No images? Click here New Veterinary Opportunities We wish all veterinarians a Happy New Year and especially those involved in wildlife post bushfire care. New Veterinary Opportunities Much evidence indicates that corporately owned veterinary practices have a significant tendency to drive away clients who strongly prefer privately owned and operated practices. On a regular basis we have practice owners telling us that they have received an influx of new clients since a corporate bought a practice near them. The common story is that once a practice is taken over by a veterinary corporate it no longer offers the same degree of personal care and attention of owner operators. Typically, more part-time vets fill the roster as previously full-time owner vets retire and there is a constant theme of having lost the personal control, confidence and recognition factors. Additionally, selling targets and overt sales work ups by less experienced vets tend to be far more obvious and are resented by clients. Hence, the clientele move on as owners walking their dogs tell their friends of their experience and their friends recommend a privately owned and conducted practice. Vets who have commenced new practices near recently acquired corporate practices and who present their practices sensibly and are there for the long term inevitably win substantial business away from veterinary corporates who cannot guarantee the continuity of vet to client relationships. Financial Rewards Many years of examining veterinary practice financials on a regular basis and of advising many successful veterinarians have demonstrated to us that the long term rewards of practice owner operators will likely far exceed those of vets who are going to spend their clinical years working for a corporate. Corporate Risk All relationship businesses face significant risk when corporately owned. Stock exchange listed relationship businesses exhibit substantial failures or weak outcomes demonstrated by a range of accounting, dental, medical and veterinary corporates. The risk of failure and poor outcomes is so significant as to indicate that the risk in the operations of corporatised relationship businesses is far greater than many investors initially suppose. The Fundamental Limitation on Veterinary Corporates Throwing enough money around enables a corporate to buy up practices but managing those practices and growing their profit proves to be challenging. Whereas a company such as BHP or Rio Tinto can mine and shift increasing tonnages of iron ore by buying bigger machines and increasing automation, corporates cannot figure a way for a vet to consult with two patients simultaneously or to operate on two dogs at once. Nor can a dentist drill two patients’ teeth simultaneously. Hence, there are fundamental staffing limitations imposed in veterinary and other professional service practices. When a vet who is prepared to work hard full-time or better still a partnership of two hard working vets open a practice near a large corporate practice or preferably between several corporate practices, their experience is that they quickly become viable practice businesses and in the long term will outperform the corporate practices around them. There is nothing that the corporates can do to stop this happening. Veterinary Practice Valuations Graham Middleton and David Collins and other staff of the Synstrat Group have been valuing veterinary practices for many years. Veterinary practice valuations may be required for the purposes of buying, selling, partnership entry or exit, family court settlements or to satisfy bank lending requirements. Initial enquiries should be made to Jenny O’Brien on 03 9843 7777 or telephone Graham Middleton or David Collins. Too Many Part-Time Vets Corporatisation has accelerated the trend towards the veterinary profession being one with many vets wishing to work limited family friendly hours while older mainly male full-time vets have retired or are working out their contracted buyout obligations due to corporate acquisition. The profession is therefore one of increasingly part-time vets. We have been advising veterinary practice owners including valuing practices, benchmarking practice performance, advising on business structure and providing financial advice for many years and it is clear to us that in this environment vets with sound clinical skills, and importantly good interpersonal skills who are prepared to work hard to build up a reliable practice will thrive. Our studies of veterinary financials indicate that they can potentially end up millions of dollars better off by retirement compared to vets who will spend their clinical careers working for a corporate. For advice on purchasing practices or on veterinary start-ups including the provision of business structure, accounting, practice performance benchmarking, business strategy and financial matters please contact Synstrat – initial contact is via Jenny O’Brien on 03 9843 7777. 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. For advice on life insurance and traditional financial planning products speak to Cameron Darnley. Buying Veterinary Premises into a Superannuation Fund Most vets 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 vets 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 vet 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 veterinary premises into a superannuation fund. Advice on specific situations is required. High Rise Apartments are Poor Investments Buying high rise rental apartments off the plan rank among high risk investments with high probabilities of:-
There are always better investments than buying high rise apartments off the plan with the worst of them marketed through property seminars run by skilled spruikers using emotional selling tactics. Veterinary Partners Buying National Veterinary Care Australian Veterinary Owners League Pty Ltd (VetPartners) is set to acquire National Veterinary Care Limited via a scheme of arrangement, subject to anticipated shareholder approval which will give it a combined 243 practices across Australia, New Zealand and Singapore. The bigger that veterinary corporates become the more remote from the day to day activity of veterinary consulting and surgery their head office becomes, and the greater the advantage they offer to privately owned and operated practices to compete with them. We anticipate that eventually Veterinary Partners will either have an IPO and share market listing of its own or a private trade sale. To this writer the corporatisation and consolidation of corporate veterinary practices looks like the late stages of a bubble. As veterinary practitioners realise there is long term money to be made because of the natural relationship advantage that veterinary owner operators have over corporates, we expect that Veterinary Partners will experience significant difficulties in growing its fees per practice as opposed to simply acquiring more practices. Their real success about which they may be circumspect will be the change in fees year by year per practice, not the number of practices that they acquire. The activities of most veterinary and dental corporates remind me of the 1980’s entrepreneurs who went on debt funded business buying splurges. Many of these had sad endings. Damage Practice A vet who previously owned a large capital city practice which is now owned by a corporate told us that looking at his old practice is like having owned a prestige European vintage car which was kept in immaculate condition, selling it and seeing it parked in the street a year later with many scratches and dents! How Stockford Limited Imploded Stockford set out to consolidate accounting practices in the 1990’s but in 2002 it shocked the market by declaring a large loss and huge goodwill write off. Shortly afterwards insolvency practitioners Korda Mentha began the process of selling its practices mostly to former principals at prices well below acquisition and beginning its liquidation. However, individual practices were all profitable when originally acquired. The corporate model simply had too many defects and hard working former owners having banked their sale proceeds simply didn’t have the same drive when they became employees rather than owners. Working long hours to finish accounting assignments on time gave way to 38 hour weeks and golf afternoons. Former principals no longer had the drive to chase new business and practices quickly declined from being profitable pre-acquisition to being unprofitable soon after acquisition. Dreaming If anybody believes that employees, including the ex-owners of corporate veterinary practices are going to maintain the same drive as owners had when building the practices after they were acquired by a veterinary corporate, they are dreaming. Regardless as to having signed a contract to work for a corporate for a period after sale, having banked the proceeds of the sale and set themselves up financially, those former owners are rarely going to work as hard as they previously did. But where practice partnerships have sold to a corporate we note younger partners who were dragged into the sale to a corporate by older owners have in some instances started new practices, purchased practices or purchased partnerships in practices. The ones we observe have grown in fees. They are clearly motivated by the desire to build new profitable practices. Getting Good Advice If you are not satisfied with the accounting and business advice that you are getting, we would welcome a call. Please telephone Jenny O’Brien on 03 9843 7777 to make an appointment with Graham Middleton who analyse the financials of your veterinary practice with you and direct you towards a Synstrat accountant who can deal with issues that require attention. Synstrat Group consist of two companies, Synstrat Accounting Pty Ltd and Synstrat Management Pty Ltd with the latter holding financial services license number 227169. The distinctions are for licensing and regulatory purposes. The two Synstrat companies are owned by the same six directors who all work in the Synstrat Group. Best wishes to all veterinarians, GRAHAM MIDDLETON The Synstrat Group are Australia's most experienced Veterinary 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. Speak with Synstrat staff as appropriate. 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. 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