Smiles Inclusive Limited - Quarterly Cash Flow Report

In its report to the stock market of the 31 July 2019 Smiles Inclusive indicated that its net cash inflows for the quarter ending 30th June 2019 were $0.954 million after raising $1.2 million in a share placement!  In other words the cash flow would have been negative without that additional equity raising.

It also indicated that the previously agreed National Australia Bank acquisition funding facility of $30 million has been reduced to the current drawn amount of $14,708,000.  In other words the NAB has refused to advance further funding and Smiles Inclusive Limited has been told to sort out its finances!  Readers will recall that Smiles Inclusive Limited previously indicated that it was in breach of its banking covenants.  That normally leads to a savage cutting off of money from bankers and we wonder what motivated the “sophisticated” investors who put in the $1.2 million recently!

In fairness, this mess is not the fault of the current board or its CEO who took over following losses and downgrades and who had to survive a bizarre attempt by ex CEO Michael Timoney to regain control of the company via requisitioning of an extraordinary general meeting.

As the NAB financing facility has been frozen at the drawn amount we can be certain that further practice acquisitions are unlikely for a long time, if ever.

In a separate investor update of 31 July 2019 Smiles Inclusive indicated that it had reduced support office numbers by 15 staff but had created a contact office with a staff of nine, employed a new CFO, Procurement Facilities Manager and a Training Manager which sounds like a net reduction of three staff.

The new CEO, Tony McCormack, has a challenging job in front of him.  Smiles Inclusive bought too many practices of insufficient size and indeed the only way it could purchase so many so quickly was to purchase practices which would not have met the criteria of the more discerning corporates, 1300 Smiles Limited, for example.

We are reminded of Warren Buffett’s observation that if you appoint a new manager to a bad business it’s usually the business which emerges with its reputation intact.

We look forward to the release of Smiles Inclusive Limited’s full year financials which will be its full year financials.  There is likely to be a significant loss.

Smiles Inclusive Limited recently traded at 11.0 cents.

Dental Practice Valuations

For Dental Practice Valuations speak with Graham Middleton or David Collins on 03 9843 7777.

Observation of Well Performed Dental Practices with One Owner

• They have from one to three chairs.  More chairs divert too much of the principal’s time and/or lead to an extra staffing layer.  The practices tend to become less profitable but create more administrative headaches.  They have no practice manager.
• The most profitable sole principal practice owners I have observed have had two chairs; one for a highly productive principal and the other for the overflow work that the owner cannot do.
• The practice owner spends most of their working day in their own operatory so what happens outside must be kept tight and profitable.
•  Practices in a single location are far more profitable than ones which spread between two locations.
• Fewer full-time chairside assistants are preferable to a greater number of part-time workers.
• Don’t measure too many variables.  Monitor the bookings and fees to your own surgery, and in the case of an employee dentist, note their patient retention/follow up appointment rate and whether they generate personal referrals.  Have simple goals.  Good practices employ practice builders who create empathy with patients.  Nobody can afford to employ a practice destroyer.
• Remember almost all practices get most of their new patients from the personal referrals of their existing patients.
• If you want referrals keep your practice décor looking nice.  Even loyal patients are reluctant to refer friends if your premises are looking shabby.
• Profit is earned at the margin.  The extra procedure that is squeezed in at the end of a session is almost pure profit because the chairside assistant’s salary and the rent are already covered.
• The most profitable practices are not preferred providers to health funds.
• CEREC machines require at least two substantial users to be cost effective.
• Overly expensive lavish fitouts are often not cost effective.  Clean functional well presented premises will do.
• Before you spend $40,000 or more on dental consultancy check off the above list.  Get it right and providing your clinical skills are sound, your practice will compete well.
• Dentists are little islands.  Over the years many dentists have told me that their accountant has said that they are doing well with absolutely no basis of comparison because often they are the only dental practice, or one of only a couple, that use that particular accountant who has no means of identifying how efficient their practice is in a relative sense.  Often the accountant is wrong and dentists are shocked to find out when their financials are properly assessed that they have significant shortcomings in their practice.  However, often these can be addressed.  If you want proper practice benchmarking have your accounting done by Synstrat Accounting Pty Ltd.  If you are not sure of your needs speak to Graham Middleton 03 9843 7777.

Two Owner Practices

Two owner practices do best with a total of three or four operatories.  ie. One chair each for the principals and one or two chairs for employed dentists or employed dentists plus hygienist.

Practice managers other than receptionists with a courtesy title frequently cost a practice more in additional salary, superannuation, workers compensation insurance cover, payroll tax and other costs then the profit margin on additional employee dentists and hygienists and therefore practices should be kept fairly tight in size.

Strategic Dental Practice Business Advice

Contact Jenny O’Brien on 03 9843 7777 to make an appointment with Graham Middleton who has been providing advice to dental practice owners for 32 years relating to both practice performance and strategy and the personal financial strategy of the practice owners.

Practice Premises – Superannuation Funds – Beware

Contrary to popular folklore, buying dental premises into a superannuation fund is usually not the best long term financial option.  Successive changes to capital gains tax law including the treatment of active business assets marching arm in arm the superannuation changes mean that the vast majority of successful dentists are better off long term owning their practice premises outside of their superannuation fund!  Refer to “Buying Premises in Superfunds – Best Avoided” on our website www.synstrat.com.au.

Life Insurance Enquiries

Contact Cameron Darnley on 03 9843 7777.  Cameron can also provide traditional financial planning services.

Corporate Practice Acquisitions are Drying Up

Maven have withdrawn from the market; Ekera have tightened their criteria; Pacific Smiles performance in 2019 financial year disappointed; Smiles Inclusive’s acquisitions have been stopped by its bank; 1300 Smiles is cautious and the health insurance industry is in pain.  The evidence is overwhelming that corporate roll ups of professional practices be they dental, medical, veterinary or accounting are fraught with risk and have lots of failures.  Corporates simply cannot run practices as well as the best performed privately owned practices run by competent dentists.

Those mini corporates who have acquired a few practices and hope to make a substantial sum on selling their parcel of practices to a larger aggregator are likely to face disappointment.  When the music stops there will be nobody left to dance with.  In a minor way it reminds us of the aftermath of the 1987 stock market crash following which a hoard of heavily indebted entrepreneurs found that they had nobody to sell to.  A number of them ended in bankruptcy, jail, exile or early death.

For strategic dental business and financial advice speak to Graham Middleton or Roger Armitage.  For life insurance and traditional financial planning speak to Cameron Darnley.

Tired of Health Fund Predations

If you are sick of the interference of health funds in your practice and the manner in which they rip off both patients and dentists, we recommend that you give Independent Dentist Network (IDN) a call on 03 5367 0163.

Synstrat has no financial interest in IDN’s services other than its benefits to our clients but it is reputable and we have heard good reports of its results.

Best wishes to all Dentists,

GRAHAM MIDDLETON