When buying or selling a business — whether it’s a dental practice, pharmacy, or nursery — one of the most important steps is determining its value. A business valuation not only helps set a realistic asking price but also gives lenders confidence when you apply for finance. Understanding how valuations are calculated can give you a stronger position in negotiations and ensure you make informed decisions.
1. Why Business Valuations Matter
A valuation provides an objective view of a business’s worth. For buyers, it ensures you’re paying a fair price. For sellers, it helps justify the asking figure. For lenders, it reduces risk and reassures them that the loan amount is supported by the true value of the business.
2. Key Factors That Influence Valuation
For all sectors (dentistry, pharmacy, nursery):
- Financial performance: turnover, profit margins, and cash flow history
- Sustainability of income: recurring revenue streams (e.g., NHS contracts, long-term childcare demand)
- Regulatory compliance: strong Ofsted ratings, CQC inspections, or GPhC standards increase value
- Reputation: goodwill, patient/parent loyalty, and local standing
- Property and assets: owned premises, equipment, or long-term leases
3. Valuation Methods Commonly Used
- Earnings Multiple Approach: The most common method. A business’s adjusted net profit (EBITDA) is multiplied by an industry benchmark.
- Dental practices often use multiples based on NHS vs. private income split.
- Pharmacies factor in FP34 NHS income and prescription volumes.
- Nurseries consider occupancy rates and government funding reliability.
- Asset-Based Valuation: More relevant if the business has significant tangible assets (property, equipment).
- Discounted Cash Flow (DCF): Projects future cash flows and discounts them to present value. This is often used for larger or growing businesses.
4. Sector-Specific Considerations
- Dentistry:
- NHS contracts (GDS/PDS) vs. private revenue streams significantly affect multiples.
- Location and patient demographics also play a role.
- Pharmacies:
- FP34 statements are essential to demonstrate NHS prescription income.
- Additional services (flu jabs, travel clinics, private prescribing) can increase value.
- Nurseries:
- Occupancy rates are key — a waiting list adds value.
- Ofsted ratings and staff retention heavily influence goodwill.
5. Preparing for a Valuation
If you’re selling, you’ll want to maximise your valuation by:
- Keeping accurate financial records
- Maintaining compliance and regulatory standards
- Demonstrating consistent growth and demand
- Presenting a strong, motivated workforce
If you’re buying, request access to all of the above as part of your due diligence process.
Conclusion
Understanding business valuations is crucial whether you’re buying, selling, or securing finance. Each sector — dentistry, pharmacy, and nurseries — has unique drivers that impact value, but the principles remain the same: strong finances, compliance, and reputation equal higher worth.
