No images? Click here We welcome all dentists to 2020! Why do dentists with similar size practices have widely different financial situations at retirement? Refer to the latest article, link attached for your convenience: http://www.synstrat.com.au/LiteratureRetrieve.aspx?ID=204081 Dental Corporates – 1300 Smiles Limited vs Smiles Inclusive Limited Recently 1300 Smiles Limited completed the purchase of two practices from the troubled Smiles Inclusive Limited. It begs the question as to why 1300 Smiles Limited didn’t make a takeover offer for the whole of Smiles Inclusive Limited when the two companies at recent share prices have market capitalisations respectively of $146 million for 1300 Smiles Limited and $6 million for Smiles Inclusive Limited. Almost certainly the idea would have been considered by Daryl Holmes CEO and principal shareholder of 1300 Smiles but discarded because of the complications and legal risks involved in buying a company under threat from legal class action and which has troubled relationships with joint venture dental partners. While the National Australia Bank, whose debt covenants were breached by Smiles Inclusive Limited, would almost certainly have welcomed stronger ownership hands, the risks and complications involved would have precluded a full acquisition. A proportion of the practices in Smiles Inclusive Limited would not have met 1300 Smiles Limited minimum standards for acquisition and such an acquisition may have further encouraged a legal class action against Smiles Inclusive Limited once it had a more profitable owner. All of this is of course hypothetical since it didn’t happen. The situation of Smiles Inclusive Limited has highlighted the risks involved in corporate roll ups of professional practices and means that any new proposed dental, medical or veterinary corporate IPO and stock market listing will be subjected to significantly greater scrutiny than was the case with Smiles Inclusive Limited. Corporate Weakness The reality is that well run privately owned and operated dental practices outperform corporate dental practices and will do so over the long term. Whereas big business can invest in bigger machines and automation to save labour costs, dentists can only treat one patient at a time and dentistry is a personal relationship business. While BHP or Rio Tinto purchase ever larger machines to shift larger quantities of iron ore, no dentist can be equipped to drill two patients’ teeth simultaneously. The bests dentists with good clinical skills and good personal communication skills inevitably seek ownership in their own practices. Providing that they structure themselves appropriately some practice owning dentists will end up millions of dollars better off at retirement than will a dentist who spends their clinical years working for a dental corporate. For further advice on purchasing and structuring practices please consult Graham Middleton on 03 9843 7777. Speak to Jenny O’Brien to arrange an appointment. High Rise Rental Apartment Investments are Dumb! The reality is that wealthy people rarely own these type of investments because they introduce peculiar issues such as body corporates and body corporate charges, high landlord expenses in the form of rental management arrangements with real estate agents, water and municipal rates, insurances, etc. and therefore the net rental yield even before taking interest deductions into account is poor. Most rental apartments are in fact owned by public sector employees in the form of police, nurses, schoolteachers and public servants who because of their relative security of employment find it easy to get bank loans. Worse still is buying residential apartments off the plan because at eventual settlement it is normal for a majority of apartments to be valued by bank lenders at a value well below the contracted price. This is because developers budget up to about 20% project cost for marketing their apartments to potential buyers via their own onsite sales arrangements or via property spruiking organisations. As Phineas T Barnum, the famous American circus entrepreneur observed, there’s a sucker born every minute. Buying high rise apartments off the plan is for suckers. Question: Why are freestanding dwellings better investments than high rise units? Answer: How you can you do an extension in an apartment? Listed Investment Companies and Self-Managed Superannuation Funds Putting most managed funds and most listed investment companies into a self-managed superannuation fund is a contradiction in strategy and guarantees poor returns long term since most managed funds and most listed investment companies have high internal management expense ratios (MER’s). For further advice on superannuation funds, administration and advice arrangements please consult Graham Middleton or Roger Armitage on 03 9843 7777. Buying Dental Premises into a Superannuation Fund Most dentists are better off long term not purchasing premises into a superannuation fund. This has been the case since the introduction of the small business capital gains tax concessions in 2001 following the Ralph Review of business taxation. Many dentists who are likely to fall within the parameters will pay no capital gains tax on sale of their premises. Gearing property into a superannuation fund with a tax write off of 15% compared to gearing it privately against a marginal tax and Medicare rate of up to 47% is a poor strategy. For specific advice on the subject please consult Graham Middleton or Roger Armitage on 03 9843 7777. There are good reasons to start a superannuation fund but purchasing premises is generally a poor reason to do so. There are specific situations such as a dentist needing capital to upgrade their home and having an existing superannuation fund, who sell their premises into the superannuation fund in order to free up some personal capital for their home upgrade. There was also a brief window of opportunity when then Treasurer, Peter Costello, introduced restrictions on the amount of non-concessional (non-tax deductible) contributions that could be made to a superannuation fund and gave a brief concession of $1 million of contributions prior to a closing date to allow transactions contemplated or in progress at that time to occur. At that point some transferred their practice premises to their fund to increase the amount of asset in their superannuation fund and beat the rule change. However, under current taxation and policy settings it is generally not advisable to acquire dental premises into a superannuation fund. Advice on specific situations is required. Joint Venture Practice Ownership Structures Beware of joint venture proposals to buy part of your dental practice. They can have significant disadvantages of which many dentists may be unaware. For further advice in such matters contact Synstrat Management Pty Ltd on 03 9843 7777. Initial contact is via Jenny O’Brien. 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. The information contained herein is of a general nature and no specific action should be taken without individual advice. Synstrat Management Pty Ltd P. 03 9843 7777 ABN 57 006 295 325 If you are not the intended recipient of this communication please delete and destroy all copies of this message and telephone Synstrat on +61 3 9843 7777 immediately. If you are the intended recipient of this communication you should not copy, disclose or distribute this communication without the authority of Synstrat. Any views expressed in this communication are those of the individual sender, except wh ere the sender specifically states them to be the views of Synstrat. 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