AAPM National Conference 2018 national conference 2018... · Valuations are more Art than Science...
Transcript of AAPM National Conference 2018 national conference 2018... · Valuations are more Art than Science...
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Joining or Buying into a Practice Stuart Chan - Partner
AAPM NationalConference 2018
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About Cutcher & Neale
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Cutcher & Neale Overview
Specialist Chartered Accountants 65+ years of services to Medical Professionals Industry Leaders & Contributors Preferred partner of the AMA (NSW) Long standing Partner of AAPM Trainers to GP & Specialist networks Dedicated Specialised Medical Services Division
About Cutcher & Neale
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Buying or Joining - what exactly are you getting yourself into?
Structuring - what am I buying? Background - Due Diligence Value - how much? Price - how to fund the purchase? Implications - what else do I need to know? Tips for Success
Agenda
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At Risk – At Wealth
Doctor
Directors
Service Trust
SMSF
Investment Company
Family Trust
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Which Business Structure?ISSUE SOLE
TRADER PARTNERSHIP COMPANY UNITTRUST TRUST
Complexity Simple Simple Complex Complex Complex
Tax Rate (Max) 47% 47% 30% * 47% or Beneficiary
Marginal Rate
Who Controls Individual Partners Director / Shareholder
Trustee / Unit Holder
Trustee / Appointor
Limited Liability No No – Joint &
Several Yes Yes if Company Trustee
Asset Protection Low Low Medium High High
Costs Low Medium High High High
Legislation No Specific Act Partnership Act Corporations
Act Trustee Act
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Which Business Structure?
Complexity of Medical Practice Structures Considerations
1976 Phillip’s Case foundation of Service Entities1981 Original Incorporation of Medical Professionals1988 Expansion of IT 25 to all professionals1989 Payment of salary to professional in service entity1991 Principal’s verse employed Professional 2006 Service Trust Ruling – Fundamental Change
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Tax Alert:Company tax cut
− 27.5% as at 1 July 2016 − 25% as at 1 July 2026
Caution:1981 Income Tax Ruling
− Retained profit rules for Medical Companies − Tax cuts relate to Companies carrying on business
Which Business Structures ?
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Structuring – Best Practice
SERVICE ENTITY• Administration• Computers• Medical Supplies• Reception• Rent• Salaries
Service EntityService
feeRent
Beneficiary Property Trust/Super
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Structuring – what am I buying?
GoodwillEquipment
Shares / Units Property
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Each deal is different Different Risk v Reward profiles Rules of thumbs don’t (always) apply
Structuring – what am I buying?
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Financial Information
Usually obtain last 3 years information Warning – financials can be biased
- Influenced by Tax - Influenced by the owners
Don’t always apply accounting standard Financials reflection of history Important but can’t be solely relied upon
Due Diligence
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What the Financial Information doesn’t say:
Due Diligence
Work Environment, Cultural & Clinical
People & Culture
Systems & Processes
Capital Requirement
Marketplace &
Competition
Future Growth
Opportunities
DUEDILIGENCE
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Due Diligence (SWOT) and what am I buying
Ownership interest in Share/Trust Business only – Goodwill & Equipment Profit share v Personal Income Stream Share of the Medical Rooms / Property Lease of premises Equipment
Due Diligence
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Due Diligence (SWOT) and what am I buying
Business name Website, Facebook Freehold Leasehold Key staff members Capacity Patient demographic
Due Diligence
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What else you need to consider:
Liability Risk Management Responsibility Career Flexibility Restraints of Trade Management & Control of the practice
Due Diligence
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Market Value doesn't always equal Market Price Valuations are more Art than Science Theory is important – can lack application Purpose is important
Value – How Much?
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Goodwill
Most difficult part of valuation- Intangible – arguable no value- Restraints - Location goodwill- Brand - Reputation- Reliance of Key Person
Gesture of Goodwill payment
Value – How Much?
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Valuation Methods
Earnings Valuations - Capitalisation of Future Maintainable Earnings (FME)
Asset Valuations- Balance Sheet
Cost to Create / Start-Up Industry Rules of Thumb? In application – primary, secondary and even third method (cross
reference)
Value – How Much?
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Asset Valuation (NTA Approach)
Value the Assets being sold Subtract liabilities Consider second hand value of equipment Significant level of Medical Supplies Hidden liabilities – employee entitlements?
Value – How Much?
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Earnings Valuation – Capitalisation of FME
The most common Look at earnings or profitability
- Future Maintainable Earnings - Adjust for abnormal & non-business expenses
Consider appropriate Capitalisation rate- Risk versus reward - industry factors/risks- Discount for size, liquidity, maturity
Value – How Much?
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Cost to Create- What is the cost to Startup (v buying)?- Age, remaining working life- Personal Finances – ability to borrow- Experience – ability to manage - Competition / Economic factors- Future prospects- Existing systems, staff
Other Valuation Approaches
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A second marriage Breakups are costly & messy Agreements are key Outlines rights & obligations
Profit Share v Remuneration Reward for effort/labour Reward for investment risk Understand the arrangements
Group Practices
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Vendor finance Personal Savings / Cash Bank Finance Structuring the Debt is critical Equipment Goodwill Fitout Interest Only v Principal & Interest Guarantors
Correct structuring can assist with cashflow
Finances – How to fund
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Proper Due Diligence
Understand what your buying
Clearly document agreements/arrangements
Tips for Success
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The material contained in this seminar is in the nature of general comment only, and neither
purports, nor is intended to be advice on any particular matter. Persons should not act or rely
upon any information contained in or implied by this seminar without seeking appropriate
professional advice which relates specifically to his/her particular circumstances. Cutcher
& Neale expressly disclaim all and any liability to any person, whether a client of Cutcher & Neale
or not, who acts or fails to act as a consequence of reliance upon the whole or any part of this
presentation.
Disclaimer