Practice management Biting the business bullet
By Paul Thompson of Scott-Moncrieff
D
ental practices face a range of challenges, some due to the partic- ular location of
the individual business. But, working with several practices across different regions of Scot- land, it is clear that there are common issues facing many of the dentists I meet. When asked the ques-
tion: “What are your main concerns?”, the most common response by far is “meeting client expectations” and, as a patient, this is reassuring! However, this is often followed by a series of issues that are directly related to running the business side of the prac- tice, and the top three issues encountered are:
1. Cost control At a time when the economy is depressed, patients will cut back on what they regard as ‘non-essential’ dentistry and a recent survey (conducted via
WhatClinic.com) revealed that 84 per cent of respondents had put off dental treatment because of the costs involved. Businesses also need to prac-
tice cost control and should do so at all times, not just during a recession. Cost reduction exercises should be led from the very top of the business, where strategic responsibility lies, rather than being regarded as an operational detail. And led capably and convincingly. Remember: strong leader-
ship won’t guarantee success or support from the team – but its absence will almost certainly guarantee failure. Use reporting and manage-
ment tools to make sure that target cost reductions actually happen. These days, there can’t be a financial software package
out there that doesn’t have an ‘actual vs budget’ reporting capability, but it’s a fact of life that alarming numbers of smaller business either don’t know that they have access to these facilities or, if they do know, fail to use them.
2. Cash flow Unfortunately, some busi- nesses fail to grasp the critical difference between profits and cash – your profit and loss projection will demon- strate your profitability, but only your cash flow can reflect your working capital requirements and accurately establish your cash require- ment. And don’t forget the balance sheet either.
3. Succession planning – bridging the funding gap An increasing number of prac- tices that I work with are facing the issue of succes- sion, when the senior partner/ partners look to retire and, naturally, wish to maximise the return they get from selling the business. Unfortunately, the prevailing economic climate makes it possible they will get less than they might hope for. The associate(s) who may
be considering purchasing the practice are finding that funding is much harder to obtain than it used to be, so both ends of the “succession equation” are being squeezed. Before the recession, it was
common for banks to lend a purchaser 100 per cent of the funding required to buy a prac- tice. Indeed, it was sometimes over 100 per cent as they looked at the longer term financing of the practice and its potential to grow. Now, however, any
purchasers will be doing very well to get 80 per cent of the proposed figure as a bank loan and they are then faced with trying to bridge the gap
from personal resources. It may mean that sellers have to reduce their expectations, but this is common in all business sectors and looks set to be the case for some years. Sitting down well in advance
of planned retirement to establish levels of interest with associates is important – common ground can be estab- lished. Having identified that a deal can be achieved, clear goals and targets should be set. This should not only cover the maximum consideration the purchasers will be expected to pay but should focus on the structure of the payment(s) and whether the business is to
be bought out completely or whether the owner is to retain an interest in the business for a pre-determined period. One option is for the vendor
to negotiate a deferred purchase price, whereby a proportion of the total consid- eration is paid over a pre-agreed timescale, often linked to the future success of the practice. This eases the pressure on cash flow and helps ensure the business is able to meet its debt servicing obligations. It is possible that, subject to conditions, this deferred consideration may prove to be tax advantageous to the vendor.
ABOUT THE AUTHOR
Paul Thompson is a partner with accountants and busi-
ness advisers, Scott-Moncrieff. Contact him by email at paul. thompson@ scott-moncrieff. com or by telephone on 0141 567 4500.
Scottish Dental magazine 67
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70 |
Page 71 |
Page 72 |
Page 73 |
Page 74 |
Page 75 |
Page 76 |
Page 77 |
Page 78 |
Page 79 |
Page 80 |
Page 81 |
Page 82 |
Page 83 |
Page 84 |
Page 85 |
Page 86 |
Page 87 |
Page 88 |
Page 89 |
Page 90 |
Page 91 |
Page 92