Dr James, 1m 15s:

Welcome back to the Dentists Who Podcast today, another episode about practice finance, but specifically an expo's day on the things that we need to know before we say yes to our next time of practice. Because guess what? We're gonna get tied in for a long time to that debt, and we need to make sure it's on our terms as much as possible. I'm joined today by returning fist, Mr. Dan Fearon from Saroma Finance. Dan is here to give us the inside know-how that we need to know to make this decision correctly. Looking forward to this episode. As ever, 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 mini courses and webinar series on finance for dentists, including how to become as tax efficient as possible as well as understanding investing. All of this content counts as verifiable CPD, and you can download your certificates there and then on completion of each lesson. In addition to this, we also include a whopping 10% discount on your dental indemnity and a 5% discount on lab bills for dental principals, amongst other perks and discounts for members. Please use the link in the description to claim your verifiable CPD for this episode. Dan, my friend, welcome back to Dentists Who Invest podcast. Oh, we've up the production value. Yeah, yeah, we've definitely gone up in the world.

Speaker, 2m 33s:

I normally see you on Zoom. This is the first time face to face, I think.

Dr James, 2m 36s:

Yeah, I know. Tell you what, we've come so far from my flat in Leeds back in the day. Let me tell you, I don't think we ever did any episodes during that period. We tried to not talk about that period, Dan, and the reason.

Speaker, 2m 46s:

I think you were in the flat in Berlin when I spoke to you once. I think when you was hopping around everywhere. Globe, globe chopping everywhere.

Dr James, 2m 51s:

Yeah, I did go through that phase as well, you're quite right. But there was if you go back to the early days of the podcast, you can hear cars going past the window and police sirens and what have you. Offensive, which was offensive. Keeping it real, that's for sure. But yeah, that was my flat in Leeds, which was not it was a nice flat, but it was not designed to show podcasts in whatsoever. So yeah, we've come so far since these days with our with our roadmax or pretty good professional setup. Long may it continue, but yeah, we're planning to do more of these every single month now in this lovely studio in Finchley, North London. Dan, I did a little bit of an intro for you before you came on the podcast today. The people who are listeners of the podcast on a returning basis will know that you do practice finance. Yes. And we're here today specifically to talk about what dentists need to know to make the best decision whenever it comes to their finance and the inside know-how, the insider stuff as well. And almost like a little bit of an expose. Yeah. Uh, because we have covered this some of this stuff before in the Dentist Invest podcast, but what about the things that dentists fall into, which are huge flipping pitfalls that can really catch them out whenever it comes to that finance decision? What would you say those are, Dan? Let's jump straight in.

Speaker, 3m 53s:

Yeah, I suppose there's a few points that people sort of fall into. Um, everyone gets excited about buying their first practice, you know. Um, they found one, it's the perfect practice, and that's the one they have to have. Um, I suppose the thing that people can sometimes get caught up in is that that has to be the one. I I look at practices for you know the same person, and sometimes it might be the third practice they actually buy. So they've got to be careful not to be that's the one I have to have, because sometimes it doesn't work out. Their business is not a good thing. Get enamored with it. Exactly, yeah, because like that you fall in love, that's the it's like when you find a house that you want to buy, you know, that's the house I want to buy. But sometimes they've got to sort of take themselves back from that a little bit and actually look at the structure of the business, you know, what um what am I buying? Because I suppose one thing to look at is obviously when they're buying from a sales agent, they've got to make sure they're reviewing the figures from the sales agents. Obviously, I sales agents they they're good at what they do, they understand when they're looking at the price of a practice, but you need to have a look at it, what does that practice mean for me? What does it look like when I work at that practice? Because the e bit da figure is what you're gonna be serving, yeah, how you're gonna service a debt sort of going forward, so you need to make sure that figure is accurate. So we're boring sort of ex-bankers, so we look at it quite conservatively. So when we add items back, we add back in like the minimum amount we can because we need to justify that back.

Dr James, 5m 25s:

And can I just clarify that add back term? Yeah, right. So uh what you mean by that is obviously you've got the the the the the the actual in reality turnover and profit of the practice, right? But the problem what eBit DA is designed to do is to strip out the one-time expenses so you've got a more accurate representation of what it looks like for you sort of going forward, and what items that you can actually add back in that won't sort of affect you sort of going forward.

Speaker, 5m 53s:

So for us, we know normally we'll add back depreciation because obviously that's yeah, accounting tool. Uh the interest of maybe a loan for the outgoing um practice owner. But you've got to be careful that items that will be there going forward have not been added back in. That's the kecko, yeah, to the um eBidar figure because you're gonna have those costs, you know, something like maybe subscriptions that could have been added back in, but more likely you're gonna have subscriptions sort of going forward on a dental practice, yeah. So it's making sure that you're looking at those figures accurately and does that make sense to you on that? I suppose something else as well is on sales particulars, sometimes they can use projections within those figures. So they might have the actuals for maybe 2025, but they'll might have a like a pro right of this is what we think the practice could be doing, and have a look at is that how it's being valued? Are they using that figure to show you what the the value of the practice is? There's one thing that you'd need to know, I think, from that is if you're buying the practice and you've got 2025 figures, if you want an accurate sort of understanding of the practice, getting the 2026 figures, like management information, is key because then you actually know, okay, they've done a this is what we think the practice is doing in the future, but these are the actuals because that's what a bank's going to want to see because they the banks unfortunately work off, they work backwards where sometimes sales agents can predict okay, this is what we think the practice can do and what it is capable of. So it's important to make sure that you've got the accurate figures that you know what the profits are, because at the end of the day, uh when we look at loan to values, you know, uh Kevin's been on the uh podcast before saying, Yeah, we can do 100% um loan to value on business loans, but uh it's all based on serviceability, so we need to prove serviceability on that. So that's one sort of element to really understand the figures. What are you looking at within those sales particulars? Are they accurate? I suppose the other thing as well is ourselves, we we pride ourselves on being totally independent. We we haven't got a uh a practice sales agency as part of the business, so we you know we come in, we're completely separate. But I suppose sometimes you need to be careful or be wary of more is probably a better term, is that if you're buying from a um a business that is selling the practice or you're sorry, oh god, sorry if you're buying from a sales agent but then they've put uh moved you across to their finance team, then you know you may be tied into that finance team for a period of time. They may get you to sign an agreement in principle with them, not agreement in principle, uh terms of engagement with them, and then you could be tied into that for maybe like 12 months. Do you understand that? That you're signing a document that could be tying you to that agency for a period of time.

Dr James, 9m 0s:

And could I just say something on that? From what I understand, Danna, you'll know more in this than me, that that is the standard terms of service whenever you engage with them to purchase a dental practice, that's in the small print in there somewhere from most of the have I got that right for most of the brokers.

Speaker, 9m 13s:

I I know on some summer agents it would be in there. So I've not some I've not looked at everyone's uh terms. Sure, oh yeah.

Dr James, 9m 21s:

Listen, you're quite I shouldn't um um bes besmirch the good names of the brokers, of course. No, and then and listen, you know, this is it's it's just it's something to watch out for. Yeah, but the other important thing to mention on that, Dan, is that may actually work for you. Maybe you want to work with our finance team. That's okay. All we're sharing today is be aware this is the case, right? Yeah. And that may work for you, it may not work for you. At least you know it's there. UK dentists, Dentists Who Invests now has an official platform where you can learn about finance and obtain UK compliant, verifiable CBD 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 for 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.

Speaker, 11m 34s:

Exactly. And it's like sometimes that works perfectly, they all work together and obviously there's no problems. But for us, I suppose we we value that independence that we have, and then I suppose for us, I suppose it because we in effect we're working for our client, you know, they're looking to buy that practice, and for us, sometimes it it may allow us to sort of challenge some of the information that we've got where that may be a little bit more awkward internally. Um, we're able to maybe push back on the price, you know, is that the true value of the practice when we're doing at work, we're not sales agents, but you know how much debt can that practice service based on that, you know. So for us, I say the independence of it for us is key because I say we're working for our client, we're totally independent, we can push back whenever we can. So we feel that gives us sort of a special place within the market.

Dr James, 12m 29s:

Yeah, boom. And like I like we were saying a second ago, it's just good to be conscious of these things. And I think another thing to point out, Dan, because I still come across people who hold this belief, uh, you know, even to this day. Although I I think that a lot less people believe this to be the case uh nowadays than what they did previously. Just because you're a broker, just because you go through a broker, doesn't actually mean that you pay more.

Speaker, 12m 54s:

No. Um, so if you're going obviously, if you've got a great relationship with your bank, you know, you can go back to your your bank and they'll give you your their terms. I suppose the difference with working with a broker is that we will go out to the market. So we will engage your bank, you know, as part of our process just to make sure we go to everyone. But your bank won't say to you, Oh, by the way, this bank down the road can give you better terms. They won't say, Actually, there's a bank down there that may give you a longer term. So they might give you, you know, instead of 15 years, they might give you 20 years. There's also lenders out there that can do interest only periods, so there's some that can do up to five years interest only. So if you're buying your first practice, because you imagine the difference, you know, from day one, instead of going into okay, I've just bought this practice for a million pounds and I've got to pay you know repayments on day one, that sort of leeway to allow you to have an interest-only period, so you're you're paying just the interest on that loan for a period of time to let you sort of find your feet in that business, understand what's going on in the business, so it just gives you that sort of you know, possibly you could most people normally take like 12 months because that's a great way to do it. You understand what's happening. You might you know, although a practice looks great when you've had a look round and you want to buy it, but there could be once you're in there day-to-day working, okay. Actually, I need to do this in the practice, or I might need to change that chair. So that could give you that bit of capital, a bit of extra working capital to allow you to to put that money back into the business instead of paying the loan for the first sort of 12 months. And some banks can do up to sort of um five years, but in terms of your point for do is it more expensive to go for a broker? No, because what banks do they'll charge you an arrangement fee anyway as part of the loan process, and basically what that does from a broker point of view, it goes into a pool and they pay us out of that pool. So that uh typically they'll pay us a percentage of the loan, but it's not on top of the loan, it's just part of you know, they understand they need to um pay brokers because what the banks have done over the the last few years, they've taken away some of their sort of managers that used to go about to find new business. They've more more they've got like relationship managers, so in effect, they get the brokers to do that work for them and feed it into the bank, but it won't cost the client any more money because they've already factored in the arrangement fee as part of the process.

Dr James, 15m 30s:

Yeah, I'm pretty sure you can't do that anyway, right? You can't charge, I'm pretty sure there's a law against that uh that you can't charge more if someone went through any agent. I don't I don't know for sure. I just remember there was that whole scandal, it happened in uh cars, wasn't it? A car insurance or something belonging.

Speaker, 15m 47s:

Yeah, yeah.

Dr James, 15m 48s:

Anyway, we won't get into it there.

Speaker, 15m 49s:

No, no, there's no getting into that, but but what you'll find by using a broker, um, because the banks know they're competing against four or five different banks, they'll try and be a bit more final with their rates. So, what you might actually find if you're going to your relationship manager, they'll just quote you what they can do. But because the broker network understands there's four or five different banks trying to win that business, they'll price it a little bit finer, and sometimes that can be cheaper than if you went to them directly. It's great having a relationship with your bank, obviously, that will help you as part of your business, but you know, speak to the brokers because it's worth sort of having that conversation because I suppose we we understand what we're doing, we do it on a regular basis, and then we'll give you the market sort of rates that are out there in the mo at the moment.

Dr James, 16m 40s:

Yeah, great, great point to make. Great, absolutely great point to make. It gets that a little bit more competitive when they realise they're up against each other. Can I just reiterate? Can I just go back to something that you said a second ago? And I just think more dentists need to know this, okay? You can actually get periods at the start of your loan which are interest only. Yes, you can. Dentists don't know that, people don't know that, and that's between that can be a year, even up to five years.

Speaker, 17m 2s:

Yeah, five years. Five years is normally the max. It obviously again depends on serviceability of that. But then what banks are also doing is extending the the loan terms as well. Because before, if you had a 15-year um lease, okay, we can only go to 15 years. There are some banks who will go beyond the lease term as well. So, again, that helps with serviceability because I suppose the practice values are not really dropping, they're probably holding where they are at the moment. So they the banks need to find a way to make things serviceable. So extending the term of the loan will actually help them lend you more money. Because obviously, if they can do something, you know, doing a loan over 10 years make and doing a loan over 20 years, it makes a big difference to your monthly repayments. True. Then suddenly, like that that loan's affordable and can be done. And the good thing is, and on a lot of the loans, if you don't take a fixed rate, if you want a variable rate, you can still make lump sum repayments onto the loan without penalty. So if the practice is doing really well, you could you know chip away out of that loan quicker. So you've got that flexibility of the low monthly repayments, but if you want to put a lump sum into the loan to actually finish it earlier, you can still do that. So possible. Yeah, exactly. And you get it's like the best of both worlds, because if you've got that lump sum, you're gonna okay, I want to you know pay off a chunk of my loan, just put that onto the loan.

Dr James, 18m 30s:

And very basic question, I know we've covered this a million times before, but how much over base rate is a loan for a dental practice typically?

Speaker, 18m 39s:

Um depending on the the term, but you're probably looking in the region, something starting with a two, probably. Yeah, but then there are other other sort of loans if you looked at them, and you know, you might do a loan over say 15 years, but if the bank only committed to the the rate for like five years, you know, that could start with a one, that could be like one point four, one point four two. So there there are sort of ways, and it just depends on the clients, what they what they're comfortable with. Do they want a loan? Okay, I'm happy to have a loan for 15 years, I might pay slightly higher, but I know that's what my rate is for the next 15 years, or someone might say, Okay, I'm happy to take a bit like a you know a personal mortgage, you know, I'm happy to to to lock in a rate for for five years and then see what happens in the future. Because it could be that they their plan is okay, I'm gonna buy a second surgery or buy a third surgery, and at that point they might refinance the existing um loans they've got anyway. So it doesn't really matter that they only had a a commitment period for for five years because they're they're gonna churn it and buy another surgery in the future and then refinance it at that point anyway.

Dr James, 19m 51s:

Great. Summary so far, be aware of your options and also be conscious of the clauses in your contracts that may restrict who you're able to partner with whenever it comes to your finance. And then third thing from the summary so far is just really, really get granular with that eBit. Yeah, yeah, because that can get you, all right. Especially if it's overstated, practice looks serviceable and then it's really not. Be careful, be careful. Any more nuggets that you can that you know, I think a good way to look at this conversation, Dan, is you're sitting down with a uh someone who's about to buy a practice in six months, okay? They're committed, but they're not committed at the same time. They've got a little bit of flexibility. Any other nuggets or things you'd like to say to that person because that's who the audience is today?

Speaker, 20m 36s:

I suppose get yourself ready for purchase, you know. You get your C V up straight. Because it the the things that I would typically need for someone if they're looking to to arrange finance, I'm gonna need their CV. I'm gonna need to see their bank statements. The bank statements need to be clean. So no one's gonna lend you more money if they're looking at your bank statements and there's issues on them. You know, if there's an unpaid item or I was gonna say define clean, yes. I I I I won't yeah, it doesn't they don't need to be like loads of money on them, but it they just need to be running their affairs in a a way that the bank would be comfortable with. You know, if they've you know suddenly you know got a few things going out to gambling companies and the bank may not like that too much really. Sure. Credit card debt, is that an example? On credit card debt, it's it's not you know, most people do have a credit card, but as long as it's manageable, you know, you could you know some people take advantage of the short uh zero percent credit cards, you know, and then might have quite a few credit cards and sort of move the debt around and pay it off because then not really paying any interest, are they? They're just paying that transfer fee. So again, if there's a a reason for the credit card debt, we can explain that away. But if you've got like 30,000 here, 40,000 there, 30,000, they're gonna say, Well, are you managing your affairs at this moment in time? Why are we gonna sort of lend you a million pounds if if you're you've yeah, you you're not managing what you've got at the moment? It doesn't matter actually if they haven't got a like a personal mortgage. Some a lot of clients ask me, Oh, but I haven't got a personal property. But that doesn't matter really, because the business is going to be funding the loan. So as long as the business is strong enough, it doesn't matter that you haven't got like a personal mortgage. Banks like it when you've got like a you know some assets in the background, but it's not the end of the world if you don't. But and the the advantage also is if you've not tied into a a certain location, because if you know I've got a mortgage, I live somewhere, I'm tied there, I'm not gonna move. But if you're looking for a practice and you're not you you you you don't mind about the location, you're not tied in somewhere. You could look anywhere in the country if you're happy to move and you know go and live somewhere else to find the practice that you want. So that could be actually a a positive for yourself, really, because that you've you've not got a personal mortgage, you could just you're renting, you could just move somewhere else and sort of start trading and then purchase a business. But it's it's really having yourself ready because as soon as someone says, I want to buy that practice, or I've put an offer in for a practice, you need to have all that information ready to send over, like account. Tax returns, so it's all ready to go. So as soon as they say I can do it, because the sales agents want to know that they can get the finance because otherwise they'll just move on to the next person. So have all that information ready to go, and so you can send it off to myself as a broker to get the finance agreed. Because as if we move quickly, then we can get the agreements in principles, we can get the finance agreed, and then you're in a strong position for the practice.

Dr James, 23m 40s:

Fascinating. One thing I would love to cover just before we wrap up, and I actually I just want to say thank you because that was really, really, really useful. I I really enjoyed that today, and I learned a few things as well. One thing I really wanted to cover just before we wrapped up, uh, Dan, is 100% finance because that is friggin' cool, and a lot of dentists still don't know about it, and it can really help. I think it sort of you know gives us a good idea of the appetite of banks to lend the dental sector that they will give you 100% loan to value. Uh tell me, when is that possible and when is that not possible? We know it can be done, yeah, but not in every circumstance.

Speaker, 24m 22s:

Um, so I suppose the 100% finance is out there. There are quite a few banks that will look at that. So you have some banks maybe look at as a okay, we will do it on the dentist. So they'll say, okay, well, there's 750 for for a dentist by themselves, we'll lend 100% finance for that. If there's two dentists there, obviously 750 each, obviously that increases the amount that you can do. On other um banks, they'll just look at is it serviceable on 100% finance? But they're probably looking at and this is obviously this is uh roughly, but around 1.5, maybe a little bit higher than that, they're comfortable with the 100% finance. So yeah, it's called Goodwill? Goodwill, yeah, goodwill. So they'll do 100% finance on goodwill, and they'll do 100% finance on the freehold as well. 1.5 total? No, uh supposed 1.5 more on the goodwill side of things. Not to like lock in. Obviously, we can yeah, that that that's I'm just trying to give you a figure so people are are looking here, but it may be higher. But I suppose when the freehold's involved, a lot of that technically to the bank is secured to a certain extent, anyway, because they'll write that down. So yeah, even yeah, even up to that, they'll look at look at both really. So 100% finance on the freehold, 100% finance on the on the goodwill. So banks are happy to look it again. The main thing about the loan to value, it's more about serviceability. Because I can throw numbers out that sound really oh, 100% finance on this, 100% finance on that. But if you're looking at the practice financials, if we can't get to that 100% finance, then you're gonna have to put some money in. So that's why it's key to really look at what the practice is generating. It does it generate enough to you to take a salary from that practice. It doesn't have to be the salary that you're on at the moment, because obviously you may take a bit of a hit on your salary just to obviously get to that practice and then grow. But can it cover your salary? If then can it cover the loan repayments? Because as long as it can cover the loan repayments, why why wouldn't the bank do it?

Dr James, 26m 35s:

Zing. And you know what? That is a really great sound bite to end this podcast on. I think that's going to wind up in a reel at some stage. Dan, that was that cool.

Speaker, 26m 44s:

I wish it was.

Dr James, 26m 45s:

That was your mic drop moment right there. Dan, if anybody wants to reach out to you based on anything that you said today, how are they best off finding you?

Speaker, 26m 51s:

Yeah, so look at the website, so saroma.co.uk, or drop me an email, dan at saroma.co.uk, or give me a call on 07815 08748.