding what it is that you're doing and having that professional relationship with your healthcare professional.

“Dentists should continually assess how they run the practice, so they run it efficiently. They can make the chair side time as efficient as possible, for example. If you have the chair side time measured and efficient, you can create more income per day to cover additional costs.”

 

Political landscape

The change in government earlier this year could have a financial impact on dental practice owners.

Marigold says: “I expect that capital gains tax will go up, affecting people trying to sell second properties. There could be a temporary rush to the door and people will have to get their practice sale over the line before April next year which is when I suspect that tax will double or triple.

“The problem with this is you might get an initial spike of activity which will be people trying to get sold before the change comes in, but then people will sit tight, and when the rate goes up people will be more reluctant to sell the business.”

Minford agrees, adding: “All the talk about tax is creating a serious wobble in the profession and we have had associates saying, ‘why would I ever buy a practice because if I buy it, when I sell it again, it’s going to be taxed like there's no tomorrow?’

“However, Wes Streeting [Health and Social Care Secretary] has been very vocal about what he is going to do with the health service, and he has made comments about dentistry.”

 

Enthusiasm

Despite the challenging climate, banks are still happy to lend to dentists wanting to buy practices and dentists appear to remain enthusiastic about their business being successful, as Minford says: “There are still a lot of people wanting to buy practices and wanting to increase their work within dentistry.

“They ask us questions about the structure of the practice and the use of a limited company, something which is reasonably specialist and is very often done wrongly, particularly if there is NHS involved and if there is a property involved.

“We are asked how we can make a practice operate more profitably, but the question we're actually asked is ‘how do I pay less tax’ which is the same thing in a certain way.”

Marigold adds: “They want to know ‘am I being smart with money’. They need to be looking at self-care of their finances. They will ask ‘I want to have a plan so that I know by such a such point, I'll be okay’. The greatest value we give is not necessarily in setting up all these things and getting tax relief, it’s creating the plan that motivates them from day one. Then they look at their pricing and they start to tweak the pricing in the right places.”

 

Top tips for a healthy financial year

• Work out the biggest thing that would move the dial for your practice – the one thing that if you did it really well would make the biggest difference
• Stand back and have a fresh look at your patients, what you offer them and how you look after them – that will make it clearer how you can maximise the long-term income of the practice and help pay for increasing costs to run a practice
• Don’t get bogged down on too many to-do lists – focus on no more than three tasks at a time
• Think about growing the business and not about avoiding tax – they are not the same thing
• Don’t dismiss working with or alongside the NHS – there are real benefits to doing so – a good pension and the kind of support that was provided by the government during COVID restrictions.