No Images? Click here DENTAL NEWSLETTER July 2018 Inadvisable Dental Start upsThe success of cold start ups is poor. Failures are not as publicly apparent as occurs because failure tend to occur quietly as bankers move in and bills can’t be paid. It is better to buy an established practice with a reasonable fee base than to do a practice start up unless the dentist is well known in an area and is not under a restrictive contract. Dentists doing an expensive fitout into high rent premises in major shopping centres are at high risk of failure. Sometimes their fitout and equipment is hardly used when their inability to cover rent and financing costs leads to shut down. Dentists who do a start up in a strip shopping centre by buying premises then doing a fitout (there’s generally no such thing as a cheap fitout) and start with no profile in an area already serviced by numerous long established practices face the fact that on day one they have no personal referral base in the area while the established practices have substantial referral bases and patients invariably ring the dentist of their choice to make an appointment. If a new person to the area asks their neighbour to recommend a dentist, an existing established dentist will be recommended. The days are long gone when dentists were able to start up a practice and quickly fill it up with patients. There is the odd successful start up where somebody involved is charismatic and has unusual marketing skills, but those are extremely rare. Most would have been better off had they bought an existing practice. There are failed or failing practices seeking buyers but which are a serious trap for the unwary; practices with minute fee bases who are losing money and desperate to sell. We see evidence of this frequently and have to advise potential buyers that it’s not in their best interest to purchase. Be careful as to who you trust when it comes to buying a practice. Some brokers will stretch the truth and some of the financial information that is provided is inadequate. Many accountants don’t understand the economics of dental practice. Dental numbers overflow Looking backwards, we estimated that there would be between 1300 and 1500 surplus dentists, full time equivalent, in Australia some years ago. Since then the net increase in dental board registrations is keeping pace with or exceeding population growth. Currently there are almost 1500 dentists yet to qualify at Australian Dental Council exams with many having failed on multiple occasions. The current pass rate is around 20% and hence there are several years of examinations to clear the repeated failures assuming that most get there eventually. We can probably expect about 300 dentists per year to come from this source and probably another 600 from the nine dental schools plus dental therapists and hygienists. How safe? A dentist who consistently fails at the Australian Dental Council before qualification may have lost their clinical skills from their overseas practice and may be a risk to employ. A dentist from an Australian Dental School may be a better proposition but needs to gain employment for at least several days per week quickly in order to retain the skills that they learned during their studies and build on them. Sadly some dentists fail to gain employment quickly enough or sufficient employment and may not be safe working as dentists. Some will be forced to drop out of the profession. Two types of practice There are well established practices with good relationships with patients and who have a strong referral base. Even in these strained times, we see clear evidence that some of these practices continue to do very well. At the other end of the spectrum, there are dental practices which are too small to be viable and struggle to exist. In some cases there is evidence of over-servicing and mis-servicing of patients in a desperate attempt to cover their expenses. Stories abound among established ethical dentists from whom a second opinion is sought after a recent start up practice has advised them that they need eight fillings or suggested that they need to have all the teeth from their lower jaw removed and have an all on four inserted yet the experienced dentists tell them that they need no fillings or perhaps only one or two and that their teeth can be fixed without the extreme treatment recommended. Clearly the mistake of introducing an immigration program and additional dental schools in creating a big surplus of dentists has led to some among them being so desperate to cover their expenses that they are prepared to act in an unethical manner. The gap between the good practices and the bottom tier of practices has never been wider in Australia. When should registration be denied? Should dentists who only qualify at ADC exams after many attempts and who have been without clinical experience for several years or more be registered? What do readers think about the rights of patients to be treated by dentists with appropriate clinical experience? Practice business advice Advice concerning practice performance, structuring of dental associates, timing of associateship changes, performance measurement, health funds, marketing of practice services etc. For initial discussion on these subjects contact Graham Middleton – if unavailable contact Jenny O’Brien 03 9843 7777 to make an appointment for a face to face meeting or telephone conference – charges apply. Falling health insurance coverage torpedos Ramsay Ramsay Health Care announced that it was facing “more challenging market conditions” and indicated that given the current climate around private health insurance and affordability it expects the trend to continue into 2019. It announced a profit downgrade. Press reporting was that there was a substantial shift towards public hospitals as health insurance cover continued to fall. Saving money on life insurance Many dentists have been sold inappropriate level premium policies which are unnecessarily expensive. Successful dentists gradually reduce their need for life insurance as their assets including superannuation. Cheaper life insurance cover will meet their needs. Speak to Cameron Darnley, the Synstrat partner who deals with life insurance to determine whether you can save money through a better deal. Don’t practice in the dark – Practice performance benchmarking Following the production of dental practice accounts by our team of accountants we benchmark our clients’ performance against the continually updating database of dental practice performance from an Australia wide clientele of dentists. Many dentists practice in isolation with no idea as to how their practice compares with other dentists. Many accountants have only one or two dental clients and give inappropriate guidance by comparing their performance with miscellaneous small businesses whose performance is irrelevant. If you’re in the dark speak to Graham Middleton 03 9843 7777. We will analyse your issues and guide you to a Synstrat accountant suitable to your needs. For appointments with Graham, speak to Jenny O’Brien 03 9843 7777. Charges apply. What do 61 vacant chairs mean? In the lead up to Smiles Inclusive float, investment bankers and brokers were being fed the line that the 52 practices being purchased had 61 totally vacant chairs (out of 154) offering a great opportunity for growth! On the contrary it is evidence that chairs were put into practices because they were needed at that time but that practices are overall now far quieter than in the past. Smiles Inclusive first full year financial results won’t be available until around September/October 2019. Whatever results it produces for the 2018 financial year given the lateness of its IPO and acquisition of practices will be meaningless. Until it produces a full year’s results and we can get a view of how it is performing, it should be avoided. Dentists approached to sell their practice and join its vendor scheme would be wise to wait and see. The year on year growth forecast in the pro forma accounts of its IPO prospectus strained credibility. Nor has there been confirmation that the practices purchased constituted the same group of practices as were featured in the pro forma accounts in the IPO prospectus. Dental practice valuations A valuation may be required because you’re considering buying or selling a practice or becoming an associate in a practice or selling an associateship part of a practice or need to provide comfort to a bank lender or to resolve a dispute between dental practice owners. Speak with Graham Middleton or David Collins 03 9843 7777 or if unavailable speak to Jenny O’Brien who will arrange an appointment.
Synstrat Dental Stories 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 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.
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. |