1

Setting up or Buying a General Practice

Presented By

Manoj Miranda

Director

Healthcare Capital Management

Discussion Topics

• What Do I Need To Know When Setting up and Buying A Practice

• Financing – What does the Bank look for• Loan Covenants – What are they and Why are they

needed?• Practice Succession – Unlocking value from my

business• Pitfalls and traps

Important steps when Setting up a Practice

• Surround yourself with the right people – Accountants, Solicitors, Finance Consultants, and Peers.

• Selecting the right business – Location, Market and brand. • Lease negotiations – Utilise resources which specialise in this area.

If there is no lease there is no business• Entity – Individual, Company or Trust – Short Term vs Long Term .

Get it right the first time• Create your structure to operate your practice with the exit event in

mind…even though it may not occur for a long time• Fit out and Equipment required • Have a live Business plan• Have your finances ready including a buffer

Important steps in purchasing a Practice

• Surround yourself with the right people – Accountants, Solicitors, Finance Consultants, and Peers.

• Selecting the right business – Location, Market and brand. • Contract Process – confer with your solicitor and condition the

contract to due diligence which specifically addresses the Lease and Finance as a minimum.

• Due Diligence – Engage industry specific professionals• Lease negotiations – Utilise resources which specialise in this area.

If there is no lease there is no business• Entity – Individual, Company or Trust – Short Term vs Long Term .

Get it right the first time.• Have a live business plan• Have your finances ready including a buffer

Financing the Purchase/ Set up

• The following Points will require your attention and will need to be factored into the funds you require to purchase the business.– What is the Purchase Price/Set up cost – Finance contributing vs

Equity.– What are the stamp duty costs $– Bank Costs $ including Documentation being prepared by solicitors and

Valuation costs.– Legal Costs $ including the due diligence process, Lease negotiations,

Entity establishment and settlement– Due Diligence/Accountancy cost $ factoring pre settlement and post

settlement functions– Does the business require additional investment ie Fit out, additional

stock levels required and or equipment purchase.

Financing the Purchase/ Set up

• Bank requirements:– Business Plan– 2Years Financials in the form of P &L and B/S in case of a

purchase.– Application form completed with Statement of Position– Full Copy of the Lease– Forecasts– Where is your equity coming from

What are covenants and why are they important

• Monitoring the business performance. Impacts the value of the business/banks security

• Covenants examples– Regular provision of financial information in the form of a Profit and Loss

statement & Balance Sheet. A business in a good position will be required to provide this information annually whilst a business not performing or going through a transition will be required to provide on a quarterly basis.

– Provision of a cash flow each year forecasting the expected sales activity of the business for the next 12 months.

– Provision of a tax portal – including all entities involved with the individuals.

– Financial measures – IC, GPM, Stock turnover• Why are covenants important? – This is the minimum Westpac expects that

you as a business owner compares, monitors and strives to improve your business.

• In case of a problem – be pro-active and talk to your bank

Succession Planning• A significant portion of business owners in Australia, including medical

professionals, will be looking to sell their business over the next 5 – 10 years • More Women coming out of school – may not necessary want to own a

practice and may look for work life balance• Unlocking your goodwill - Bringing in a minority partner• Practices sold as a going concern are traditionally valued using

capitalisation of future maintainable earnings (FME)• Earnings = Revenue – COGS – Overhead Expenses• A capitalisation rate, or a measure of business risk, is applied to earnings to

determine the business value

Pitfalls & Traps• Having a business plan• Purchasing the right business, in the right structure with

the right partner• Finance - Gearing Level. Pay down your debt as quickly

as possible• Having a buffer. Businesses run into trouble mostly

because they run out of cash• Controlling other expenses – either personal or other

investments which draw cash from the business.• Acquiring larger space – make sure the necessary

assessment is taken into consideration.• Partnerships – No agreement in place to back up the

process to follow when a dispute, death or exit arises.• Do not venture into activities that you do not know