No images? Click here STRATEGIC ISSUES FOR DENTISTS Health Funds Australian Prudential Regulation Authority (APRA) Board Member Geoff Summerhayes has said that the prolonged exodus of younger members from health funds was putting the sustainability of the industry in peril and has forced many funds to merge or fold. His comments and the Grattan Institute’s similar comments were widely reported in the print media on the 5th February 2020. There are predictions that only the biggest insurers BUPA, Medibank and NIB might survive, some include HCF. That comment was attacked by smaller funds some of which are closer to their members than other big funds. We doubt that the biggest funds are the most efficient. The reality is that young policy holders between the ages of 20 and 34 are leaving the private health system in droves while health insurances become a lot more expensive for older members. What commentators avoid pointing out is that hospital insurance cover is cross subsidised by extras cover and therefore extras cover represents a poor deal for most who take it out. This is something that dentists have known for many years. Profession Versus Industry Dentists who have completed a demanding degree and registration procedure belong to a profession – dental suppliers and dental fit out firms belong to an industry. The Book – Synstrat Dental Stories Did you know that:-
were all dentists. In the case of Freyberg who trained as a dentist he may have had scant time beside a chair before military involvement took over. Synstrat Dental Stories by Graham Middleton is a 335 page book which is 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 mary@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. Smiles Inclusive Cash Situation The Smiles Inclusive quarterly cash flow report for the December 2019 quarter indicated that it has raised approximately $3.3 million from its non-renounceable one for one rights issue at 5 cents per share completed on the 16th October 2019. It also indicated that it received $1.863 million net from the sale of the Gatton and Laidley practices but the net result of its operating investment and financial activity showed a net improvement in its cash reserves of only $364,000. As well as the two practice sales it closed two practices which apparently proved to be unsaleable. Its quarter report to the ASX indicates that Smiles Inclusive had significant financial issues arising from lower receipts over the Christmas period, litigation matters and increases in insurance costs. Interest and financing costs for the quarter were $591,000. Debt At 31 December 2019 it had senior debt and acquisition facilities to the NAB of $14,708,000 plus a working capital facility of $4 million and third party loans of $900,000. It also had ancillary financing facilities of $500,000 and equipment leasing facilities of $3,715,000. Share Price Its share price on the 5th February 2020 was 4.5 cents subsequently falling to 4.3 cents. However, with a thinly traded low cap stock any significant selling or buying of the stock is likely to move the share price. ASX Query of Smiles Inclusive Limited (SIL) ASX Listing Compliance issued a “please explain” to SIL on the 6th February 2020 noting that it had negative net operating cash flows for the quarter ending 31 December 2019 of $3,215,000. SIL’s response indicated that it remained of the opinion that it continued to believe in its underlying business model and expected it to be able to continue its operations and meet its business objectives as a result of implementation of its turnaround plan. Synstrat’s comment is that a share price of 4.3 cents from a company whose IPO subscription was $1.00 in April 2017 and which has recently had a one for one share issue at 5 cents indicates that the market has little confidence in its long term survivability. One to Three Chair Practices Most Profitable! Overwhelmingly dental practices owned by a single dental owner are the most profitable having one to three chairs. Yes, there are a small number of very profitable solo operators! More numerous are single owner practices having two or three chairs with the most productive surgery usually being the one used by the owner. The related important issue is that of blocking up assistant dentist appointments so that say, four days of patient appointments aren’t spread over five days of clinical time, meaning that one day per week of costly chairside assistant time is wasted. So a key issue for dentists with multi-chair practices is having the minimum number of assistant dentists’ days fully booked rather than spread out. Single owner practices with more than three chairs tend to be less profitable than the best single dental owner two and three chair practices. We attribute this to the fact that a dentist busy in their own operatory has little time to spend supervising other clinicians but necessarily may have to fix up some of their problems. Having too many employee dentists spread over too many surgeries means that the efficiency of the owners own surgery is reduced. No doubt somebody will claim to be the exception to the one to three chair rule, but it is the exception which proves the rule of thumb. For two dental owner associateships the most profitable size of the practice is from two chairs to four chairs based on our observations over many years. Tightly run, well presented, efficiently booked practices are the long term answer. Synstrat Services to Dentists The Synstrat Group provides dental practice business advice, accounting services, dental practice valuations and financial services to dentists. For advice on practice valuations speak to Graham Middleton or David Collins or if immediately unavailable speak to Jenny O’Brien or email Jenny at jenny@synstrat.com.au who will arrange follow up. For strategic business practice advice first contact should be with Jenny O’Brien who will arrange an appointment for a meeting with Graham Middleton (for Melbourne based dentists) or a telephone conference if from interstate or country. If appropriate, Graham will also introduce you to an accountant who best meets your needs. Graham Middleton, Roger Armitage and Cameron Darnley provide financial services and Graham has been advising dentists’ self-managed superannuation funds for over 32 years. Cameron can also assist with life insurance matters. Health Fund Interference in Practices There continues to be significant concern about interference by private health fund insurers in practices. Differential rebating of dental benefits is unfair to many health fund clients. Attempts to profile practices from HICAPS data is of dubious accuracy since many high performing dentists are not preferred providers and some choose not to have HICAPS. Many years of benchmarking practice performance and talking to dentists has shown that there is a vast difference between practices in respect of the skill level of dental owners and their individual preference with respect to various types of treatment provided with general practitioner dentists variously choosing to keep inhouse or alternatively refer out to dental specialists, endodontic, complex prosthodontic, implant placement, wisdom teeth extraction and periodic treatment, etc. Therefore, HICAPS data will be of questionable reliability when comparing practice treatments. Financial Basics All things being equal housing prices go up when interest rates fall and vice versa. Similarly, share markets are vibrant when interest rates received on bank term deposits are low. Currently 10 year Australian Government Bond notes are selling at their lowest yield in most of our memories. Residential v. Commercial Property Investment Residential and commercial rental outcomes differ because residential landlords are responsible for paying for substantial outgoings whereas most commercial leases require the tenant to pay. Hence, the net yield on a commercial lease is usually much greater than the net yield on a residential rental property. Landlord and tenancy legislation in respect to residential mortgages tends to be heavily in favour of tenants’ rights whereas commercial tenancy tend to be more even handed – obviously legislation varies from state to state. Commercial tenants mostly have a vested interest in keeping up the attractive presentation of premises from where they do business, whereas often this does not occur in respect of residential tenancy. For dentists it has come down to our view that for most their own home and their dental premises are far better investments than residential rental properties, and indeed, there are almost always investments with better outcomes than the latter. Flaws in the way residential house statistics are arrived at tend to show residential rental properties in a better light than underlying reality because owner occupiers of houses are far more likely to spend capital on improving them, and hence, they show greater capital appreciation which feeds into the overall housing statistics, whereas rental housing does not achieve the same amount of capital investment in property improvement by their owners. Statistics therefore suggest that residential rental property will have better capital appreciation than is actually the case. 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. If you do not wish to receive this email in future, please reply to the sender requesting termination of service. |