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Dentists Who Invest

Episode 264

Associate To Retirement
Journey In Tax

Hosted By: Dr. James Martin

Dr. James: 

Fans of the Dentists Who Invest podcast. If you feel like there was one particular episode in the back catalogue in the anthology of Dentists Who Invest podcast episodes that really, really really was massively valuable to you, feel free to share that with a fellow dental colleague who’s in a similar position, so their understanding of finance can be elevated and they can hit the next level of financial success in their life. Also, as well as that, if you could take two seconds to rate and review this podcast, it would mean the world. To me, what that would mean is that it drives this podcast further in terms of reach so that more dentists across the world can be able to benefit from the knowledge contained therein.

Dr. James: 

Welcome, welcome to the Dentists who Invest podcast. Hey everyone, welcome back to the Dentistry Invest podcast. I am joined today by David Hossain, and we are here today to talk about financial milestones whenever it comes to your journey as a dentist, which is a super fun one and obviously with relevance to David’s area of expertise, which is, of course, taxation, being an accountant. David, how are you today?

David: 

Hey, james, I’m very well. How are you doing?

Dr. James: 

I am amazing. Thanks for asking. I’m looking forward to this, actually, because we did one way, way, way back when, along the same lines, and what it would be nice to do today is make another one, given how things have changed, given how the landscape has changed whenever it comes to taxation and finance, so we can have a little bit of an update, because I remember that podcast did extremely well. So what do we mean by financial landscape? What do we mean by journey and financial milestones? What we mean is that, as you are progressing through your career as a dentist, naturally you start as a student, then associate, then you might become a practice owner or you might stay associate both are fine.

Dr. James: 

But if you do become a practice owner or you might, if you do become a practice owner, you might want to listen to what we’re about to say, or you might progress on to multi-practice ownership and then, eventually, what unifies every single one of those career paths is that you one day will retire, of course, and what we’re going to cover today from a really high level is what do we have to be aware of in terms of our finances, in terms of key things that we should look out for in key in terms of really important bits of information that we should know whenever we hit each one of those respective milestones. What are the biggies, so to speak, when it comes to your finances and when it comes to your tax affairs? David, would you say that’s an apt description absolutely.

David: 

The clinical life cycle of my clients will follow a very similar pattern.

David: 

So, dentists, you tend to go through some very similar phases as an associate you’re learning the ropes, you become experienced, you then potentially become a first-time owner, either through buying or setting up a squat. Some will go on to be multi-site owners and then you’ve built your capital, you’ve got to think about your exit and retirement and, through every single phase and milestone that we’ve just talked about, there are different income considerations, different capital considerations and profiles and planning points and challenges to get through. Um, so kind of as you summarized there. I just thought if we, if we taught them through, if any of your listeners and we know that you know a lot of your listeners are very financially focused, and, um, if you’re close to any of these milestones, we can just give heads up on as you’re at this point. These are the things that tend to pop up and be mindful and aware that to to ask either ask these questions or get the advice around these points that are key in that particular area that’s beautiful.

Dr. James: 

And if I look back on my journey as, uh associate, uh, as an associate dentist never quite made it to practice ownership. Uh, don’t think that will ever happen to me. But who knows, never say never. And I remember I just didn’t know what the heck to do and it was all off hearsay and it was all things that I know that somebody had said to me this is a good idea, maybe you should do this, but not anywhere where it was just laid out in front of me, formulaic think about this, this, this, this and this. So I know I would have found this invaluable. So, on that note, david, if we start from the start, which seems sensible, let’s talk about the associates, and this can apply, I suppose, to associates who are newly qualified, but really associates who are at any point in their career. These are the things that they have to consider, wouldn’t you say?

David: 

yeah, so you’re right. So first, newly qualified associates, just starting out their main priority so get compliant with hmrc, get yourself registered, keep your accounts up to date and on time so you’re not into penalties and the black book with the revenue um. Utilize the tax breaks that are legally available to you, and that could be things like incorporating um as a limited company and thinking about how they impact superannuation. But we recently did a webinar on that, so I’m not going to talk too much about the company side because I think we’ve we’ve done it, if that makes sense yeah, anybody who’s listening.

Dr. James: 

If you want to have a really, really, really in-depth discussion of limited company versus sole trader, it’s worth checking out that previous episode that david and I did not so long ago 15 episodes ago, I think something like that yeah, not sure I’m not counting, but yes, but then yeah.

David: 

So, um, then the associate gets a bit more experience and becomes closer to thinking well, it’s time for me to become a practice owner and a business owner and take on that additional responsibility of being responsible for the business. It’s a big shift to go from being an associate to a practice owner. Um, however, it’s a process that you’ve got to go through, can take six to nine months, and the process um is often it’s a, it’s a life, that once in a lifetime process for many you’ve got to deal with banks, lawyers and accountants on both sides, balance sheets, contracts and so on, and there’s a lot to navigate through. Um and, as I said, most associates will only go through that process once. So it you know, it makes sense that for many it will be very new. So then what? What are the the key things to think about that in area now?

David: 

Um, oftentimes, if you buy in a practice, it’s either a limited company or not a limited company. Where it’s not a limited company, pretty straightforward, you’re just buying assets. But where you’re buying a company and a lot of practices are in a company, you’re buying a balance sheet. Now, what the hell is a balance sheet. I think many of your listeners won’t have that much experience looking at balance sheets. It won’t be obvious what that actually means. But a balance sheet is assets and liabilities at the point of completion. So why is it important? What that means is when you’ve completed and you buy the practice, not only do you have to get on with running the business and meeting the team and getting them on side and thinking about your marketing and how you’re going to grow the practice. You’ve got to be aware of what has gone on financially prior to that point of the practice. You’ve got to be aware of what has gone on financially prior to that point. Now, each of us in that process has got different roles and responsibilities. Your lawyer is there to protect you in paper and, the way I look at it is, your accountant is there to protect you before it gets too late.

David: 

Now, what do I mean by that? There are things that could be on the balance sheet that we should flush out One to make sure we’re aware they exist, and two to quantify them and adjust for them in the handing over of cash when you pay for the business. To put this into perspective, what on earth am I talking about David? So a big area is if a practice is doing a lot of work that takes um deposits in advance, so patients come in and pay over thousands of pounds for work that will be done over a period of time. Those are called patient deposits, but that’s money that the buyer, so the seller, has taken and as the the buyer coming into door, if the patient sort of paid for it, then you’ve not had that money and we have to flush that out, to quantify it and say well, hang on a second.

David: 

There’s potentially thousands of pounds here that we need to be aware of because that’s a liability for the seller and a nightmare scenario for associates, which we do see is where they’ve got a very good relationship with the seller and the seller said look, you know me, I know you, you know the practice, it’s £2 million and we’re going to do it as a locked box with no adjustments. But when you ask the question you say, well, hang on a second, what about? Have you taken any deposits? And you can open that up, and suddenly there’s hundreds of thousands of pounds worth of people who’ve paid in advance that the associate would have to do that work for if they’d not asked the question to say are you taking cash up front? And if you are, we need to know about it. So you’ve got to have a nose for these things. I don’t expect associates to even even know to think about that, but those are big things.

David: 

When you think about if you’re buying a company, you are buying a balance sheet and we need to know what it looks like. So the lawyer’s job is to legally give you recourse. So if that happens, then yes, you can sue this, the seller but it’s a lot harder to try and get your money back once you’ve paid for it. It’s much easier just to account for it before completion. So think about the balance sheet that you’re buying and put it in front of your accountant for them to look at. There should be a formal due diligence done if it’s a company, less so if it’s not a company. But that’s a big area.

Dr. James: 

That is a biggie, that one. Any other biggies, so to speak, that we should watch out for.

David: 

Well, yeah, tax schemes. Tax schemes are always a problem. So you look at the balance sheet, we look at the tax returns for the company. If there have been interesting tax avoidance schemes that have been entered into really, where we’re into that, there becomes a strong argument to say pause the deal, you’ve got a problem here, we’re not going to take that on. And the company will sell the assets to a new company and the old company stays with the seller and there are things that become a big red line and you just say no, we can’t possibly do the deal, but it has to be fully restructured. Um, like that it’s. It’s rare, but it does happen.

Dr. James: 

Gotcha. Yeah, just things to watch out for. I guess that you mightn’t otherwise know about, which is the whole end of the game of the podcast, I suppose, really, I have a quick question when it comes to, but before I interject with that, I’m curious is there any more things that you’d like to add in about that stage of the dentist’s?

David: 

journey. Well, another kind of common problem that is very easy to avoid by talking to your accountant is when you’re either buying a sedative or squat. Oftentimes you’ll talk to a bank and they will say yeah, we’ll come 70% of the way, 80% of the way, to give you some funds towards that. Now, when you’ve bought a practice or set up a squat, often it takes time You’ll take a bit of an income dip. Why? Because you’re now paying a loan back and when you get the prospectus through from the dental brokers it always says the accounting profits are 100, 200, 300,000.

David: 

That doesn’t mean that that’s what’s coming in your pocket. That means that that’s what you will pay tax on and then you’ll pay the bank back as well. They should really put that in there, that after you’ve paid the bank, this is the net free cash flow. But that free cash flow position can be made much worse if you get the debt in the wrong place. If you have, I’m buying a company but I’m taking the loan in my name. So if you put the loan in your name when you repay the bank, that’s all treated as if you’ve taken the dividend and have enjoyed that money personally.

Dr. James: 

So you pay tax on the bank repayments and that can push you into.

David: 

Oh man, oh geez, wow, seeing it twice, and both times it was a simple, easily avoidable situation of the accountant being able to say put it in the company, don’t put it in your name. There’s no, there’s no skin off the bank’s nose, they’ll go along with it. So it’s just a simple administrative error that can cost you hundreds of thousands oh, my word, that sounds absolutely horrendous one to watch out for for sure.

Dr. James: 

Ouch, ouch any more. Before we move on Any more. Before we move on Real quick guys. I’ve put together a special report for dentists, entitled the seven costly and potentially disastrous mistakes that dentists make whenever it comes to their finances. Most of the time, dentists are going through these issues and they don’t even necessarily realize that they’re happening until they have their eyes opened, and that is the purpose of this report. You can go ahead and receive your free report by heading on over to wwwdenisoninvestcom forward slash podcast report or, alternatively, you can download it using the link in the description. This report details these seven most common issues. However, most importantly, it also shows you how to fix them Really. Looking forward to hearing your thoughts.

David: 

No, no, I think that’s the main financial challenge. Obviously, if you’re setting up a squat, work with a good marketer. That’s the other kind of nugget there. Squats can be a bit risky and they are coming back now. I think the first six months of this year the market in general slowed down because we were just into the rise in interest rates, but we’re all settled into the new norm now so those are picking up and, um, yeah, we’ve seen some good success stories with the squats. People who’ve done really well. Those who’ve done really well have worked with somebody um a coach or a marketer to be prepared so that everything’s ready, the door opens. You’ve got good patients coming in. Um, that really makes a difference yeah, I think so from experience.

Dr. James: 

Yeah, a coach will pay for themselves by many times over a good one a good coach at least. But yeah, okay, cool. Thank you so much for that, david. And what we’ll do presently or promptly is when we move on to multiple practice owners, people who are thinking about that next stage, going from one to many. But before we do that, just curious in your experience, people who are taking that leap dentists who are taking that leap into practice ownership from being an associate to owning their first practice, whether that be a squat or one they’ve purchased from someone else around about what age do you reckon that happens on average?

David: 

curious. It’s a good question, james, and it’s more. It’s less to do with the age, it’s more to do with the financial capability of the dentist. Okay, so we are seeing younger dentists with family money getting in the game very early in the late 20s, and I take my hat off to these jabs um, and if they get it right and for me, getting it right means buying something that you can increase its value, so you make a gain on it um, not over committing to a large practice that isn’t going to increase in value. So the ones who are coming in and buying practices four or five, six hundred thousand and then significantly growing the revenue, whether that’s aligners or whatever but they do really well, and so it’s less to do with the age and wisdom and sometimes the backing that these people have.

Dr. James: 

So wonderful, wonderful okay, yeah, I guess the the average age thing.

Dr. James: 

I mean it’s probably so disparate, um, you know, and what I mean by that is you have the people who start, young people who start a little later. That that is the average age necessarily representative, is the mean representative of the median, so to speak. If we wanted to get really deep into that, who’s’s to say I’d be interested to know what the data says. So, no, I was just curious on that particular thing. Do you know what? I came across a chap the other day. We’re hopefully going to have him on the podcast very soon.

Dr. James: 

He’s based in Southern Ireland, he is 22, or sorry, he is 28 now, but he was 22 whenever he started his first dental practice. He’s a full mouth implant surgeon. He does pterygoids, he does zygos, he does the lot. He’s 28. He’s got five dental practices and he’s got a training facility in Dubai. Wow, what a chap, what a chap. So watch out for that podcast and the Dentist who Invest podcast very, very, very, very soon. That’s going to be a fun one. Anyway, david, we digress slightly. Completely my fault. I’m pulling the conversation away from what we’re supposed to be talking about. Let’s move on to multiple practice ownership. What should we be wary of at that next stage.

David: 

Yeah, so the mini groups is a growing area. If you look at the UK dental market ownership, it’s still around 80 single site owners, occupiers. But the, the mini groups, are getting bigger and bigger by the day. So people who’ve got three to twenty and people in that category, um have an aspiration to grow to a certain level and cash out at a certain value and they are really good ways to make a lot of money. So if it’s done well, branded well, integrated well and sold at the right time to the right buyer, which is usually a corporate. But you have to catch them at the right time because obviously some of them are not buying right now and some are. Some are better than others, but that’s a whole other conversation. Um. So these, these people are very financially motivated, um, and yeah, they’ve got different challenges.

David: 

The big challenges that I come across for the people who are moving into multi-site ownerships are where they are um unincorporated. That becomes a big drain on them because on paper you say you know we’ve got three practices. On paper you add up the three profits, say wow, that’s a phenomenal um accounting profit, but it’s all financed through debt. And again you take off the bank repayments and the tax and so on, and the figure is much smaller. Going back to what we talked about having debt in the right place. If it’s incorporated and the company’s repaying that loan repayments, cash flow can be much, much improved and tax saved because you’re not taxed on accounting profits, you’re taxed on well, the company is, but that’s a lower rate 19 to 25 percent and then you’re only tax on what you draw, so your free cash flow becomes much, much better. The other challenges for multi-site owners is and again connected to cash flow is if you buy a practice, you don’t get a tax write-off for the purchase, the goodwill, whereas if you add four surgeries to your existing practice, you’re putting in chairs, cabinetry, plant and machinery. That’s all tax deductible. So it’s getting the balance right between should we be buying or should we be investing in the existing sites and what’s the impact on that.

David: 

Yeah, then spreading the management team too thin it’s. It has to be a well-thought-through strategy on how this thing works, how does it work and how does it exit as well, so we can talk about that. Next is a dental practice will be um one of the biggest, if not the biggest asset that a dentist will have, and I rarely see practices going for less than a million. Um, most of our clients will go for two, three million pound when they do sell.

David: 

Now, what? Why is that important? Well, first of all, capital gains tax is 10 on the first million of gains. So, um, if you’re thinking about selling, is it put together right? How many people are shareholders? Is there a spouse that could own some shares to utilize their million pound lifetime allowance? What about the kids if they’re at university age? Um, but all that needs to be thought about two years before you decide to sell, because if you’ve not had those conditions for two years, you don’t get the 10.

David: 

So, having that question answered also really looking at how we put things in the right place and by that I mean and we see this, unfortunately more than we should do is, let’s say, it’s a company, the CQC is in the person’s name, no-transcript. That sort of thing is important to look at as well. Practice sellers have different problems. It’s usually corporates that will come along to buy the bigger practices. The deal structures that they put forward can be unfamiliar in terms of we’re giving you 3 million pound. Of that, 2 million is cash, 500,000 is shares and you’ve got deferred, so being able to talk to people to understand what different financial packages are put together, that needs talking through.

Dr. James: 

And again looking at the balance sheets and thinking about how the balance sheet works in your favor when you’re selling and what cash implications does it have for you. Jeez, a lot to watch out for and a lot to be wary of, and are there certain things that we need to be more conscious of, as that?

David: 

let’s say mini-corporate or small group grows. Yeah, I’ve got to be careful what I say. Here there are, yeah, we can even stop it there.

Dr. James: 

We can just say yeah, yes.

David: 

I think that one advice that I will give I think it’s fair to say is, if you’re going down the corporate sale route, talk to people who’ve sold to that corporate to get their opinion on how did the process go for you. What did it look like on the other side?

Dr. James: 

Beautiful. Okay, nicely put, right. Well, anything else we need to add in there? When it comes to purchasing multiple practices, or happily, draw a line under that.

David: 

No, no, that’s kind of it insofar as can be. You know, talked about that, this level. But if you’re in these milestones and you know dentists will go through some of these stages and if you, if you’re getting close to them and I say close them, not even at them let your accountant know, because they got to think about what they advise, what advice they need to give to you when you’re at that point, so and so some of it is so time-sensitive, like the, the two-year period for the, uh, the capital gains. That’s a big window. You’ve got to be communicating and telling your account I’m thinking of selling and don’t leave it till you know the week before you’re selling to make that phone call there we are boom top stuff all right.

Dr. James: 

Now onwards to the biggie which, which is the R word, which is retirement, which is what we spend a lot of our life chasing, or at least we’re told that we should do. What do we need to consider whenever it comes to taxation at that milestone?

David: 

Yeah. So we’ve kind of talked about that with the sales side, because the biggest asset will usually be the practice sales. So beyond that you’re then into your own personal retirement. I don’t advise on people’s personal retirements. It’s whether you want to be on a beach or still busy. I think it’s hard to switch off.

Dr. James: 

if you’ve worked all your life hard and you’ve enjoyed that process, it’s hard to switch it off and just be on a yacht somewhere there’s a little bit of a mirage when it comes to retirement, and what I mean by that is we perpetually are chasing this oasis, supposed oasis of happiness, and what I mean by that is it looks like it’s always just in front of us and we’re told at that point we’re going to have loads of free time and then when we get there, flipping two weeks in, we’re bored.

Dr. James: 

The number of people I’ve seen that happen to you. So if you can realize high level that that potentially could happen to you as someone who is in their 30s, 40s, 20s, that is a huge piece of awareness. That is a huge thing. That is a hugely. That’s a. That’s a revelation or an epiphany, because then all of a sudden it kind of shifts your mindset a little bit, because I feel like there’s almost something comforting about retirement where we say to ourselves actually, whenever I get to that point, then I give myself permission to be happy. It’s a lot of accountability to say, actually I’m going to decide that I’m going to be happy in the moment. And it’s easy to use retirement as a crutch and then when you get there, you just revert back to the life that you had anyway. Wouldn’t it be cooler to just realize that?

David: 

a little earlier. It’s like you say enjoy the journey, not the destination. I think that’s the truth in that.

Dr. James: 

Don’t sacrifice the journey for the destination as well.

David: 

That’s even better.

Dr. James: 

It’s cool, isn’t it Right? Because you can have both. You can who the heck made retirement up. Anyway, we’re going off on a tangent again. David, thank you so much for your wisdom today. Anything else that we should consider when it comes to our journey as a dentist? Financial milestones?

David: 

Or have we nailed it? Have a good team, have people to talk to, have existing, have people who’ve done it well as friends and people. You can bounce ideas off and talk to people who’ve been through it before.

Dr. James: 

Very cool. Good wisdom, good knowledge. David, thank you so much as ever for coming on the Dentist Invest Podcast. We will, of course, get you back soon. You still got that ebook right that we were talking about from last time. What was it called, David?

David: 

Plylar 05,001. Yeah, the tax saving for dentists. The PDF here, david Plylar 05,001.

Dr. James: 

Yeah, that’s with relevance to the associates. Well, really it’s with relevance to anybody at any stage in their journey, but particularly, you know, those associates that we were referring to at the start who just really need a little bit of guidance to understand how they can be tax efficient. Of course that will be particularly useful for people who are at that stage of their career, but of course it’ll be useful to anybody at any stage of their career. It’s just that, with relevance to what we were talking about earlier. It popped into my head when we mentioned the associates.

David: 

Yes, and people can reach out to you for that.

Dr. James: 

Wunderbar, david, as I say, thank you so much for your time. I’m sure we’ll get you on the podcast again very soon. Much love, see you later. Cheers, james, take care. If you enjoyed this podcast, please hit, follow or subscribe so you can stay up to date with information on new podcasts which are released weekly. Please also feel free to leave a positive review so others can learn about this podcast and benefit from it. I would also encourage any fans of the podcast to sign up to the free Facebook community from which the podcast originated. Please search Dentists who Invest on Facebook and hit join to become part of a community of thousands of other dentists interested in improving their finances, well-being and investing knowledge. Looking forward to seeing you on there.

Dr. James: 

Fans of the Dentists Who Invest podcast. If you feel like there was one particular episode in the back catalogue in the anthology of Dentists Who Invest podcast episodes that really, really really was massively valuable to you, feel free to share that with a fellow dental colleague who’s in a similar position, so their understanding of finance can be elevated and they can hit the next level of financial success in their life. Also, as well as that, if you could take two seconds to rate and review this podcast, it would mean the world. To me, what that would mean is that it drives this podcast further in terms of reach so that more dentists across the world can be able to benefit from the knowledge contained therein.

Dr. James: 

Welcome, welcome to the Dentists who Invest podcast. Hey everyone, welcome back to the Dentistry Invest podcast. I am joined today by David Hossain, and we are here today to talk about financial milestones whenever it comes to your journey as a dentist, which is a super fun one and obviously with relevance to David’s area of expertise, which is, of course, taxation, being an accountant. David, how are you today?

David: 

Hey, james, I’m very well. How are you doing?

Dr. James: 

I am amazing. Thanks for asking. I’m looking forward to this, actually, because we did one way, way, way back when, along the same lines, and what it would be nice to do today is make another one, given how things have changed, given how the landscape has changed whenever it comes to taxation and finance, so we can have a little bit of an update, because I remember that podcast did extremely well. So what do we mean by financial landscape? What do we mean by journey and financial milestones? What we mean is that, as you are progressing through your career as a dentist, naturally you start as a student, then associate, then you might become a practice owner or you might stay associate both are fine.

Dr. James: 

But if you do become a practice owner or you might, if you do become a practice owner, you might want to listen to what we’re about to say, or you might progress on to multi-practice ownership and then, eventually, what unifies every single one of those career paths is that you one day will retire, of course, and what we’re going to cover today from a really high level is what do we have to be aware of in terms of our finances, in terms of key things that we should look out for in key in terms of really important bits of information that we should know whenever we hit each one of those respective milestones. What are the biggies, so to speak, when it comes to your finances and when it comes to your tax affairs? David, would you say that’s an apt description absolutely.

David: 

The clinical life cycle of my clients will follow a very similar pattern.

David: 

So, dentists, you tend to go through some very similar phases as an associate you’re learning the ropes, you become experienced, you then potentially become a first-time owner, either through buying or setting up a squat. Some will go on to be multi-site owners and then you’ve built your capital, you’ve got to think about your exit and retirement and, through every single phase and milestone that we’ve just talked about, there are different income considerations, different capital considerations and profiles and planning points and challenges to get through. Um, so kind of as you summarized there. I just thought if we, if we taught them through, if any of your listeners and we know that you know a lot of your listeners are very financially focused, and, um, if you’re close to any of these milestones, we can just give heads up on as you’re at this point. These are the things that tend to pop up and be mindful and aware that to to ask either ask these questions or get the advice around these points that are key in that particular area that’s beautiful.

Dr. James: 

And if I look back on my journey as, uh associate, uh, as an associate dentist never quite made it to practice ownership. Uh, don’t think that will ever happen to me. But who knows, never say never. And I remember I just didn’t know what the heck to do and it was all off hearsay and it was all things that I know that somebody had said to me this is a good idea, maybe you should do this, but not anywhere where it was just laid out in front of me, formulaic think about this, this, this, this and this. So I know I would have found this invaluable. So, on that note, david, if we start from the start, which seems sensible, let’s talk about the associates, and this can apply, I suppose, to associates who are newly qualified, but really associates who are at any point in their career. These are the things that they have to consider, wouldn’t you say?

David: 

yeah, so you’re right. So first, newly qualified associates, just starting out their main priority so get compliant with hmrc, get yourself registered, keep your accounts up to date and on time so you’re not into penalties and the black book with the revenue um. Utilize the tax breaks that are legally available to you, and that could be things like incorporating um as a limited company and thinking about how they impact superannuation. But we recently did a webinar on that, so I’m not going to talk too much about the company side because I think we’ve we’ve done it, if that makes sense yeah, anybody who’s listening.

Dr. James: 

If you want to have a really, really, really in-depth discussion of limited company versus sole trader, it’s worth checking out that previous episode that david and I did not so long ago 15 episodes ago, I think something like that yeah, not sure I’m not counting, but yes, but then yeah.

David: 

So, um, then the associate gets a bit more experience and becomes closer to thinking well, it’s time for me to become a practice owner and a business owner and take on that additional responsibility of being responsible for the business. It’s a big shift to go from being an associate to a practice owner. Um, however, it’s a process that you’ve got to go through, can take six to nine months, and the process um is often it’s a, it’s a life, that once in a lifetime process for many you’ve got to deal with banks, lawyers and accountants on both sides, balance sheets, contracts and so on, and there’s a lot to navigate through. Um and, as I said, most associates will only go through that process once. So it you know, it makes sense that for many it will be very new. So then what? What are the the key things to think about that in area now?

David: 

Um, oftentimes, if you buy in a practice, it’s either a limited company or not a limited company. Where it’s not a limited company, pretty straightforward, you’re just buying assets. But where you’re buying a company and a lot of practices are in a company, you’re buying a balance sheet. Now, what the hell is a balance sheet. I think many of your listeners won’t have that much experience looking at balance sheets. It won’t be obvious what that actually means. But a balance sheet is assets and liabilities at the point of completion. So why is it important? What that means is when you’ve completed and you buy the practice, not only do you have to get on with running the business and meeting the team and getting them on side and thinking about your marketing and how you’re going to grow the practice. You’ve got to be aware of what has gone on financially prior to that point of the practice. You’ve got to be aware of what has gone on financially prior to that point. Now, each of us in that process has got different roles and responsibilities. Your lawyer is there to protect you in paper and, the way I look at it is, your accountant is there to protect you before it gets too late.

David: 

Now, what do I mean by that? There are things that could be on the balance sheet that we should flush out One to make sure we’re aware they exist, and two to quantify them and adjust for them in the handing over of cash when you pay for the business. To put this into perspective, what on earth am I talking about David? So a big area is if a practice is doing a lot of work that takes um deposits in advance, so patients come in and pay over thousands of pounds for work that will be done over a period of time. Those are called patient deposits, but that’s money that the buyer, so the seller, has taken and as the the buyer coming into door, if the patient sort of paid for it, then you’ve not had that money and we have to flush that out, to quantify it and say well, hang on a second.

David: 

There’s potentially thousands of pounds here that we need to be aware of because that’s a liability for the seller and a nightmare scenario for associates, which we do see is where they’ve got a very good relationship with the seller and the seller said look, you know me, I know you, you know the practice, it’s £2 million and we’re going to do it as a locked box with no adjustments. But when you ask the question you say, well, hang on a second, what about? Have you taken any deposits? And you can open that up, and suddenly there’s hundreds of thousands of pounds worth of people who’ve paid in advance that the associate would have to do that work for if they’d not asked the question to say are you taking cash up front? And if you are, we need to know about it. So you’ve got to have a nose for these things. I don’t expect associates to even even know to think about that, but those are big things.

David: 

When you think about if you’re buying a company, you are buying a balance sheet and we need to know what it looks like. So the lawyer’s job is to legally give you recourse. So if that happens, then yes, you can sue this, the seller but it’s a lot harder to try and get your money back once you’ve paid for it. It’s much easier just to account for it before completion. So think about the balance sheet that you’re buying and put it in front of your accountant for them to look at. There should be a formal due diligence done if it’s a company, less so if it’s not a company. But that’s a big area.

Dr. James: 

That is a biggie, that one. Any other biggies, so to speak, that we should watch out for.

David: 

Well, yeah, tax schemes. Tax schemes are always a problem. So you look at the balance sheet, we look at the tax returns for the company. If there have been interesting tax avoidance schemes that have been entered into really, where we’re into that, there becomes a strong argument to say pause the deal, you’ve got a problem here, we’re not going to take that on. And the company will sell the assets to a new company and the old company stays with the seller and there are things that become a big red line and you just say no, we can’t possibly do the deal, but it has to be fully restructured. Um, like that it’s. It’s rare, but it does happen.

Dr. James: 

Gotcha. Yeah, just things to watch out for. I guess that you mightn’t otherwise know about, which is the whole end of the game of the podcast, I suppose, really, I have a quick question when it comes to, but before I interject with that, I’m curious is there any more things that you’d like to add in about that stage of the dentist’s?

David: 

journey. Well, another kind of common problem that is very easy to avoid by talking to your accountant is when you’re either buying a sedative or squat. Oftentimes you’ll talk to a bank and they will say yeah, we’ll come 70% of the way, 80% of the way, to give you some funds towards that. Now, when you’ve bought a practice or set up a squat, often it takes time You’ll take a bit of an income dip. Why? Because you’re now paying a loan back and when you get the prospectus through from the dental brokers it always says the accounting profits are 100, 200, 300,000.

David: 

That doesn’t mean that that’s what’s coming in your pocket. That means that that’s what you will pay tax on and then you’ll pay the bank back as well. They should really put that in there, that after you’ve paid the bank, this is the net free cash flow. But that free cash flow position can be made much worse if you get the debt in the wrong place. If you have, I’m buying a company but I’m taking the loan in my name. So if you put the loan in your name when you repay the bank, that’s all treated as if you’ve taken the dividend and have enjoyed that money personally.

Dr. James: 

So you pay tax on the bank repayments and that can push you into.

David: 

Oh man, oh geez, wow, seeing it twice, and both times it was a simple, easily avoidable situation of the accountant being able to say put it in the company, don’t put it in your name. There’s no, there’s no skin off the bank’s nose, they’ll go along with it. So it’s just a simple administrative error that can cost you hundreds of thousands oh, my word, that sounds absolutely horrendous one to watch out for for sure.

Dr. James: 

Ouch, ouch any more. Before we move on Any more. Before we move on Real quick guys. I’ve put together a special report for dentists, entitled the seven costly and potentially disastrous mistakes that dentists make whenever it comes to their finances. Most of the time, dentists are going through these issues and they don’t even necessarily realize that they’re happening until they have their eyes opened, and that is the purpose of this report. You can go ahead and receive your free report by heading on over to wwwdenisoninvestcom forward slash podcast report or, alternatively, you can download it using the link in the description. This report details these seven most common issues. However, most importantly, it also shows you how to fix them Really. Looking forward to hearing your thoughts.

David: 

No, no, I think that’s the main financial challenge. Obviously, if you’re setting up a squat, work with a good marketer. That’s the other kind of nugget there. Squats can be a bit risky and they are coming back now. I think the first six months of this year the market in general slowed down because we were just into the rise in interest rates, but we’re all settled into the new norm now so those are picking up and, um, yeah, we’ve seen some good success stories with the squats. People who’ve done really well. Those who’ve done really well have worked with somebody um a coach or a marketer to be prepared so that everything’s ready, the door opens. You’ve got good patients coming in. Um, that really makes a difference yeah, I think so from experience.

Dr. James: 

Yeah, a coach will pay for themselves by many times over a good one a good coach at least. But yeah, okay, cool. Thank you so much for that, david. And what we’ll do presently or promptly is when we move on to multiple practice owners, people who are thinking about that next stage, going from one to many. But before we do that, just curious in your experience, people who are taking that leap dentists who are taking that leap into practice ownership from being an associate to owning their first practice, whether that be a squat or one they’ve purchased from someone else around about what age do you reckon that happens on average?

David: 

curious. It’s a good question, james, and it’s more. It’s less to do with the age, it’s more to do with the financial capability of the dentist. Okay, so we are seeing younger dentists with family money getting in the game very early in the late 20s, and I take my hat off to these jabs um, and if they get it right and for me, getting it right means buying something that you can increase its value, so you make a gain on it um, not over committing to a large practice that isn’t going to increase in value. So the ones who are coming in and buying practices four or five, six hundred thousand and then significantly growing the revenue, whether that’s aligners or whatever but they do really well, and so it’s less to do with the age and wisdom and sometimes the backing that these people have.

Dr. James: 

So wonderful, wonderful okay, yeah, I guess the the average age thing.

Dr. James: 

I mean it’s probably so disparate, um, you know, and what I mean by that is you have the people who start, young people who start a little later. That that is the average age necessarily representative, is the mean representative of the median, so to speak. If we wanted to get really deep into that, who’s’s to say I’d be interested to know what the data says. So, no, I was just curious on that particular thing. Do you know what? I came across a chap the other day. We’re hopefully going to have him on the podcast very soon.

Dr. James: 

He’s based in Southern Ireland, he is 22, or sorry, he is 28 now, but he was 22 whenever he started his first dental practice. He’s a full mouth implant surgeon. He does pterygoids, he does zygos, he does the lot. He’s 28. He’s got five dental practices and he’s got a training facility in Dubai. Wow, what a chap, what a chap. So watch out for that podcast and the Dentist who Invest podcast very, very, very, very soon. That’s going to be a fun one. Anyway, david, we digress slightly. Completely my fault. I’m pulling the conversation away from what we’re supposed to be talking about. Let’s move on to multiple practice ownership. What should we be wary of at that next stage.

David: 

Yeah, so the mini groups is a growing area. If you look at the UK dental market ownership, it’s still around 80 single site owners, occupiers. But the, the mini groups, are getting bigger and bigger by the day. So people who’ve got three to twenty and people in that category, um have an aspiration to grow to a certain level and cash out at a certain value and they are really good ways to make a lot of money. So if it’s done well, branded well, integrated well and sold at the right time to the right buyer, which is usually a corporate. But you have to catch them at the right time because obviously some of them are not buying right now and some are. Some are better than others, but that’s a whole other conversation. Um. So these, these people are very financially motivated, um, and yeah, they’ve got different challenges.

David: 

The big challenges that I come across for the people who are moving into multi-site ownerships are where they are um unincorporated. That becomes a big drain on them because on paper you say you know we’ve got three practices. On paper you add up the three profits, say wow, that’s a phenomenal um accounting profit, but it’s all financed through debt. And again you take off the bank repayments and the tax and so on, and the figure is much smaller. Going back to what we talked about having debt in the right place. If it’s incorporated and the company’s repaying that loan repayments, cash flow can be much, much improved and tax saved because you’re not taxed on accounting profits, you’re taxed on well, the company is, but that’s a lower rate 19 to 25 percent and then you’re only tax on what you draw, so your free cash flow becomes much, much better. The other challenges for multi-site owners is and again connected to cash flow is if you buy a practice, you don’t get a tax write-off for the purchase, the goodwill, whereas if you add four surgeries to your existing practice, you’re putting in chairs, cabinetry, plant and machinery. That’s all tax deductible. So it’s getting the balance right between should we be buying or should we be investing in the existing sites and what’s the impact on that.

David: 

Yeah, then spreading the management team too thin it’s. It has to be a well-thought-through strategy on how this thing works, how does it work and how does it exit as well, so we can talk about that. Next is a dental practice will be um one of the biggest, if not the biggest asset that a dentist will have, and I rarely see practices going for less than a million. Um, most of our clients will go for two, three million pound when they do sell.

David: 

Now, what? Why is that important? Well, first of all, capital gains tax is 10 on the first million of gains. So, um, if you’re thinking about selling, is it put together right? How many people are shareholders? Is there a spouse that could own some shares to utilize their million pound lifetime allowance? What about the kids if they’re at university age? Um, but all that needs to be thought about two years before you decide to sell, because if you’ve not had those conditions for two years, you don’t get the 10.

David: 

So, having that question answered also really looking at how we put things in the right place and by that I mean and we see this, unfortunately more than we should do is, let’s say, it’s a company, the CQC is in the person’s name, no-transcript. That sort of thing is important to look at as well. Practice sellers have different problems. It’s usually corporates that will come along to buy the bigger practices. The deal structures that they put forward can be unfamiliar in terms of we’re giving you 3 million pound. Of that, 2 million is cash, 500,000 is shares and you’ve got deferred, so being able to talk to people to understand what different financial packages are put together, that needs talking through.

Dr. James: 

And again looking at the balance sheets and thinking about how the balance sheet works in your favor when you’re selling and what cash implications does it have for you. Jeez, a lot to watch out for and a lot to be wary of, and are there certain things that we need to be more conscious of, as that?

David: 

let’s say mini-corporate or small group grows. Yeah, I’ve got to be careful what I say. Here there are, yeah, we can even stop it there.

Dr. James: 

We can just say yeah, yes.

David: 

I think that one advice that I will give I think it’s fair to say is, if you’re going down the corporate sale route, talk to people who’ve sold to that corporate to get their opinion on how did the process go for you. What did it look like on the other side?

Dr. James: 

Beautiful. Okay, nicely put, right. Well, anything else we need to add in there? When it comes to purchasing multiple practices, or happily, draw a line under that.

David: 

No, no, that’s kind of it insofar as can be. You know, talked about that, this level. But if you’re in these milestones and you know dentists will go through some of these stages and if you, if you’re getting close to them and I say close them, not even at them let your accountant know, because they got to think about what they advise, what advice they need to give to you when you’re at that point, so and so some of it is so time-sensitive, like the, the two-year period for the, uh, the capital gains. That’s a big window. You’ve got to be communicating and telling your account I’m thinking of selling and don’t leave it till you know the week before you’re selling to make that phone call there we are boom top stuff all right.

Dr. James: 

Now onwards to the biggie which, which is the R word, which is retirement, which is what we spend a lot of our life chasing, or at least we’re told that we should do. What do we need to consider whenever it comes to taxation at that milestone?

David: 

Yeah. So we’ve kind of talked about that with the sales side, because the biggest asset will usually be the practice sales. So beyond that you’re then into your own personal retirement. I don’t advise on people’s personal retirements. It’s whether you want to be on a beach or still busy. I think it’s hard to switch off.

Dr. James: 

if you’ve worked all your life hard and you’ve enjoyed that process, it’s hard to switch it off and just be on a yacht somewhere there’s a little bit of a mirage when it comes to retirement, and what I mean by that is we perpetually are chasing this oasis, supposed oasis of happiness, and what I mean by that is it looks like it’s always just in front of us and we’re told at that point we’re going to have loads of free time and then when we get there, flipping two weeks in, we’re bored.

Dr. James: 

The number of people I’ve seen that happen to you. So if you can realize high level that that potentially could happen to you as someone who is in their 30s, 40s, 20s, that is a huge piece of awareness. That is a huge thing. That is a hugely. That’s a. That’s a revelation or an epiphany, because then all of a sudden it kind of shifts your mindset a little bit, because I feel like there’s almost something comforting about retirement where we say to ourselves actually, whenever I get to that point, then I give myself permission to be happy. It’s a lot of accountability to say, actually I’m going to decide that I’m going to be happy in the moment. And it’s easy to use retirement as a crutch and then when you get there, you just revert back to the life that you had anyway. Wouldn’t it be cooler to just realize that?

David: 

a little earlier. It’s like you say enjoy the journey, not the destination. I think that’s the truth in that.

Dr. James: 

Don’t sacrifice the journey for the destination as well.

David: 

That’s even better.

Dr. James: 

It’s cool, isn’t it Right? Because you can have both. You can who the heck made retirement up. Anyway, we’re going off on a tangent again. David, thank you so much for your wisdom today. Anything else that we should consider when it comes to our journey as a dentist? Financial milestones?

David: 

Or have we nailed it? Have a good team, have people to talk to, have existing, have people who’ve done it well as friends and people. You can bounce ideas off and talk to people who’ve been through it before.

Dr. James: 

Very cool. Good wisdom, good knowledge. David, thank you so much as ever for coming on the Dentist Invest Podcast. We will, of course, get you back soon. You still got that ebook right that we were talking about from last time. What was it called, David?

David: 

Plylar 05,001. Yeah, the tax saving for dentists. The PDF here, david Plylar 05,001.

Dr. James: 

Yeah, that’s with relevance to the associates. Well, really it’s with relevance to anybody at any stage in their journey, but particularly, you know, those associates that we were referring to at the start who just really need a little bit of guidance to understand how they can be tax efficient. Of course that will be particularly useful for people who are at that stage of their career, but of course it’ll be useful to anybody at any stage of their career. It’s just that, with relevance to what we were talking about earlier. It popped into my head when we mentioned the associates.

David: 

Yes, and people can reach out to you for that.

Dr. James: 

Wunderbar, david, as I say, thank you so much for your time. I’m sure we’ll get you on the podcast again very soon. Much love, see you later. Cheers, james, take care. If you enjoyed this podcast, please hit, follow or subscribe so you can stay up to date with information on new podcasts which are released weekly. Please also feel free to leave a positive review so others can learn about this podcast and benefit from it. I would also encourage any fans of the podcast to sign up to the free Facebook community from which the podcast originated. Please search Dentists who Invest on Facebook and hit join to become part of a community of thousands of other dentists interested in improving their finances, well-being and investing knowledge. Looking forward to seeing you on there.

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