Each year the National Association of Specialist Dental Accountants, which represents around 20 per cent of self employed dentists in the UK, produces a profits report summarising the results of a sample of their dental clients. They look at principals and associates and analyse income and expenditure.
This year’s report includes the earnings of the third full year of the new National Health Service contract, showing the effect the contract has had on dentists’ net income. For those practices with year-ends set in 2009, the key results were as follows:
- The average total fee income generated per principal practitioner in a typical dental practice fell in 2009, to £379,054. This was a decrease of £5,492 (1.4 per cent) on the figure achieved in 2008, when the average total gross income per principal was £384,546.
- The gross profit of the typical practice has fallen from £257,189 in 2008 to £255,085 in 2009. However as the private and mixed practices have been able to reduce their expenditure on laboratory fees and materials the gross profit as a percentage of the income of the typical practice has actually increased in the year from 66.9 per cent in 2008 to 67.3 per cent in 2009. However it appears NHS practices have suffered increases in their direct costs and as a result their gross profit percentage has fallen from 67.8 per cent in 2008 to 67.4 per cent in 2009. The gross profit of a practice is the total income minus the direct costs, for example dental materials, lab costs and payments to associates.
The net profit of a practice is the gross profit less all the practice overheads, including staff costs and premises costs. Control over those costs and overheads in 2009 has resulted in the average net profit per principal in the typical practice increasing slightly in the year. The average net profit per principal practitioner in a typical dental practice in 2009 was £141,835 compared with £141,288 in 2008, which represents an increase of less than one per cent.
These figures are based on a ‘typical dental practice’, which is calculated as an average of the results of NHS practices, private practices and mixed practices. The average net profits for these practices are shown in the figure.
The increase in NHS practices’ net profits has been 8.97 per cent, whereas private practices have shown a 4.33 per cent fall. Mixed practices have also seen their net profits fall by 1.43 per cent. The reasons for the variances above are:
- The polarisation of NHS services has resulted in larger NHS practices, where associates and vocational trainees are delivering an increasing amount of the contract value. This has resulted in the profit per principal increasing.
- In addition to the above the larger practices can achieve better economies of scale, thus reducing administration expenses and increasing the profit per principal.
- The recession has reduced the number of patients prepared to pay for private treatment in private and mixed practices.
- Some NHS practices have been successful in negotiating new, or extensions to, contracts at higher UDA values than they were previously given.
The net profit percentage (the net profit as a percentage of the total income of the practice) has varied in each type of practice.
Where the net profit percentages have fallen, it is as a result of the costs rising faster than income in those practices. The private practices have been able to reduce costs by more than the reduction in income, whereas the NHS and mixed practices have been unable to do this.
The ‘typical’ practice average has been affected by the increase in the NHS profits. Whether the NHS practices will see a further continued rise in their profits will depend on the number and value of the UDAs in their contracts, and whether they can achieve any more cost savings. NASDA has seen UDA values as low as £16.20 and as high as £37.84 this year, with the average being £24.38.
Associates
Associates saw an increase in their average gross earnings of four per cent in 2009. The average gross earnings are £86,651 per associate after deducting the payment to principal; this figure was £83,302 per associate in 2008.
As a result the average net profit per associate has increased this year to £72,988 from £70,299 in 2008. This is the first increase in their earnings in the last three years, and it appears to relate to NHS earnings, as associate costs have risen in NHS and mixed practices (and have fallen in private practices).
Paul Kendall can be contacted on 01768 864466.