In this podcast, lending specialist Eyal Judah from DPM Financial Services will be discussing the topic of buying a new private practice vs purchasing an established practice, including important considerations before purchasing any type of practice, how finance might be structured, the finance application process and more.
This podcast is brought to you by DPM Financial Services, DPM is a specialist medical financial advice firm that aims to educate doctors of Australia to make the right financial decisions and achieve their financial goals. DPM Financial Services is all about you getting the right advice that suits your personal and professional needs and making sure you have confidence in your financial future. You can get in touch with DPM at hello@dpm.com.au or by calling 1800 031 039
- Transcript
Please note this is a machine generated transcription and may contain some errors.
*As always, all in this PODMD podcast is intended for health professionals and the comments are of a general nature. Information given is not intended as specific medical advice pertaining to any given patient. If you have a clinical issue with one of your patients please seek appropriate advice from a colleague with expertise in the area.
The financial journey of a doctor is unique and complex. DPM Financial Services is a specialist medical financial advice firm that aims to educate doctors of Australia to make the right financial decisions and achieve their financial goals.
DPM Financial Services is all about you getting the right advice that suits your personal and professional needs and making sure you have confidence in your financial future.
Today, I’d like to welcome to the PodMd studio Eyal Judah lending specialist from DPM Financial Services.
*We do hope you enjoy this podcast but please remember that the here is of a general nature and is not intended to serve as advice. The views and opinions expressed in this podcast are those of DPM and Fletcher Clarendon, not PodMD.
Legal services are offered by DPM in partnership with Fletcher Clarendon Lawyers. DPM Financial Services recommends you obtain medical financial advice or legal advice concerning specific matters before making a decision.Eyal thanks for talking with us on PodMD today.
Eyal: Pleasure. Thank you for having me.
Question 1
The topic of today’s discussion is ‘Financing and setting up a new medical practice versus purchasing an establishing private practice’.For our listeners’ benefit, can you first set the scene for this discussion and explain to us what medical professionals need to consider when deciding on purchasing an existing practice or establishing a new private practice from scratch?
Eyal: The process of setting up a medical practice can be quite daunting, bringing in some challenges along the way.
However, it can also be very exciting as starting a medical practice of your own from scratch will allow you to control every little detail of the practice, including the design, culture, positioning, etc.
For practitioners not yet ready to start their own practice from scratch due to concerns about cash flow, business skills and administration; an alternative is to buy into an existing medical practice.
There may be many advantages of buying an established private practice, such as:
· potentially more financially suited to your current situation
· existing setup with equipment and fitouts already in place
· experienced staff
· an existing client/patient list
· not as much planning required
· reduced need to allocate capital to marketing (compared to a brand new practice)
Indeed, you would have a predictable cash flow from the very beginning, with everything you need to run the practice already in place, including staff who know the business and how to do their job.
In fact, depending on the type of practice, a GP or Dentist may inherit a full list of patients who return for regular treatment; whereas it may not be the same for every specialty, as for specialists who generally see patients for a one-off treatment, so there is no real ongoing patient book.Question 2
So what should doctors consider before taking the plunge into owning a medical practice ?Eyal: the 8 main things to consider before you decide to take the plunge to owning a medical practice:
Have a business objective
What does success look like and how will you achieve your goals? Are you an entrepreneurial mind who’ll enjoy the whole process of building your own practice and get into the details, or you’d rather focus on your medical activity and reap the benefits of an existing practice?Geography and demographics
Metropolitan areas are usually more expensive to lease or buy into compared to country areas; but will probably bring in more clients, depending on your competition.
You need to use your network in your field to stay informed about the competition and the demographics of your prospective clients.Location
What zone are you in? and how accessible is your practice? Access and parking for both staff and clients is crucial.
Is the property located on a main road with foot traffic? Is it near pharmacies or shopping centres?
Is the property commercially built or a converted residential premise? – this can affect the terms of the commercial loan and your borrowing power.Asset value
Is the existing equipment owned or leased? What is the realistic asset life before an upgrade is required?
Older practices may have outdated computer systems and inefficient billing or scheduling software. What is the cost of purchasing or leasing equipment or fitouts up to your standards and the relevant tax implications?Human resources
Will you be hiring? Existing employees may need to be taken through a change management process or be required to undertake training if you are bringing in new systems and policies.
New staff can be more flexible in some ways but are untested. Would you employ family for administration roles? What does that mean for their onboarding?Liabilities and cash flow
If you buy into an existing practice, dig deeper to find out: what are its liabilities? Are they up to date with payments such as tax, superannuation and long-service leave?
If you set up a new practice, have you prepared a cashflow forecast to account for all your expenses and allowed for variances?
Cash flow can be tight during the early stages of a new practice or even in particular months for an existing practice.
Taxation, employment and compliance need to be accounted for as you make the transition from being a doctor, to a doctor who is a small business owner.
You also need to consider whether there will be advertising costs associated with branding; or rebranding?Valuation and business agreement
Due diligence is paramount.
A professional valuation via a review of financial statements is recommended to determine the income earning capacity of an existing practice as well as agreements and a specific exit strategy for the existing owner.
For business finance, lenders will take into consideration:
· Total revenue;
· Gross margin; and
· Wages for revenue figures.
They’ll also consider the asset’s quality position, financial performance of each of the above aspects and how they impact the business overall, as well as the industry environment and existing market competition.Structure and strategy
Consider corporate structure, insurance, practice management, billing and your career flexibility when owning a medical practice as well as future expansion and / or exit strategy.
Bringing other practitioners into the practice can help with the expenses as contracting doctors pay about 30-40% of their income back to the practice to cover administration, staffing and other costs.
Adequate income protection, accident and life insurance is a must when you are your own business’ asset. Help from a team of trusted advisers such as a specialised accountant and a specialist lender can be invaluable.Question 3
OK, so let’s assume a doctor has done their due diligence and is ready to set up or purchase a private practice. How will finance be structured?Eyal: A deep understanding of the industry is important when applying for finance and this is where a specialist lender like DPM can help. Factors to be aware of when seeking such finance generally include::
· Borrow up to 100% of the property value (freehold) with 20-30 year loan terms
· Borrow up to 100% of the business value (leasehold) including fit-out and equipment with approximately 10-15 year loan terms
· Principal and interest + interest only repayments available with some lenders tailoring loan repayments in line with your projected cash flow
· Interest rate discounts vary from lender to lender and the strength of your application
· You may be asked to provide a business plan including business forecasting
· Your previous experience and qualifications will be key to obtaining approval. Choosing the right lender and showing your strength as a borrower is crucial
Security for a practice loan can be either, some or all of the following depending on the loan structure and purchase price sought:
· Mortgage over freehold or leasehold with a specific charge over business assets;
· Mortgage over your home;
· Registered fixed or floating charge over the practice; and/or
· Directors’ guarantee.Question 4
How long does a typical application take?Eyal: It is important to know that arranging finance for a doctor’s practice business loan may usually take between 4-8 weeks depending on the complexity, business structure, number of practitioners and their individual financial circumstances and the availability of financial information to support the application. We would always recommend to liaise with your accountant and finance consultant early to ensure the correct legal structure is set up and that supporting financial information is ready to enable settlement terms to be met.
Concluding question
Thank you for your time here today in the PodMD studio. To sum up for us, could you please identify the main key take home messages from today’s podcast on ‘Financing a new private practice vs an established private practice?Eyal:
1. Liaise with your accountant and finance consultant early to ensure correct structures are in place
2. Due diligence of location, market, competition, corporate culture and operations
3. Ensure adequate cashflow is accessible, particularly in the early stages of set-up.Thank you for your time and the insights you have provided
Eyal: Pleasure
