Buying or selling a practice can be a difficult and stressful experience and George Antoniades was one such dentist who finally decided the time was right to sell in June 2005.
Cypriot by birth, George grew up in South Africa where he graduated as a dentist at the University of Stellenbosch in 1992. Following several positions and locum work in South Africa, Antoniades headed for England where he set up a new practice in Bedfordshire in 2001, Premier Dental Care. His business quickly grew into three practices and in June 2003 he brought a private practice from a retiring dentist, Premier Smile Studio. In June 2005, Antoniades sold Premier Dental Care through practice broker Frank Taylor & Associates (FTA).
As an experienced dentist George invested a considerable amount of time and money in his practice, and realised that at some point during his career he would want to know what all his hard work had amounted to financially. George appreciated that it would be a mistake to think his practice could be valued using simple like-for-like mentality. ‘I know that comparisons to recently sold practices cannot be applied to my own practice to gauge a realistic value. There are so many factors that affect the value of any business.’
He explains how his options were either to sell his NHS practice or to amalgamate it with his existing private practice. ‘Keeping both practices would have required more time than I had to reach the standard I want in my practices. In selling my NHS practice I could release the goodwill that I had built up and invest some of the money into improving my existing private practice, focusing 100% on the highest level of care possible,’ he says.
George had his NHS practice valued to make an informed financial decision. ‘I decided to sell as this put me in a stronger position financially to increase the potential of my private practice.’
As managing director of Frank Taylor & Associates (FTA), a leading valuer and consultant to the dental profession, Chris Strevens presided over the sale of George’s NHS practice. During his 12 years association with the dental profession, Strevens has developed a special interest in the effective use of the dental team and the maximisation of profit in partnership with patients. He has presented at many lectures throughout the country and here offers a few pointers on how to maintain a financially viable practice.
Careful planning and consideration for finances is a key responsibility for any business, advises Chris. However, with the majority of dental practices this is often overlooked. Generally speaking once a practice is up-and-running and things appear to be going well, you rarely review your finances. When a review does take place it is usually at a time when a new purchase is required, and this is then normally undertaken by the company wanting to lend you the money, not you yourself.
The typical practice will have three types of finance in place that will cover a range of needs from working capital (overdraft) to practice purchase. The finance options will differ depending on why the money is needed so each must be considered as a separate issue.
An overdraft is a short-term borrowing on a bank account to finance running costs. The size of overdraft should be based on realistic requirements, not just a figure plucked out of thin air. The danger with the latter approach is that the overdraft is not sufficient for your needs, and continuously exceeding your limit will bring high penalty charges. If you have this problem, calculate your overdraft requirements using a cash-flow forecast, and ask your bank to increase your overdraft accordingly. An increased overdraft is not a financial burden as long as your practice is profitable and can support your lifestyle.
There will inevitably come a time when you need to purchase a fixed asset for your practice. A fixed asset can be anything from a dental chair to an X-ray machine and the first decision to be made is whether or not you want to own the asset. Your decision will dictate the type of finance package you need in order to purchase the asset.
If you want to own the asset the finance options available to you are a loan, hire purchase or lease-purchase agreement. If you would prefer non-ownership, then leasing, contract hire or rental schemes are options. The difference between the two is how the asset is accounted for in your annual tax return. If you own the asset then you can claim tax deduction on depreciation. Any allowable deduction from your profit and loss will reduce your net profit and in turn reduce you taxable contributions. It is also possible to deduct the interest charge of the item from your profit and loss, but it is only the interest charge and not the entire monthly repayment.
The tax implications for non-ownership of an asset are different. As you do not own the item there is no
entitlement to depreciation; however, in most cases you are able to claim the total monthly repayment. This will help reduce your net profit and in turn, tax payable at the end of each financial year.
Another form of finance often required by a dental practice is a commercial loan or mortgage. These options can be used for partnership buy-in, practice purchase, premise purchase or practice refurbishment. Contrary to what you may have heard about these options, they are easy to arrange if you can provide your lender with all the financial documentation required.
When a lender considers a request for a loan it can only really make a guess as to whether or not you can regularly meet the repayments. Despite the assessments that the lender will undertake on your finances and general business management, it will ultimately be an informed assumption based on the information that you provide that will guide the final decision.
Therefore the more information that you can provide the easier the lender can assess your ability to meet repayments. Ensuring you are organised and well prepared in your approach for a loan or mortgage will increase the chances of your application being accepted.
It is also worth considering that interest rates for mortgages and loans can vary considerably from one lender to lender. Do not accept the first offer, shop around for the best deal available and check to see if any early repayment penalties exit – you may be able to have these wavered.
Finally, regular review of the terms and conditions of your loan is essential. If you have more than one outstanding loan it may make financial sense to combine them into one larger loan in order to receive a more favourable interest rate.