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Setting up or Buying a General Practice Presented By Manoj Miranda Director

Setting up or Buying a General Practice Presented By Manoj Miranda Director Healthcare Capital Management. 1. 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?

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Setting up or Buying a General Practice Presented By Manoj Miranda Director

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  1. Setting up or Buying a General Practice Presented By Manoj Miranda Director Healthcare Capital Management 1

  2. 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

  3. 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

  4. 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

  5. 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.

  6. 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

  7. 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

  8. 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

  9. 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

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