**Vendor Market Wage**
We analyse many practices every year and the market wage of the vendor is perhaps the simplest yet most overlooked aspects by buyers. Many prospective buyers will look at the above profit and loss and interpret the ‘net profit’ as the amount they will receive if they purchase the practice. Further, many non-dental brokers and agents may also present the financial information in this way.
However, it is misleading given the clinicians wage, who is doing the billings in the practice, is not included. Many times, clinics that show a profit are actually not profitable once the clinicians wage is added back in. All too often we see vendors not take their full market wage (or put another way the wage of a similarly trained clinician) which artificially boosts profitability and the eventual sale price of the practice. It is critical to understand this and include this market wage as an expense.
We’ve provided a simple example of this in the above profit and loss as the vendor is the only clinician in the practice. The adjusted profit for the 2025FY would be ~113K in the above example. Although it can get complex if there are multiple clinicians and/or the vendor pays themselves a fixed wage that is well below market rates. It is important to ask for a payroll summary and a breakdown of clinician billings to decipher how the vendor is being paid. It is critical that prospective buyers can recognise when the vendor is not taking a market wage and add this back as an expense. Often, an estimation (which is minor) needs to be made as the lab fees attributed to the vendor is unknown.
This also leads us onto owners who are doing a large amount of billings in their practice. Their own clinical earnings may disguise the lack of business profit being produced. That is, they are still drawing out money and don’t notice (or care) that their business is effectively making a loss. It is important to regularly analyse your profit and loss statements. This is more so important from a selling perspective as this lack of profit can impact the saleability and expected price.
This is a specific but important aspect to consider when analyzing profit and loss statements. There are many others that we’ll discuss in future articles.
Our next start-up and buying seminars are coming up in Brisbane on Thursday 11th and Friday 12th of September 2025 and Melbourne on Thursday 16th and Friday 17th of October 2025. We teach this along with many other topics.
We also offer expert guidance in various areas of practice ownership. Please see the below link for more information.
http://www.practiceownership.com.au/expert-guidance/
We’re holding our 4th Dental Practice Owners Conference (#DPOC2025) in August this year. This is the premier event for practice owners and not to be missed. We have an amazing line up of speakers as well as spectacular events planned. There will also be a trade show with exhibitors from the major dental companies present providing conference only specials. The learning and networking opportunities will be immense. Please see the link below for more information.