Dr James, 0s:

Yes, oh, welcome, welcome. Welcome everybody to this podcast. We are now officially live and broadcasting on both channels. We're recording and we're also on the Dentists Who Invest Facebook group. Just to reiterate, this podcast is with Mr Kevin Saunders and we are here today to talk about the dental practice market, what we're seeing out there in terms of trends, what opportunities there might be and also just general observations. We're going to have a little bit of fun discussing this stuff super high level today. If anybody has any questions, feel free to pop them in the chat. We'll do our best to get to them. Very conscious that we're going live at 3pm on quarter past 3pm on a Wednesday, so I can't imagine there'll be too many people about. But hey-ho, if there are any, the more the merrier. Very important to mention that when we talk about the dental practice market and our observations, Kevin background is dental practice finance. So everything that we say, well, we're saying it through that lens of observation, so to speak. Coming on to that in just a moment, but before we do, Kevin, how are you today?

Kevin, 58s:

Very good James. Yes, how are you doing?

Dr James, 1m 1s:

Amazing buddy. Thanks for asking, Always good.

Kevin, 1m 9s:

It's been so long since we've done a podcast together. We need to do something about that, has he? I've been very busy actually over the last 18 months or so but no excuse.

Dr James, 1m 13s:

We should have made time. We should have. It was collectively both of us who get the side down there. So, yeah, slap on the wrist, we're going to do something about that. Well, anyway, Kevin, do you know what? That's fine, because actually I guess a lot of things have changed over the last six months. Whenever it comes to what you're seeing right there the dental practice markets, that's going to give us plenty to talk about today.

Kevin, 1m 33s:

It is. It is, I mean, important to say. First of all, just touching on the banks Today isn't really about talking about them, but they're still keen to lend in the dental sector. Nothing's changed there. Rates are still good, so in that respect, everything's still on an even keel.

Dr James, 1m 52s:

I guess what's changed for me.

Kevin, 1m 53s:

What have I been doing in the last 18 months? I guess historically I would have dealt with both practice owners and associates, but quite a large percentage of my business would have been helping associates to buy their first practice and I have noticed that since the market volatility in 2022, far less associates are approaching to buy their first practice. They're still out there still buying, but I guess I perceive that to be because of the interest rate volatility and, I suppose, a bit of fear about that going forwards, and we talked about this before. Perhaps there was an idea before from the dentists that had grown up during the time of half a percent base rate. That base rate was going to go back to half a percent. I think most people have wised up to the fact. It isn't now and we're in the new reality, which is pretty much where we were before the credit crunch. But you know, the rates have definitely spooked people. So I've had a lot of conversations with associates around that and if they're not happy to take a bet on the fact that rates are coming down, I've said to many of them why don't you look at fixed rates? And then that starts a whole conversation up about you know, is it said to many of them, why don't you look at fixed rates? And then that starts a whole conversation up about you know, is it right to fix? I have a variable rate and sure the banks always price it, so they win. But I think the reason for taking a fixed rate out is more the fact that you can sleep at night. So for many dentists buying their first practice, the fixed rate gives them the confidence of knowing that the rate will not change for the next three to five years or however long they fix for. So I've noticed a much greater appetite in first time buyers to take fixed rates and that helps them, as I say, get the confidence to buy their first practice.

Dr James, 3m 39s:

Understood, seems reasonable, but you've noticed that the market market the way it is right now. The majority of the buyers out there are the old heads, people who've already had a practice under their belt or got a practice under their belt I think there's uh, why, certainly have been funding far more existing operators?

Kevin, 3m 56s:

uh, definitely, um, perhaps picking up some of those practices that are out there at the moment, um, where the associates aren't. Also, I guess there's a bit of a change of attitude to work-life balance as well. I do have a lot of conversations with associates that say, well, we don't really want to work a five or six-day week, we prefer to do a three-day week. And then it's a question of getting the numbers to work because, as I keep reminding them, if you buy a practice and you want to pay associates to do all the work associates are expensive you have to pay them 50% of the private fees and a good percentage of the UDA value you get as well. So it's just a case of crunching the numbers. And often the conversation terminates with us saying well, you could probably do that in a few years, but you're going to have to get your hands dirty initially and work five or six days and get the practice up and running.

Dr James, 4m 46s:

then you can step back slightly I think that's no bad thing though not to go on a little bit of a tangent because then you get a little bit of a feel for the business as well and then actually, if you spend, invest that a little bit of time at the start, you have a greater understanding of how things work and what makes them tick and you can use that knowledge over and over again, whereas I think sometimes if you come into a business and you're too passive from the start, you're you're too removed from it to actually understand what you can enhance, to improve it. But anyway, food for thought probably a slight tangent is that thing that I just brought up then, just out of interest?

Kevin, 5m 16s:

no, not, not at all. I think that you've hit the nail on the head. Um, you know an associate. Their practice sounds like a fantastic idea to everyone, even non-dentists, because everybody perceives the practice to be a money-making machine. But reality is it's it's not so much. And you have an associate that doesn't turn up for work, and if you're the principal and you can step in and cover their work, then that's invaluable really. So it is a case of hard slog for a couple of years and then you can take a view on it. Should I step back a bit? Bring more associates in?

Dr James, 5m 45s:

so yeah, I have a question and this is a little bit of a departure from the subject matter at hand, but I heard a accountant give give an answer on this the other day and I found the stat, I found the numbers starting really low. So I'm curious to know, in your experience outside of the corporates, obviously Kevin how many in your experience outside of the corporates, obviously Kevin how many practices in your opinion are fully associate-led percentage-wise in your experience?

Kevin, 6m 13s:

God, that's a very difficult question. Fully associate-led, I don't know. I don't know how many practices that would be, but I have a lot of clients that do have associate-led practices as their second, third, fourth practices. I wouldn't like to put a number on it, I don't know. What do you think?

Dr James, 6m 31s:

Well, I mean, I thought what I thought would have been like, I don't know, 30%, 40% Tough question to answer. Obviously You'd have to actually go out and get some data on that. But apparently an accountant told me that the number was 10 and I wouldn't like to dob that accountant in today, but they're, they exist 10. You could take my word for it. 10, that was, that was the number which I thought. I thought that was really low there we are surprisingly low.

Kevin, 6m 55s:

I suppose it depends. Are they including the corporates as well?

Dr James, 6m 59s:

oh well, no that.

Kevin, 6m 59s:

no, that was no corporates, Just private yeah, okay, no, I would probably agree with that actually, because it is tough to get a practice to stand alone and I have clients that do it or have done it very successfully and have second, third and fourth practices. But you tend to find that what generally happens is the dentist will buy the first practice, they'll give it their all. When they buy the second practice, they will be dipping into that practice as the principal as well. So it's not really associate led as such. Generally, when you get to the third practice and not every dentist gets the three practices, it is only sort of a few that are pretty good with their management skills etc.

Dr James, 7m 39s:

Interesting, and that was more a tangent, more than anything else, versus what we're supposed to be talking about today, which, no, not at all. No, because it is it is on.

Kevin, 7m 49s:

No, it's on track because, um, a lot of associates do ask me the question if I just want to buy a practice and have it as associate led and I don't really have to work too much. Um, it just doesn't really work like that. You know, you look at it for your second or third practice, but you have to get your hands dirty.

Dr James, 8m 4s:

Everybody wants that passive income. Inverted commas that term that slightly irks me, that gets thrown around because it always was active at one stage, even if it does reach the passive zone eventually. And the 10% figure really surprised me because I was like why really few people actually achieve this? And, by the way, these are smart people who work hard.

Kevin, 8m 28s:

It is yeah, and they're generally running around between practices and operating a head office function for the ones that are associate led as well. So, yeah, so the other thing that's changed as well is for and I've been in the industry for over 20 years now, but for many years associates would always ask the same question, which is how do I get an NHS practice? That was always the question, and I had to spend most of my time trying to talk them out of it and looking for a decent private practice. Just because, especially down in the southeast, it was so expensive to buy an NHS practice, just because, especially down in the southeast, it was so expensive to buy an NHS practice, that then shifted and then everyone was looking for a private practice. And right now I suppose it raises the question is it good to buy an NHS practice? And a lot of the practices that my associates that are buying are looking at at the moment are NHS, and I think that's because it links into what we've just been talking about. A lot of principals that have had these second, third, fourth, you know, associate-led practices are probably finding it hard to maintain them if they can't find associates basically to work there. And I think you're okay in the city centres, but the minute you're outside of that slightly, then it's been tough. So I have seen quite a few principals selling maybe the third practice off. That's NHS. So that then raises the question is it a good practice to buy for an associate, which is? It's kind of difficult to answer. My opinion is yes, nhs is really good and the main reason is because people just roll through the door and when you've got your first practice it's your first business. That's invaluable really. But there's kind of a calculation that people need to do, because if you bought that practice and the contract is so great that you spend all your time just covering the NHS and the UDAs and you don't grow, then potentially all you're doing is servicing the bank loan you took out to buy the practice. So I think you've got to look at firstly the associate and you know what's their experience of nhs how many udas were they covering and it's different for every associate. So is there a little bit of leeway there in the practice they're buying to allow them to put the private on top, because that's where you make the money. It's putting the private fees on top. So you've got to calculate. You know if, if, if the NHS is too hot, too great, what would it cost to have an associate working alongside you and how much time have you got to build the private fees basically? But I have many associates that in the last couple years have have bought NHS practices, turned them into mixed practices and they're doing really well. So, yeah, my opinion is it is a good buy.

Dr James, 11m 8s:

Well, it's all about the value you can add.

Kevin, 11m 10s:

Right, exactly exactly, and also then the other point is the value of the UDAs. So I did hear I can't remember which professional advisor it was said that you should no longer look to buy a practice with UDAs that are below £30 a UDA. I guess it depends. It's like everything, it's case by case basis. But if you've got to pay an associate then you have to pay them pretty well. Now these days to cover UDAs. Now these days to cover UDAs, if it's a small NHS contract it probably doesn't matter so much, but if it's a larger contract you need to be paid well for those UDAs.

Dr James, 11m 49s:

Seems reasonable. Food for thought right there. Food for thought Interesting, yeah, I mean, this is the thing that goes slightly counterintuitive to what you see a lot of people talking about out there, which is the fact that recruitment is an absolute flipping nightmare for NHS practices. Of course, not always the case, but just broad strokes right there. So naturally, if we follow that logic through, then it might suggest well, it wouldn't be that lucrative to purchase them. But from your perspective I can see how that makes sense. So those are where you can get some good bargains at the minute, so to speak, or there's some good value on offer, or certainly certainly some food for thought.

Kevin, 12m 27s:

Let's just say that yeah, I wouldn't say bargains, but, um, yeah, you've got practices there that you could. You could grow, basically, um, and they're relatively safe, providing the contracts not too great for the purchaser to cover and have some extra time to build the private. So, um, so, yeah, no, I funded a lot of people buying nhs practices, um, so that that's where I've been spending my time. It's been with existing operators and a little bit of a few associates as well. So what have the existing operators been doing? Well, they have been picking up some of these practices that are being sold off. Some of them are sort of further down their growth curve than the people that are selling off, I guess. But also the usual kind of tax funding and equipment finance funding as well. But the big hot potato has been refinance and you'll see many people marketing about that. There's a reason for it, because it's you know, there's a lot of inquiries at the moment on refinance. So I thought it was worth talking a little bit about that, because the big question with refinance is always is it the right time to refinance? And the years it's just been about clients coming to me and asking can I get a better rate? And the first thing you'd have to kick back on and say is look, if I take you from one bank to another bank, you've got to look at the cost of doing so. So, for example, there's the valuation fee, there's the legal fees, there's the bank facility fee. So you've got to do a little bit of maths on it and the saving you might find out when you break even on that Is it sort of three years in or whatever. Because these fees are pretty chunky. You're going to have to pay at the outset. So I've always said that the rate. In some respects it's the biggest reason people approach me, but probably the lowest reason why people would actually refinance probably been more to do with matters such as is the loan term coming to an end or the committed period. So it's been quite fashionable for banks to lend, say, for a 15-year term and commit to five years, which means there's a review after five years. So at that point that is a good time to look at refinance. And then the other big reason is raising further funding and that could be for buying a second practice or it could be for refurbishment or moving some short-term finance, as in five to seven-year finance, onto a longer term to help the cash flow. So those are all the sort of reasons I've been dealing with refinance a lot over the last 12 months. But it's, yeah, certainly been. There's been a lot of takers. You need to look at the timescales as well, because it takes quite a long time to refinance if we're taking you from one bank to another bank. So it's not only the cost of it, it's actually the time in doing so. But, as I say, for the right case, people are dropping, sometimes a couple of percent on their rates and just turning to the rates. So for a long time following the credit crunch, people were borrowing money at base plus 3.75, base plus three anda half, and in recent times the rates have dropped down. It's much more usual to receive a rate of 2.75 over base or, if it's secured with a property, much lower. So there are some savings to be made there as well. But it is a case of getting the calculator out and working it all through understood, and that's that's going to be.

Dr James, 16m 1s:

That's going to have a synergistic effect with the fact that we hope base rates are going to continue to decline over the next few months, or certainly it looks that way, but of course you can't predict the market no, can't predict it, but uh, it seems that way, doesn't it? We've had our first, first base rate drop anyway, which is good news for everybody and inflation is under control for once, which is like the main reason they ramp it up. One of the main reasons definitely so.

Kevin, 16m 28s:

Uh. So yeah, lots of refinance. Um helped people with all sorts of different purposes and reasons for refinance, and also important to say that I've also helped people refinance their loan back to their existing bank, which sounds absolutely crazy, but there's often offers that they can't obtain by going in directly to their manager or into a branch, but through my specialist channel I can obtain for them, and then obviously it does make really good sense because hopefully there's not too much to be paid in terms of fees or legal fees. So, yeah, a little bit of that as well.

Dr James, 17m 7s:

So that's possible.

Kevin, 17m 9s:

Yes, yeah, definitely. It's always worth picking the phone up and just finding out what's on offer. It doesn't take very long just to figure out a quote for a client podcast right now.

Dr James, 17m 31s:

They're going to be in two camps. They're going to be people who already have dental practices and people who are getting their first dental practice. Any insight on how those two parties or groups of people can navigate the current market that we're seeing out here right here, right now? Anything over and above that we've said already, or have we done a good job of encapsulating that already? No, I guess really it's about it's getting to the finance, isn't it?

Kevin, 17m 49s:

I mentioned at the beginning, the banks are still actively. Guess, really, it's about it's getting to the finance, isn't it? I mentioned at the beginning, the banks are still actively lending, but it's about ticking the boxes. And again, it's a subject we've covered before. And it's a good reason for using a finance broker who's had previous banking experience, because you really need someone that can present your information to the bank in the best way. And again, we've said this before, people often think they know what the bank wants to hear, and the reality can be a little bit different. So it's having someone sense check your information and write the application up and place it in front of banks, going to all the banks, getting a range of offers and finding out which the best one is. And also, the banks are lending very differently these days. There was a time in the past where it was just about the interest rate, but now the loans are being structured in a very different way, so you need to really make an informed decision and have a full range of offers in front of you.

Dr James, 18m 44s:

Awesome and just out of curiosity maybe you touched on this earlier and I missed it but how are those loans structurally different nowadays versus what they once were, or is that something that you're able to say?

Kevin, 18m 53s:

No, no, I can do so. You might find one bank. If there's a property and goodwill, they might do a blended loan, push the two together and have a term that's in the middle and an interest rate that's slightly lower. Other banks may spit the loans up and have a goodwill loan on a shorter period and a pre-hold loan on a longer period. There's offers out there of partially amortizing loans with very cheap interest rates, but the bulk of the loan is interest only and a small amount gets paid off over five years, with a review after five years. So there's many different products. Now. It's quite exciting. Actually, there's a product for everyone out there wow, I see.

Dr James, 19m 34s:

Okay, now I know why you kept that high level when you alluded to it just a second ago in terms of structure, because there's actually loads of ins and outs to it. That's interesting, all right, good to know. Well, listen. Thank you everybody who came along today to Kevin and i's short and sweet dental practice market update from a finance perspective. Hope everybody got value from this podcast and webinar. If anybody wishes to reach out to you, Kevin, how are they best off doing that?

Kevin, 20m 0s:

do you post uh my details online or?

Dr James, 20m 4s:

not typically, not typically actually but you know what actually this video will be going out on the dentistry invest facebook group. So, if you wish, feel free to put a little comment in there and yeah, that might be a good idea an email address, something along those lines. I'll do that. Thank you, okay, wunderbar, awesome. Well, listen, Kevin. Thanks so much for your time once more. Let's not be strangers and get these in more frequently than every six months. We owe it to ourselves. We're going to commit that to the universe right here, right now, Kevin. So I'm looking forward to our next episode, super duper, soon in that case, and in the meantime, hope you have a smashing wednesday you too.

Kevin, 20m 36s:

Thanks a lot. Bye everyone.