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Dentists Who Invest

Podcast Episode

Full Transcript

Dr James: 

What is up everybody? Welcome to this live Q&A, live in the house with myself, dr James Martin and Kevin Saunders this evening. Kevin Saunders, practice finance expert. We’re here to talk about everything that you need to know in order to help you decide which practice, and also whether or not it’s a good idea to buy a dental practice in 2024. We’re going to cover a lot of Grantsnet, which I’m really looking forward to. We’re going to bring Kevin in just a second to do a little bit of an intro about himself. Just before we do that, I’m really curious to know, as ever, how many people are live watching this webinar tonight and how many people are watching the replay. If you’re here live, go ahead and type live in the comment section. Throw a like on the webinar. What it means is that we know that you’re here, you’re in the house, and therefore what it means is we’ve got a really good idea of how many people are attending these webinars on a Tuesday evening at 6.30pm. If you’re watching the replay, if you can go ahead and throw a replay in the comment section again, we’ve got a really good idea of how many people are watching on. Catch up as well allows us to tailor the content to an even higher level, without further ado. What I’m going to do is I’m going to bring Kevin in Kevin, if you’re happy to do a little bit of an intro about yourself for those out there who have yet to meet you, and then what we’ll do is we’ll jump straight in with some hot takes on 2024 and the dental practice herpzing seeing financing, of course yeah, that’d be good, cool, Feel free.

Kevin: 

So it’s like a cough. Okay, so, for those who don’t know me, my background was in banking. I was a specialist healthcare dental financer for the RBS back in the day, stepped away from that in 2012 and have been independent, dealing with all the banks on behalf of dentists that need to purchase, set up or relocate, and raising finance for every purpose, basically. So, yeah, I think I’ve been in hundreds of practices over the years and seeing just about every scenario there is to see. There’s a lot to talk about right now. For many years, actually, practice finance and buying a practice was pretty stable, but there’s been quite a lot of upsets recently, in recent years. So I think it’s a really good time to talk about the current market now, what we’ve seen in 2023 maybe, and what we can hope to see in 2024.

Dr James: 

Awesome, Kevin. Thanks so much. So yes, absolutely. We’re about to talk about 2024 and what everybody can expect going forward very, very, very soon. But before we do that, maybe it’s a good idea to put everything into context and talk a little bit about 2023 and what the landscape was like during that period.

Kevin: 

Yes, so everyone would have a slightly different take on this. I guess I can only speak from my own experience. The appetite for finance pretty much died after the summer of 2022. So you think back to all the market turmoil at the end of 2022 and the interest rate rises. Obviously that spooks a lot of people and the last thing you want to do when you’re worried about interest rate rises is go and borrow more money. So I think 2023 was definitely a slower year than recent years. And I say everyone has their own take on it, because I guess the agents will try and talk the market up and I understand that they need to take on the vendors and sell practices. But to be fair, I know most of them fairly well and most of them will tell you that 2023 did see a bit of a slowdown. And then their comment tends to reflect my own, which is it seems to be coming back now for the last three or four months, appetite to buy practices is returning and I’ve had more associates calling actually wanting to buy established practices, because before that, the only cause I really have were people wanting to set practices up. So yeah, it’s appetite to returning. I think most people are now starting to understand that interest rates are as they are, they’ll never go back. Well, never say never. They probably won’t go back to a base rate of half a percent, so it’s the new norm, basically. So you just have to adjust for that. So I think the slowdown is also evidenced if you look at the Christian Co stats because obviously they are a pretty big organization and they issue a dental market review every year and the one for 2023 shows that for owner occupied practices so somebody that owns their own practices and trades from it the prices have dipped very slightly. Still, it shows how strong dentistry is, because it’s just a very slight dip and if it’s anything like the experience we had after the credit crunch, we found that prices dipped a bit in 2009 and then rocketed back again in 2010. So I’m sure that’s where we’re heading for in 2024. So really, what we’ve been seeing recently is, I guess, the vendor expectations versus sale prices. So it’s a bit like when you sell your house and you’ve got that price fixed in your head and it’s hard to imagine it being worth less than you now believe it to be. So there’s been a little bit of that going on. There’s been offers on prices. I see associates offering on the offer price much more now than we did in the past, and there’s also been a little bit of flat with the bank valuations, whereby some of the valuations come a little bit low. Well, horrifically though, I have to say, a lot of my cases it seems to be there or thereabouts just a slight correction really. So I think for 2024, very hopeful. Obviously, you have to consider the increased cost of borrowing now, so that’s why it’s important, when you look at a practice, to actually really consider the financials and make sure that there’s enough money there to cover all of the extra costs Obviously loan and finance being one of them and all the additional costs of energy bills, et cetera, over recent years.

Dr James: 

Cool. Thank you for that. And obviously part of the decision to purchase a practice comes from the due diligence that we need to perform beforehand. What trends are you seeing on that front, or what things do we need to look out for?

Kevin: 

Yeah, so I suppose there’s a few levels of due diligence. It’s hard work to say due diligence, one of which is the client’s existing professional advisors, which could be his accountant. I do that for clients as well. I look at the financial counts, punch the numbers, make sure that all checks out. But I think what you’re referring to there is the legal process, because obviously the lawyers are the ones that really get into the due deal and it’s an important point to cover off because it also affects the sales process as well, and the reason is because due diligence has actually stepped up a lot in the last few years. So you see a lot more asked vendors. Now there’s a big reamer questions that go through. The time scales can be quite effective and the question I was dread at the beginning is when clients ask me how long is this going to take? Because we really don’t know. It depends on the legal advisors and the process and a lot depends now on the vendor. If the vendor answers the questions quickly and precisely, then everybody moves on to the next section. But if the vendor takes a long time and is frustrated by the questions because there will be nothing like that probably when they bought the practice, then it can slow down. So I always say to people, if you have a motivated buyer and seller, then the process can work through and you can drop months off of the time scales basically. But yeah, back to what you said the due diligence is a long process now.

Dr James: 

Is there anything that the publisher can do from their end to expedite the process, or is it very much out of their hands?

Kevin: 

I think it’s just a case of everyone pulling together, because it is down to the vendor to answer a lot of these questions. But if everyone’s in the loop, if the bank knows what’s going on or I know what’s going on, we can all push the agents. Sometimes you find the agents help the vendor quite a lot with the answers to the questions. So I think it’s just a case of everybody being on board and pushing for things to be done on time.

Dr James: 

Cool. Thank you for that. And obviously, kevin, with your background specifically in the banking side of things, I’m interested to know. Banks didn’t have too much of an appetite for a while this year Whenever it came to lending, and obviously interest rates are partly a reflection of that. How do you see that changing going forward? What trends do you expect to see?

Kevin: 

Well. Interestingly, banks didn’t really rein in on their policy towards healthcare professionals, so dentists have been doing pretty well. I think it’s been more of a case that dentists were worried about borrowing money because many of the banks that I’ve sat down with recently have told me that their lending clawed back in most other commercial sectors. In the healthcare sector they left the policy as was before, and the main sector they’re lending money in is in healthcare at the moment. So it shows you how strong the market is, how safe it is for them and how positive they are about it. Basically, that said, it’s a rocky time at the moment. So I think what I am seeing is just to explain the way in which banks lend is. They have lending guidelines as well as policies, and the idea of the guidelines are supposed to give them a steer as to how they should lend the money within their policy, but much more I’m seeing them being quite rigid about those guidelines and not working outside of the box and stretching their lending policy a little bit. So it’s much more of a tick box exercise, but you need to tick enough of the positive boxes now, and an example of that I’ll give you is for dentists that maybe are looking to buy their second practice. In the past we could usually raise 100% by gearing up on the first practice, raise the deposit and 80% on the second practice. It’s still the case that in theory you can do that. But I’ve noticed I had a couple of cases where clients had bought their first practice within the last two years and the banks have a little bit of a guideline that says they like to see three years of performance on a practice. But in the good times they generally will look at what they’ve got and say the practice is doing well the first practice, so we’ll gear up against that. But I’ve seen a couple of examples of them saying look, we’re uncomfortable that it’s three years haven’t passed yet, so we want to take some additional security, such as charges over people’s main residences et cetera, if we’re going to be lending at that level and we’d like a little bit more money in from the purchaser. I mean, they like to call it hurt money. So yeah, it just means that the borrower is more committed. I guess Got you because they like that a little bit of a squeeze. Is that maybe? Is that maybe why? Or more motivation, more motivation.

Dr James: 

I think it shows commitment If you borrow 100%.

Kevin: 

you may not be as committed to paying the money back as you can, so I think that’s a good point. Be as committed to paying the money back as if, or to making the practice work as if you’d put your own money in, basically. So I think you’ll always be a little bit more motivated.

Dr James: 

Interest in terminology. Guys, just before we go any further, I’m interested to know who in the audience tonight is keen on buying a practice in 2024. If you go ahead and throw 2024 in the comments, I’m really interested to know if there’s anybody out there who out there would love to buy another practice. I’m not sure whether or not it’s going to be in 2024 or not. If so, maybe you can put in the comments buyer and then just omit the word 2024. And who here is an associate for life? I’m genuinely curious if there’s a lot of people in the audience tonight who are associates for life. If so, feel free to throw to go ahead and throw the word associate in the comments so we get a really good feel of how many people are in the audience tonight with respect to their likelihood to purchase a dental practice, because it’s hyper relevant to the next thing that Kevin and I are going to talk about which is, which is, which is which is. I’ve got a written down here. When you’re considering purchasing a dental practice or you’re on the lookout for one, what things can we look for which make it good value or a good deal to Kevin?

Kevin: 

Yes, okay, there’s lots, I guess, to cover off in this section and there’s not always a right and wrong answer, because sometimes it’s a bit like buying a house it’s just what’s right for the individual person. So I think something to keep in mind are things like location. Obviously, the ideal practice will be in a busy high street with shop frontage, on a street corner with lots of football passing by. It’s not always possible and I’ve funded plenty of good upstairs practices as well, but do just think about that. If you’re buying an upstairs practice, then you’ve got to work a little bit harder to pull in new patients. So location is definitely key. Also, another point on location as well, which I do get picked up on by the banks and applicants often don’t think about, and that is how close it is to the applicants home, because if you’re going to be spending a lot of time in the practice in the early days, years, whatever, you need to better get home quickly as well if you’re doing overtime. So have a think about that. There’s no point having horrific travel to and from work every day. Big one as well is about expanding the practice and future proofing and, for example, an extreme case will be buying a one surgery practice with no room to get out of second surgery, but even a two surgery practice. You need to have a think about how you can grow into that. If you grow the practice as you would wish to, where would you fit the third practice out? How could you get a hygienist in there as well as an associate dentist and how’s the whole thing going to work? Again, not to say two surgery practice can’t work well, but you just need to think about the opening hours et cetera and how that all works. And then a lot of it is looking at the bottom line profit, and that’s what dentists often get wrong. They’ll often look at the fees that a practice generates and not really consider the bottom line profit. So on the bottom line profit, we need to add back as many items as we can that the vendor might be putting through, such as depreciation on accounts and his own salary, and also we need to consider how much the loan costs are going to be and both I and the bank would do that based on exaggerated rates, and you need to make sure there’s enough money there to cover both your salary and the loan going forwards. It’s a difficult one because, again, no two practices are the same and the financial accounts are different for all practices as well, which is why it’s really important to engage with people like your accountant or myself and just get an idea of how much money is left for me at the end of the day. We often say to associates that there’s a good chance that in year one you will have less money than you would as an associate, but basically you’re looking towards the future and earning more money in the future. Another thing to consider when you’re looking at a practice, which is all important, is, I guess the ideal practice to buy if you’re a young purchaser is probably dentists who are near in retirement and has done a fantastic job of building his own practice up based on dentistry as it was in his time. Now you can come in and offer Invisalign and implants and all the things that might be outsourced at the moment. Bring them all in-house Perhaps the quickest way to grow the fee income in a practice when you first buy it. If you look at a practice that’s got two chairs it’s got no room to put a third one in. The existing owner is already doing implant, placing implants and offering Invisalign and all of those things. Then you have to ask where can I take it from here? If you go and get a huge loan and you’re up against it paying the loan back, but you can’t raise your fee income up, then to my mind that’s not a particularly good purchase.

Dr James: 

Yeah, cool, awesome, and you know what? Just to add to that of my friends who are very, very, very into purchasing practice and adding to their portfolio, one or two of them have said to me. They’ve come to me and said, james, we look for the practice that have analog X-rays because that’s like a hallmark, that it’s a principle similar to you described. Or paper notes, because even though it’s a huge pain in the backside most of the time to convert it to digital, it’s a good sign that perhaps there’s a lot of scope or headspace for growth. So I don’t know if you’ve come across those before. I’m sure you have.

Kevin: 

Yeah, I mean. Well, running on from that, I would say the ideal practice to buy is one that’s slightly uncompliant, that the vendor hasn’t managed to keep up with compliance. Because the first thing you should probably do when you buy a practice is outsource the compliance to somebody. Get somebody in to check the practice for you, tell you what you need to do to make it compliant. You’re going to get an inspection sooner or later from CQC anyway, so I wouldn’t be too afraid of that, as long as it’s not something that’s unfixable In buying a practice. That’s a bit run down, then all the things you mentioned and maybe isn’t compliant, and you just spend your time and money on making sure it is compliant, because you generally got to do that anyway. To be honest, even with a practice where the vendor is quite switched onto compliance. So if you can get one cheaper that’s a bit run down with all those things you mentioned, then it’s so much easier than starting a squat up doing that and you don’t have to pay as much as a high performing practice either.

Dr James: 

Good stuff, food for thought. Well, kevin, we’re coming up to the 20 minute mark. I really like to keep these lives around about that amount of time, because I find that they’re the most succinct whenever we keep it to 20 minutes or so. So, on that note, we’re going to wrap up in just a second. Is there anything that you’d like to say in conclusion to the audience? Any final words of wisdom?

Kevin: 

I think the big thing is just surround yourself. If you’re looking to buy a practice, or even a second practice, just surround yourself with professional advisors, all the things we mentioned earlier. Get people looking over the accounts view, whether it’s your accountant or a broker like myself. Yeah, just get a bit of feedback on how this could possibly work if you are looking to buy a practice.

Dr James: 

Awesome Top stuff. Well, kevin, thank you, as ever, for your time. If anybody in the audience is listening who wants to reach out to you, kevin, how are the best off finding you?

Kevin: 

Well, I think probably just using the mobile number which we can post at the end, I guess, is I just like to work on the mobile or email. If you post my contact details at the end, that’d be the best way.

Dr James: 

Yeah, okay, cool, I’m sure we can put that in the comments. Or, alternatively, I know that you are on the Facebook group as well, kevin, so Kevin Saunders, dennis Hynn, facebook group member as well, might be an easy way to get in touch If anybody did want to ask Kevin about anything that he was talking about this evening. However, as I say, we’re coming up to the 20-minute mark Very, very, very grateful to have you along this evening, kevin. Thank you so much for giving up your time on Tuesday. I’m sure we’re going to see each other in 2024 and do another one of those, another one of these lives, so we can do another prospective one or retrospective one, comparing what we’ve observed since this live would be fun, all the things that we talked about but, as I say, let’s leave that to 2024. In the meantime, we’ll have a smash in Christmas and a smash in completion to 2023. And I’m sure that we will speak again very, very, very soon. Thank you.