CATEGORY 122 AUSTRALASIAN DENTIST The profitability squeeze: Why running a dental practice is becoming more expensive ACQUISITIONS Ian Donnelley By Ian Donnelley, Director, Dental Acquisitions For many Australian dentists, practice ownership has traditionally provided an opportunity to build a valuable business while maintaining clinical independence and creating long-term financial security. That remains true, but the economics of owning a dental practice are changing. Inflation, increasing wages, superannuation, compliance requirements and the rising cost of operating a practice are placing greater pressure on owners. Meanwhile, patients are experiencing their own cost-of-living pressures, limiting how easily these additional expenses can be passed on through higher fees. The result is an increasingly important distinction between revenue growth and profit growth. The rising cost of doing business Inflation has affected almost every expense within a dental practice. Materials, laboratory fees, insurance, utilities, equipment maintenance, software, rent and professional services have all become more expensive. Staffing remains one of the largest expenses for most practices and has become particularly important following changes to dental assistant classifications and minimum wages under the Health Professionals and Support Services Award. From July 2026, minimum hourly rates for dental assistants range from $29.11 for an entry-level assistant to $31.67 for a Certificate IV-qualified assistant, with further increases applying to some employees from January 2027. These increases recognise the skills and responsibilities required of dental assistants. However, the financial impact extends beyond wages. Superannuation, leave entitlements, workers’ compensation and other employment costs must also be considered. Tax, superannuation and compliance Running a dental practice has also become administratively more complicated. The superannuation guarantee is now 12%, while the introduction of Payday Super in July 2026 requires employers to pay superannuation alongside wages rather than quarterly. Although this doesn’t increase the contribution rate, it changes cash flow requirements and payroll administration. Owners must also navigate payroll tax obligations, business structures, equipment financing, employment legislation and increasingly complex taxation considerations. For dentists contemplating retirement or a future sale, capital gains tax, goodwill and potential small-business concessions can materially affect the eventual financial outcome. Effective accounting and tax planning are therefore becoming increasingly important, particularly well before a practice is sold. Revenue doesn’t tell the whole story One of the most common misconceptions when assessing a dental practice is that increasing revenue automatically means the business is becoming more valuable. It doesn’t necessarily. Consider a practice generating $2 million in annual revenue with operating expenses of $1.55 million, leaving $450,000 in operating profit. If those expenses increase by just 5%, while revenue remains unchanged, costs rise to $1,627,500 and operating profit falls to $372,500. That’s a 17.2% reduction in profitability from only a 5% increase in expenses. That can impact your sale price by more than $400,000. Buyers are increasingly focused on profitability Through our work reviewing and facilitating dental practice acquisitions across Australia, we are seeing purchasers increasingly focus on sustainable earnings rather than revenue alone. Buyers examine staffing costs, associate remuneration, occupancy expenses, patient retention, equipment requirements and the ongoing involvement of the principal dentist. A practice generating substantial revenue but declining margins may be less attractive than a smaller, efficiently operated business maintaining consistent profitability. For owners considering selling within the next three to five years, protecting profitability can be just as important as increasing revenue. The changing burden of ownership Over the previous three years, every transaction we facilitated involved the sale of 100% of the practice. More recently, however, some owners have started considering selling a majority interest while retaining equity. The attraction isn’t necessarily financial alone. It allows principals to remain owners and clinical leaders while transferring responsibility for administration, HR, recruitment, marketing and other backoffice functions to a larger group. Interestingly, these are often the very responsibilities owners tell us contribute to their decision to sell. They consume considerable time without directly generating clinical revenue. It highlights that the challenge facing today’s practice owner isn’t simply the increasing cost of running a business, but also the time and complexity involved in managing one. Looking ahead Despite these challenges, dentistry remains an attractive profession, and well-managed dental practices continue to be highly sought-after businesses. However, successful ownership increasingly requires a commercial mindset alongside clinical expertise. Owners should regularly review treatment fees, staffing structures, supplier agreements, associate productivity and financial reporting to understand the true profitability of their business. A practice increasing revenue by 5% while expenses increase by 8% isn’t necessarily growing in value. Ultimately, the practices best positioned for long-term success will not simply be those generating the highest revenue, but those maintaining sustainable profitability while continuing to deliver excellent patient care.u
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