Dr James, 4s:

We're gonna cover all of that in the middle of that. What means since we left both what we need to know in 2020? And how do things just be going forward? And going to the practice expert. Finance experts. Mr. Kevin Saunders we're gonna be going through in all of the above and a whole lot more as well as episodes ever. As never you can claim your CPD for this episode within the official Dentists Who Invest Smart Money Members Club. Smart Money Members Club also includes multiple money posts in the webinar series of finance potential, including how to become as tax effecient possible as well as understanding investing. All of this content comments at verifiable CPD, and you can download your certificates then and then on completely. In addition to this, we also include a whopping 10% discount in your dental indemnity and 5% discount on lab builds for dental principles, amongst other parts and discounts for members. Please use the link in the description to claim your verifiable CPD for this episode. Well, we're here today to talk about exactly what we said on the 10, which is banning first practice, but we don't want to not make some people feel included. So this a lot of this stuff is gonna apply to banning your second practice and things along those lines as well. But we're we're certainly coming at it from that angle, and there's some very important stuff to know. So, Kevin, I think what's sensible, obviously the audience know you, you've been on the podcast more than a few times, which is great. And I think what is sensible is to just maybe have a little bit of a recap, high level, of how finance works, because that's really useful. A wise man once said we need to be reminded more than we are taught, and I'm definitely an agreeer of that philosophy. And then what we can do is we can maybe jump into some of the caveats for people who are doing it the first time and a whole lot of other stuff as well. What uh what about that? Feel free to shoot me down if you think that doesn't sound like a good idea.

Kevin, 1m 56s:

Yeah, I think it's fine, and we are gonna cover topics that are relevant for both first-time buyers and um people buying second or third practice. Um what's interesting about first-time buyers though is that uh there've been far fewer of them around for the last I'm gonna say four years, um, since the interest rates started going up. Um and I I'm uh quite a good barometer of the market because I I'm independent, um, I'm not owned by one of the dental sales agents. Um so um I could see um the minute um the interest rate started rising, there was a drop-off in inquiries from first-time buyers. Um so a lot of what I've been doing over the last four years has been people buying second and third practices. Not to say we didn't help some people buying their first practice, but uh far fewer, and I can only say it was about the interest rates. So um that's interesting because it links back into the podcast we did recently on interest rates. Uh and I I guess what I wanted to say was um it's a bit like investing, and you'll be you'll know more about this than me. Um, but probably a really good time to have bought a practice has been over the last couple of years because goodwill values went down, but many associates were afraid to do so because interest rates they perceived to be high. Um so uh first thing to say is you're when you buy a practice, you're gonna get funding over 15 to 25 years. So it's not really about just the current period you're in. I mean, obviously it's always helpful if the first couple of years you have lower interest rates, um, but it's a bit like investing. You're you're doing this for the you know the medium term. So um you should have this all costed out based on current interest rates and the fact you just want to buy a practice and not sit back and wait just because you think you know the base rate might come down by one or two percent.

Dr James, 3m 48s:

Um I'm a bit I think that how can I say this? We d we that it's definitely a factor, right? But you know, how I would look at it is this, right? I think that a big a big lesson for me was that in business, a lot of success in business is about the lessons, and you really want to get the lessons as soon as you can, even if a lesson looks like failure. That's you know, we're either we're the winner we learn, right? So, yeah, obviously we don't want to sit be irresponsible and encourage people to make rash decisions and go bankrupt, of course. But I think that it's a very it's an interesting way of looking at it in that really the sooner we can learn these things and sooner we get on with it, the sooner that we can be successful effectively and maybe not put things off because we think that there's some sort of market condition that isn't in our favor. Because I think that you can overcome really there's that saying, and it's like when the tide goes out, okay, you find out who's wearing underwear and who isn't, right? You know, and don't get me wrong, it definitely makes things harder. But at the same time, if your business is resilient enough and you're skilled enough and you're you've controlled a lot of the other variables which contribute towards success, you can still pull it off, in my opinion. Of course, it definitely makes things harder, and I definitely don't want to go anybody for anybody to listen to this podcast to make some rash decisions today. But what I do want to do is just chuck in some little wisdom that they might consider whenever it comes to thinking and not maybe purely make that decision off the back of interest rates, as you were saying.

Kevin, 5m 13s:

So on that note, I mean, what I and the banks would do um is we would we would cost this out basically. When someone looks to buy a practice, we're considering this based on higher interest rates than the current rate. Um, so the bank won't lend the money unless they know that somebody can draw the salary they need to to live on and service their debt at higher interest rates than the current rate. So they've already had a sense check. But I was just thinking about this, and it's almost like investing in the market, isn't it? So when confidence is low and the prices are all dropping, no one wants to invest. But the smart people know that's the time to invest. Uh, you know, that is the time to jump in. And that's how I kind of feel the market's been in the dental world for the last couple of years. Goodwill values did go down. It was probably the perfect time to have bought, and now they're going up again. Um, and people have been um more willing to jump in, or first-time buyers have, because interest rates drop down, although you know, who knows what's going to happen now going forwards. But it got me on thinking about actually that's the wrong way to think because you're you're taking on a 15-year commitment. So it's not just about what the rates are doing for the next year, helpful as it is to have low rates when you first buy. So I guess that was the first point. Uh so I've seen a return in first-time buyers in recent times. Um, and I think it's it's going back again to what we talked about, just understanding that interest rates, the new norm is going to be back to how things were before the credit crunch, which is the base rate fluctuating between something like three to six percent, you know, it's it's gonna go up and down, isn't it? And we you know, we were forecasting rate cuts this year, and already since the podcast you and I did, that's already changed because of uh Trump's little adventure. And uh and now they're flatlining, and and I think the market's saying they're forecasting a rise next year. Um, so you can't sit back and wait forever. If the time is right to buy a practice, it's about looking at the financials of that particular practice and can it afford to serve as the debt and pay you the salary that you want.

Dr James, 7m 16s:

So uh little piece of wisdom on that as well. Just just wanted to jump in and say one thing before we move on. I was talking to a guy, it figure loops company, the other day. Maybe some people who are listeners can figure out who that is in UK dentistry, and he said to me, he was like, you know, a big part of business is you stay in the game for long enough until you effectively just get lucky and things shift in your favour. And I that actually kind of you know, it's not the only factor, right? But I think people have to understand it's more about time in the game than timing the game a lot of the time. Uh and that applies to the markets and also business as well. Yeah. And um what is that other saying? What preparation? So I um luck is when preparation meets opportunity, right? You kind of sow the seeds, and then when the time comes, you can you can leap on it. And like I say, I'm not saying that what I'm saying just means that everybody should just go and start dental practices or do all of that. I'm just saying that these are some alternate perspectives that are worth considering as well. And maybe just I definitely think it's not good to just you know, to think in binary terms. Are interest rates good? Yes, I'm gonna start a practice, are they bad? Yes, therefore I'm not gonna start a practice. You know, it's there's more to it than that. UK Dennists, Dennist Who Invest now has an official platform where you can learn about finance and obtain UK compliant, verifiable CVD at the same time. The only platform that exists on which you can do both. The Smart Money Members Club has hundreds of hours of mini courses, webinar series, and live day recordings on all things finance slash tax efficiency for UK dentists. This includes complete courses on how tax works for UK dentists, finance so that you can invest and grow your own money, business so you can improve your profitability as an associate or principal, and for those out there that want it, there's also a mini course and how you can responsibly enter the crypto space using measured amounts of capital. I've gathered this content from the best of the best I could find in each respective area so that you know that this is how people at the forefront of each field advise their clients. The Smart Money Members Club also contains discounts on common things that UK dentists need to pay for on a regular basis. This includes a whopping 10% discount on dental indemnity, the offer to beat your income protection deal no matter what you're paying, and for the principals out there, 5% discount on lab bills and 10% discount on practice insurance. These are designed to offer hundreds, if not thousands, in annual savings. The purpose of this members club is to not only boost your monthly income but also manage your outgoings as much as possible and therefore create more profit. To celebrate the launch of the Smart Money Members Club, and given that the CPD deadline is coming up soon, I've decided to offer the first month of this platform entirely for free. This offer will end in the coming weeks as soon as the current CPD cycle is up. To collect your CPD for this podcast episode using the Smart Money Members Club, feel free to use the link in the description of this podcast.

Kevin, 10m 19s:

No, no, definitely. And I was going to say the more interesting thing to think about are the challenges of ownership rather than the interest rates. I think not enough people think about that. Um, it's things like the issues with staff. You take a practice on, you've got to learn a lot about dealing with staff. You might have some difficult staff, you might have staff leaving. Those are the issues really, uh, which most dentists who buy a practice will come back after a year and say that that's what what yeah, that was the hardest challenge. It wasn't paying the bank loan back, it was it was coping with staff. Um or uh or the fact that people also need to realize that if they really want to buy their own practice, often in the first year they may earn less than they did as an associate. Yeah, for the longer term gain, you you might have to tighten your belt for a year or two uh and just get your hands dirty and get in there and and sacrifice a bit of your salary to build the business because that's what it's all about.

Dr James, 11m 14s:

Boom, there we go.

Kevin, 11m 17s:

And another point on that as well is um it's really important, I think, when you take a practice on to surround yourself with professional advisors and pay for them. Um I've always noticed the dentists that don't want to pay for professional advice, they'll be okay because they're dentists and and you know, dentistry is a great business. But 100% of the time, the people that pay for professional advice end up taking that extra step up and earning more money because they're they're and we were talking about this earlier, outsourcing some of their work to other people and leaving them to do what they do best. Um yeah, so to my mind, it's more important to think about the challenges of ownership than it is just the most recent interest rates. You you you know, we'll cost out the financials in any practice, and you have to look at a few practices before you find the right one. And that that's the point you were making a moment ago. Don't just jump on a practice, but go and find the right one. It's like buying a house. You know, there'll be one there that just fits. Um, so uh so that's all important. And then back to the funding, I mean that the the banks at the moment are very keen to assist. We've had you know, we've talked about all these different products over various uh podcasts recently, but there's real appetite there from the banks to help first-time buyers. You know, we've got um we've got terms extended from 15 up to 20 years on goodwill purchases, we've got 100% finance for people that may have bought a property and have you know struggled to put aside extra money to for the deposit on a practice. Um, we've even got products with no valuation fees and no legals, which uh which is just amazing, really. None none of these products were there a couple of years ago. So there is real assistance now for people buying their first practice, and you know, especially to my mind, the bit about terming the finance out over a longer period, um, which helps keep your monthly payments down. Because I think the banks have recognised that very few people actually keep their loan for 15 years, they're always going to refinance because they're refurbing, they're buying a second practice, they're or they're selling or doing whatever. So um so yeah, the fact they can actually extend to 20 years and often go over the term of the lease as well, I think it's a game changer. So um so that's really important. Um in terms of what people need to do to approach the banks, again, things we've talked about before, but it's it's you know, if you are gonna come in for money, make sure you run your personal finances well, don't have unpaid fees on your bank statements, um, look at your CV, and we're happy to look at that over with you as well, and try and get some sort of management experience on there. Um, and think about your your background assets as well. Uh the banks will accept if you haven't got any background assets but you've got a load of cash that accepts that you've you've done something with your money. If you've got no background assets and no cash, you're obviously going to be a more risky bet for them because the the first question is as a decent earned dentist, where's all the money going?

Dr James, 14m 9s:

Uh so uh what can what qualifies as a background asset in their eyes?

Kevin, 14m 14s:

Oh, good question. Yeah, so I mean, obviously, property is the main one. If you've bought your own residence, even if the mortgage is quite high on it, you've obviously put the deposit into a property. Uh, you may have ISAs, pensions, anything to show that what you haven't got is a big salary and a load of debt, a load of personal debt. Um Right.

Dr James, 14m 34s:

So they they actually yeah, okay, that's kind of what I was curious about. Like ISA's pensions, they actually take this into consideration, right? And prop property I kind of get, that's like very traditional, isn't it? But yeah, they'll even look at your your paper assets as in your stocks and bonds portfolio and your pension and your ISA.

Kevin, 14m 53s:

Definitely, yeah. And I said a lot of personal debt, obviously a mortgage is is personal debt, and the banks will accept that you've actually bought an asset with it. What they don't want is people uh earning big salaries and not buying assets. They're they're buying okay, a car isn't really an asset, is it? It's a depreciating asset. So if you're spending a lot of money on cars and personal loans and lifestyle, then it doesn't bode well for somebody to be able to take a bit of a salary cut and launch into owning a business. So um so that's really how they look at things.

Dr James, 15m 24s:

Good to know. I thought you were gonna talk next. I didn't want to interrupt, I thought you were in full flow. Okay, cool. So you've given us a little bit of an idea as to I guess the uh assessment process, right? And um that's fine, good to know. And you might have said this is that any different for someone who's who's acquiring a practice for the first time versus the second time, or is it roughly the same parameters?

Kevin, 15m 54s:

So on the personal side, it's pretty much the same. They're gonna look at the same information. On the business side, obviously there's a business to assess that the applicant already owns. So they'll be looking at the existing business and what the applicant's done with that since purchase. So a very easy win or quick win will be raising the fees up and raising the profit up. Uh, obviously that owes really well. It means that the goodwill value of the practice is increased, and you can leverage against that to buy a second practice then as well. Although, as I said earlier, there's also 100% finance available on the target practice as well. Um the bigger question for existing practice owners is how they're going to split their time. So we've got to be able to show how um the applicant can actually spend a reasonable amount of time in their existing practice and be in the new practice to grow it as well. So of interest to a lender would be how a principal dentist or an existing practice owner splits their time. Um the banks don't really like funding for a second practice that's going to be associate-led. Or not they don't like funding, but the loans of values are likely to drop down quite a lot because it seems an investment business. So it's quite important for us to have the correct story about how a principal can um can spend a few days in the new target practice, but also not drop uh their income not to drop in those in their existing practice. Um, because they'll obviously have to pay an associate to cover some of their time if they're working five days a week. So that's the calculation that we have to look at very carefully for someone buying a second practice.

Dr James, 17m 46s:

Nice, which obviously is much less of a consideration if it's associate led, right? And they're they'll they'll factor that in as well, right?

Kevin, 17m 57s:

Yeah, yeah. I mean it we we the best application for the banks is that somebody's gonna spend their time in both practices uh rather than having one that's associate led. Uh the minute it's associate led, as I said, it's viewed as uh an investment business and the loans of value is gonna be lower.

Dr James, 18m 14s:

I'm glad I asked. There we go. Kevin, we talked about 100% finance on one of the previous podcasts, and that's interesting for two reasons. One because a lot of people don't know that it's possible, as in you can borrow 100% of the goodwill and the property, right?

Kevin, 18m 33s:

Yeah, property isn't nearly always 100% as long as the financials demonstrate serviceability. Um, but the goodwill is quite recent, uh, and we've got two to three banks now looking at that, um, particularly for first-time buyers. Uh, and as we said before, you can generally get 100% finance as a second practice owner because you use your existing practice and leverage on that, use the goodwill value there. Um so, what looks good to a bank for a first-time buyer, as we said earlier, it's somebody that's got some background assets, uh, either cash or property, etc. Um, also who demonstrates that they are a food good fee grocer and can step into the shoes of the principal and basically run the practice. Uh so those are the key points. Um but but it's nice to see the banks recognize that buying a property involves putting a lot of cash in as a deposit. So therefore, people often hadn't got the uh the level of cash needed when they look for their first practice.

Dr James, 19m 38s:

There you go. And then that's interesting for that reason. And then also as well as that, well, we we kind of touched upon this anyway. Who is who is suitable for it? But I guess you kind of just said that really, didn't you? It's it's it it you know, anyone can get it in principle, uh, even now first-time bars, right?

Kevin, 19m 55s:

Yeah, so it's it's about the CV a little bit there as well. Someone who's got a few years' experience under their belt, built up of um built up some uh some kind of background assets um and buying their first practice, yeah.

Dr James, 20m 8s:

I guess the other obvious question to ask is is the interest rate? I know an interest rate is not obviously going to be the only factor that determines your repayments, but are the interest rates higher? Or are the no better question are the repr are the repayment terms less favorable on 100% finance? Because that includes the duration and also the interest rate.

Kevin, 20m 28s:

Does and actually the interest rate is often far more affected by the term of the loan. So the interest rate may be higher on a 20-year loan to a 15-year loan. However, the monthly payments on a 20-year loan are going to be cheaper, which is probably the more important factor for anyone buying. So everything has an effect on interest rate because the banks have um interest rate calculators and they throw all the information in. So um yeah, 100% would affect the interest rate, but but not so much. You know, it'd be you know a fraction of a percent. So um, yeah, not to my mind, not worth worrying about. And getting 100% is fantastic because the bank's buying the asset for you.

Dr James, 21m 9s:

And that's that's exactly what I was after when I asked that question. Like obviously it's it's always gonna be a little bit lick your finger, put it in the air. But even you saying it's not so much is reassurance, right? Because I would have just assumed that it's a lot more, or they somehow charge you a lot more, but you're not saying that that's the case necessarily for the science of it.

Kevin, 21m 29s:

Not particularly, no. Um, so as I said earlier, the um the term look alone does affect it, and the rate tends to be slightly higher for a 20-year term on goodwill compared to a 15 year term. But I always tell clients it's about your monthly payments. If you pay a slightly higher interest rate on a 20 year term, but your payments are a lot cheaper, that's got to be worth going for, hasn't it? You can always make lump sum repayments to the loan each year if you've got surplus cash to pay it off quicker. So if anyone's interested in contacting us to talk about finance. Uh you can reach me at kevin at saroma.co.uk or mobile number 0780 144 0622. So