How Do You Protect Practice Value Amid Rising Costs?

The last five years have fundamentally changed the financial landscape for dental practice owners. Rising wages, inflation, recruitment pressures, and increased operating costs have squeezed profitability across the sector.

Amid these pressures, one truth remains constant: practice value is driven by profit, not turnover. So even those practices experiencing strong turnover growth need to act quickly to protect their value.

In our recent webinar, Margins Under the Microscope, Alison Bates, our Valuations Department Manager, explored the strategies Principal Dentists can use to build sustainable profitability and protect long-term practice value.

Rising Costs Are Reshaping Dental Practice Economics

Dental practices are operating in an increasingly challenging financial environment. National Minimum Wage increases alone have significantly raised staffing costs, with rates for over-25s rising by 43% between 2021 and 2026. Apprentice wage rates have increased by an astonishing 86%.

At the same time, Employers’ National Insurance changes, inflationary pressures and rises in utility costs and general overheads have all added to the burden on practice profitability.

Within dentistry specifically, practices are also facing:

• Increased associate NHS remuneration – with UDA rates growing upwards of 18%
• Higher hygiene pay expectations – 25-29% increase in five years
• Recruitment and retention challenges, particularly with NHS Dentists and Nursing roles
• Growing support teams such as in-house TCO and marketing roles
• NHS clawback pressures
• Rising compliance and HR costs

For many owners, the result is a dangerous squeeze on margins, with the greatest impact felt by predominantly NHS practices who are unable to adjust treatment prices to absorb these rising costs.

Impact of Rising Costs on Profit

When you compare a mixed-income, four-surgery practice in 2020 versus 2025. While turnover grew dramatically from £1.02 million to £1.64 million, EBITDA barely moved – rising from approximately £247k to £254k.

The reason? Costs escalated significantly quicker than revenue.

Key increases included:

• Clinician costs rising from 35.9% to 40% of turnover
• Staff costs increasing from 15.6% to 20.5% of turnover
• Lab costs also climbing steadily from a focus on cosmetic dentistry

Despite substantial revenue growth, profitability as a percentage of turnover fell sharply from 24.2% to 15.5%.

This highlights a critical misconception among practice owners – turnover does not equal value. As Alison Bates explained during the webinar, valuations are based primarily on profit because that is what buyers and lenders assess. Even small improvements in EBITDA can create significant increases in practice value when multiplied across valuation metrics.

Focus on What You Can Control

Many external pressures affecting dentistry are outside the control of practice owners:

• Inflation and interest rates
• NHS reform
• Recruitment shortages
• Government policy
• Market conditions
• Competitors

However, successful principals focus on controlling the variables that are within their influence and can positively impact profitability.

These include:

• Practice presentation and patient experience
• Team culture and morale
• Treatment pricing
• Chair utilisation
• Recall systems
• Software automation
• Missed revenue opportunities
• Clinical efficienc
• Understanding financial performance by working with a dental practice valuer

Whilst operational discipline can be a great driver of turnover, without knowing how this translates into profit can be detrimental. Once you understand what is driving profit, you can begin to increase it!

Do You Really Know Your Numbers?

Benchmarking and financial awareness are key to running a profitable practice which will command a higher price when it comes to your exit.

Many practice owners know their turnover figure but far fewer understand exactly what percentage of revenue is being consumed by costs. Without this visibility, cost leakage can quietly erode profitability.

Benchmarking allows practices to:

• Compare performance against similar practices
• Identify overspending
• Forecast future financial performance
• Make better strategic decisions
• Understand where profitability is being lost

Importantly, understanding your numbers enables smarter growth decisions. Before investing in new services, equipment, or staffing, owners should assess the likely impact on EBITDA, not just revenue. Sustainable profit matters more than uncontrolled expansion.

Timing Matters More Than Many Owners Realise

For Principal Dentists considering a future sale, timing is crucial. Exit planning should ideally begin 5–10 years before an intended sale date because value optimisation takes time. Buyers want to see sustainable, repeatable profitability.

The type of buyer also affects timing:

• Smaller practices (typically under £750k turnover) are often attractive to independent buyers reliant on bank funding.
• Larger practices are generally more suited to corporate acquisition, but these deals frequently involve tie-in periods lasting between two and five years.

Planning early provides flexibility and increases the likelihood of maximising sale proceeds.

Common Misconceptions About Practice Value

Many owners unintentionally overestimate their practice value due to common assumptions, such as

• “The practice down the road sold for £1 million, so mine must be worth the same.”
• “High turnover guarantees high value.”
• “A buyer will pay for future potential.”
• “My associate will buy me out.”
• “I can sell whenever I’m ready.”

Buyers assess sustainability, profitability, risk, and future growth opportunity very carefully. Even highly profitable practices can encounter valuation challenges if growth potential is exhausted or operational risks are too high.

Market Conditions Still Matter

While owners cannot control market dynamics, staying informed is essential.

The webinar highlighted several current trends:

• Goodwill values of Mixed practices averaging 124% of gross fees (July 2025 NASDAL data)
• Continued appetite from independent buyers supported by strong bank lending conditions
• Slowing corporate acquisition activity with an increasing focus on sustainability and clinical tie-in to mitigate risk

Understanding these trends helps owners make informed decisions about when to bring a practice to market.

Get a Professional Valuation

A valuation does far more than provide a headline figure. It helps owners understand:

• Profitability benchmarks
• Areas of inefficiency
• Growth opportunities
• Future sale readiness
• How buyers will view the business

Most importantly, it creates time to improve profitability before a sale becomes urgent. Building sustainable profit now will protect your business for a future sale.