How do you make the right choice for your personal and professional financing arrangements? Will Longfield asked the experts
Choosing a loan to fund a new practice purchase or fancy fit-out is frequently stressful. Thankfully, most dentists only have to do it a few times in their careers but it can still be a daunting process.
There are three elements of a dental practice that frequently require financing: practice purchasing, equipment leasing, and overdraft for day-to-day needs.
Each has different loan options to accommodate the differing levels of cash flow required. Often, a specialised dental financing company will come up with a finance agreement that incorporates all three of these considerations, which can save dentists a lot of time and headaches.
Stafford Hamilton is the NSW state manager of Investec Australia, a leading specialist banking company. Hamilton says Investec’s approach involves thinking outside of the square and meeting challenges in unconventional ways.
“The two most common courses of action for dentists involve either buying existing practices or setting up a new practice from scratch, which we call ‘squatting’,” Hamilton says.
He says that considering the variables is no easy task but integration of the day-to-day operations of your dental practice into the long-term financial strategy of the business that drives it is a critical element of your continued success.
Country dentist Dr Richard Wise moved to Tamworth in NSW in 1995. He began his career as an employee at a small practice and after a few years, he organised to buy out one of his employers. By 2007, he had his share of the group practice and, with the aid of a financing arrangement with Medfin, is now the proud proprietor of his own clinic called Happy Smiles.
Dr Wise says he achieved his goal of establishing his own practice “through a combination of financing and a lot of effort”.
“The bank will always ask for a business plan to see if you have the potential to pay things off,” he says. “When Happy Smiles got started, I had a very direct vision of what I wanted to achieve.”
Dr Wise has now expanded and in May last year, he bought a brand new building and moved into a seven-chair facility that he designed himself.
“I’ve done it step by step,” says Dr Wise. “Buying a share of an established practice is the cheapest way of doing anything, especially if you’re new to the industry. Once I got that going, moving out to set up on my own was relatively affordable.”
Experience should be the key for any choice you make that affects the financial status of your business, finance expert Hamilton says. “People come to us because we know dentistry. We know what they want before they know what they want. Most dentists only do this once or twice in their lives; we do it every day of the week.
“We are aware of what’s required for a practice to be successful and we know when to take a risk on young dentists.
“It can be a low-risk profession, so in most instances that allows us to take calculated risks and take more of a chance on the individual than most other banks,” he says.
Although practice purchase financing is something Dr Scott Petrie of Optima Dental Clinic in Gladstone, Queensland, hasn’t considered in a few years, when it was an issue, he knew how he preferred his interactions with lenders. “I wanted it to be brief, simple, and with someone I liked,” he explains.
“It was usually all sorted in one phone call; that was mainly the bit I was happy about,” the Queensland dentist says.
Dr Petrie says that ‘‘a good relationship with the lender on a personal level’’ is the key to a workable finance solution for your practice.”
While flexibility was important for Dr Wise and a good relationship was key for Dr Petrie, Hamilton says an understanding of the industry is also important.
“If you find yourself talking to a financial institution and you feel like you have to explain to them what your business is all about, they can’t help you,” he says. “How can they help you if they don’t understand a dental practice or the needs and requirements of one?”
Having been a frequent equipment leaser in his earlier years, Dr Petrie is featured on Medfin’s testimonial page. By leasing equipment, Medfin saved Dr Petrie money by reducing maintenance downtime and spreading the repayments to suit his budget.
However, he says he liked them so much mainly because of his close friendship with his local Medfin representative, Ian, which he developed early on in his life as a dentist.
“In the end,” says Dr Petrie, “if the person knows you and trusts you, you’re going to have an easier time getting approved for financing and you can carry that through your whole career.”
When applying for loans, you have to take a lot of variables into consideration: how will the finance impact the cash flow of the business, will it work for the client, is it tax deductible, or perhaps there are other things in your portfolio that you should be paying off first.
“A good practice purchase loan is all-inclusive and must include design considerations of your business,” says Hamilton. “Too many dentists and too many lending institutions have a one-track mind when selecting a finance agreement. Interest rates become the be all and end all, instead of the practical requirements of your dental practice.
“And really, what’s the point on getting a great rate if cash flow is going to kill your business?”