No Images? Click here DENTAL NEWSLETTER November 2018 Unhappy dentists who sold to corporates Lots of dentists who sold to a corporate with a condition of sale being a requirement that the vendor dentist(s) would work for the corporate as contracted lead dentists for an earn out period have found that changes to the practice brought about by the corporates have interfered with their ability to meet their contractual terms and receive their earn out payment in full. These contracts are two sided. Corporates who reduce the payout to the vendors on the grounds that they have not met targets when contracted as lead dentists as a condition of sale may themselves be in breach of contract if for example if they have:- 1. Made material changes to the practice without the agreement of the vendor dentist which directly impact on production. 2. Failed to provide a facility and services which they have an obligation to provide, ie, to a level which is equivalent to or better than which existed at the time of the sale of the practice. 3. Diverted away administrative staff or clinical staff to other practices owned by the group leaving the practice understaffed or lacking suitably trained staff and then expect the vendor lead dentist to meet the cost of hiring and training new staff within the practice. 4. Tried to enforce changes in labs, equipment, and staffing levels to reduce costs which detrimentally impacted on the vendor dentist’s ability to meet their contractual obligation or have made changes directed to the practice IT system, equipment, compliance and staffing conditions. 5. Have interfered with programmes in place to target market to a good patient demographic and have a pool of qualified staff available to either increase their hours or report for duty at times when the practice is short staffed and as a result have further damaged the ability of the dentist to meet their contractual obligation. This is particularly acute where a corporate has snuggled up to a health fund and directed prioritisation of the treatment of patients insured through that fund to the detriment of other patients thereby causing some patients to go elsewhere. Ultimately a practice which makes too many detrimental changes has difficulty in finding and holding onto replacement staff. If these type of events occur then it is likely that the corporate buyer of a practice will if challenged be unable to withhold payments under the vendor work out agreement. But it is costly to pursue a legal remedy. Scuttlebutt We heard that a group of vendor dentists who have sold to a corporate and claim to have been mucked around are considering a legal class action. Practice valuations David Collins and Graham Middleton have valued a multitude of dental and dental specialist practices. For a valuation quote contact David or Graham, or if unavailable, speak to Jenny O’Brien who will make an appointment for us to contact you. We will discuss the features of your practice, advise you what information you need to provide us with and provide a quotation for valuation. National Dental Care (NDC) - article Recently we reported that NDC had pulled its initial public offer when it was revealed that in respect of 17 of its practices located in Western Australia it had had to adjust its finances because vendor dentists had not been able to meet their contractual production targets. The dentists concerned may have had to forego their final payments under their sale contracts. This was a significant signal to the market that all was not well within the group. 17 practices being sharply written down out of a total of 58 would likely have frightened away the potential underwriters and being a material fact would have had to have been disclosed to potential share purchasers. It is understood that NDC consists of 58 practices with 260 dentists and 65 OHT/hygienists. Patient fees in 2018 were $116.5 million. The ability of a company to get the best out of practices spread across Australia is challenging. It raises the question as to how it could be confident of getting near to IPO and then discover very near their target date that they had a problem with 17 practices in Western Australia! That strikes us as a head office which was out of touch. Health funds and the future for quality dentistry Many of our dental clients have freed themselves of their preferred provider status and have not looked back. To explore this option, contact: Merv Saultry - merv@independentdentist.com.au Synstrat has no financial interest in IDN other than the interest of its clients. Too much life insurance? As dentists make financial progress they often find themselves paying for more life insurance than they need. For a no obligation check contact Cameron Darnley, a Synstrat partner who specialises in this area and is also a Financial Planner. Graham Middleton and Roger Armitage also give financial planning advice. Impact on Labor’s policy to confiscate surplus imputation credits This is complex and is very uneven in its application – the truly wealthy are not affected. Many people low down the economic spectrum are hit and in between there are superannuation funds which will need to fine tune their investments to escape. The Labor policy is complex, inconsistent and nasty. Please refer to our website www.synstrat.com.au for further articles on this topic. Wising up about residential rental property Read “Guru Bob and the boxes in the sky scam”, page 242 and “Guru Bob rises from the ashes: putting lipstick on pigs” in Synstrat Dental Stories, which is a 335 page book and a must read for dentists. It details a series of good and bad practice experiences but names and some details have been changed to preserve identities. It contains valuable insights for practice owners and intending buyers as to what works best and what doesn’t. To obtain a copy of this publication, make a tax deductible donation of at least $30 to the Delany Foundation, a charity which brings hope and opportunity into the lives of young people deprived of education in Australia, Papua New Guinea, Kenya and Ghana. Once you have made your donation, please email confirmation of your donation along with your postal address to cheryl@synstrat.com.au and a copy will be sent to you. Donations can be made by mail to: Delany Foundation PO Box 429 CASULA MALL NSW 2170 Or via direct debit to the Delany Foundation Ancillary Trust, BSB 062 784 CBA account number 4050 5402. Should you have any difficulties, contact Matthew Mahoney on 0419 202 787 or 02 9600 8184. Did you know? There are over 90,000 Amazon #1 Best Sellers! Smiles Inclusive share price Last month we noted that Smiles’ share price had plummeted after releasing its September quarter cash flow to the stock market but it has since touched 40 cents! Its subscription price pre IPO was $1.00 and it had touched $1.18 shortly after listing. Negative gearing fallacy It is best to strip away the noise and incorrect statements:- 1. Firstly residential rental properties are generally poor investments. Once unavoidable landlord expenses are deducted the net return on investment is nearly always poor. 2. Negative gearing has existed in Australia for about 100 years except for a brief period when then treasurer Paul Keating suspended it. He found that it had unforseen effects and reinstated it. Over the hundred years there have been numerous real estate booms and busts so negative gearing is not the prime cause. 3. In respect of rental housing the fact is that landlord expenses are either somebody elses tax deductible revenue, ie, interest costs, agent management fees, repairs, insurance etc or are paid to local and state governments in the form of rates and land tax. Those that claim that negative gearing is a big cost to revenue only look at one side of the ledger. 4. Because rent paid by residential tenants is not tax deductible but is tax declarable by the property owner it is entirely possible that the government actually makes a profit on the gearing of residential rental properties! Critics don’t separate the figures from gearing of commercial property or the gearing of equities. Residential landlords are mostly people on moderate incomes like teachers, nurses and police. The proposed Labor changes to negative gearing and capital gains tax are having a significant impact on property values because of the expectation of a change of government. Economics 101. Request to readers We ask that after reading this dental newsletter you donate a few minutes, or longer if you wish, of your time to email your comments to us concerning the information that you receive from Synstrat. Please also indicate what you believe are the major non-clinical issues facing Australian dentists at this time. We at Synstrat are always interested to hear the views of the dental community. Best wishes to all dentists. Graham Middleton The Synstrat Group are Australia's most experienced Dental practice business advisers, accountants, practice valuers and licensed financial advisers. 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