Business and financial
Analysis: dentists’ earnings and expenses
Jon Drysdale from PFM Dental considers what the recently released figures mean for Scottish dentists
T
he HSCIC* Dental Earn- ings and Expenses Analysis (20ı2/ı3) was published on ı9 September 20ı4. Two key facts emerge from the
78-page report: • The general trend for self-employed primary care dentists in Scotland in 20ı2/ı3 shows a drop in taxable income due to gross earnings decreasing more than total expenses.
• Average taxable income (average gross earnings less average total expenses) for all self-employed GDS dentists in Scotland (i.e. principals and associates) was £68,800, compared with £7ı,700 in 20ıı/ı2, a 4.0 per cent decrease.
Digging deeper into the detail of the
report reveals that the drop in income of principal dentists (5.4 per cent) is more significant than the drop in income of associate dentists (0.6 per cent). This is the reverse of the trend in England and Wales where the income of principal dentists actually increased, whereas associates’ incomes dropped. So what is happening in Scotland to cause the disparity between principal and associate dentists?
The likely situation now and in the future First, the fall in expenses of Scottish prin- cipal dentists was less than the fall in gross income. At the same time, gross incomes of associate dentists remained largely the same (-0.7 per cent), as did expenses (+0.7 per cent). It is not in the HSCIC’s remit to analyse the long-term implications of this for practice owners and their associates. We should bear in mind that the report
covers a ı2-month financial period which ended more than ı8 months ago. So, where are we now and what might next year’s report reveal? My own opinion, based on our independent financial advice
76 Scottish Dental magazine
and dental practice sales with Scottish dentists, is that expenses for principal dentists are becoming harder to control. There are many reasons for this, not least increased regulatory pressure leading to necessary investment in practices. Therefore, I expect next year’s report will show a further closing of the gap between principal and associate dentists’ incomes.
Are associates paid too much? A fundamental element of a practice owner’s costs is associate pay and (anec- dotally) downward pressure on this is only just beginning to show. There has therefore been a lag between falling principal dentist income and falling associate dentist pay. For some principal dentists this could simply mean that your associates are not operating profitably. For a practice to operate profitably,
associate dentists need to achieve a minimum level of income or their pay deal needs to be less generous. Is this happening? Certainly the ‘bean counters’ in the world of corporate dentistry realised this some time ago and associate dentist’s pay in that sector has fallen in recent years. This is not surprising, as the finan-
cial backers of corporate dentistry exist only to make a profit. Where a corporate buys a practice, associate dentists’ pay is routinely renegotiated as part of the deal and income targets will be introduced.
A strong case for increasing profits Dentists who are also small business owners understandably find renegotiating associate dentists’ pay a huge challenge. After all, the practice owner has to main- tain a close working relationship with their associates and reducing their incomes doesn’t make for a harmonious practice. However, if your practice isn’t delivering
the profit you would like, hard ques- tions may need to be asked. As an aside, principal dentists should remember that practice sale values are usually based on a multiple of profits, making the case for increasing profit a very valid one. Asso- ciate dentists buying a practice often fail to make an expenses/pay analysis part of their pre-purchase investigations, when really it should be a significant part of their decision-making process.
Is the Scottish system too relaxed? Lastly, and returning to the facts and figures of the HSCIC report, some commentators may argue that the target-driven culture of the UDA system in England and Wales is the reason that associate dentists tend to produce higher levels of gross fees than their Scottish peers (ı3 per cent more in 20ı2/ı3). The Scottish system certainly has its supporters, perhaps because it is a less target-driven culture, but at what cost?
*The Health and Social Care Information
Centre (HSCIC) was set up as an Executive Non-Departmental Public Body (ENDPB) in April 20ı3 and is responsible for collecting, analysing and presenting national health and social care data.
ABOUT THE AUTHOR
Jon Drysdale is an independent financial adviser and director of PFM Dental, one of the UK’s largest practice sales agencies
and business advisers for
dentists. For more information visit
www.pfmdental.co.uk
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