Learning Center Topics: COVID-19

We are all aware of the challenges and issues that COVID-19 has thrown up for businesses with its impact on cash flow, income and costs. Businesses are having to change the way they work and deal with clients, customers and suppliers. Additionally, they are having to consider the costs of this, as well as the costs of purchasing additional equipment, whether that be PPE or equipment to facilitate new ways of working. 

Lenders have been besieged with applications form their client base for CBILS and Bounce Back Loans and they have had to deal with an ever-changing lending criterion introduced to them by a third party.

Governments have reacted to the challenge with financial packages, tax deferments and furlough schemes unheard of in our lifetime.

What about commercial finance brokers?

But what about the Brokers, how has this affected them?

Aside from the obvious impacts in some firms of furloughing staff, suddenly there’s no more hot desking, suddenly there’s working from home and Zoom calls instead of meetings. What other challenges are they facing and what challenges are yet to appear?

With some lenders closing their doors to new business and others dealing with a large client base seeking assistance – how has that affected brokers?

Our experience of this is that it has been more difficult (but not impossible) to place business, especially in the property market, as firms reduced capacity and some changed lending criteria. The good thing is that is now being reversed, with valuers starting to go out again and firms opening and now, in some cases, increasing their lending criteria. 

COVID-19 and the healthcare industry

In the healthcare market, most clients have put purchases on hold. The good news is that they are on hold, not cancelled, and these will proceed now with the sector returning to work. 

If we look at the dental sector as an example, the period for which dental practices have been closed has, in some cases, proved useful for the dentists. It has allowed them time (which they generally do not have)  to review and reflect on what they want from their careers and whether they want to buy, sell or start up a practice.

For us as Brokers, this has resulted in a high number of enquiries and conversations around what they can obtain in the way of finance, and a lot of conversations around the steps required to start a practice. 

Samera continues to raise finance for healthcare.

We at Samera worked with 6 clients last year to set up squat dental practices, providing them with guidance as to what they needed to do to be successful. This has enabled them, with the assistance of bounce back loans, to weather the crisis. Since the pandemic, we have now started working with another 4 clients to establish squats.

Completions on business purchases have continued and enquiries regarding new purchases have been slow but are now picking up quickly, with several new purchases now ongoing.

So, overall things are good. The main challenge to brokers at present is the focus of the lenders. For a long period while dealing with CBILS and bounce back loans, the major healthcare lenders were focused on dealing with their customer base and the applications they were receiving from them to assist them with their cash flow issue. 

Most lenders are now open for new business but one or two are still not able to deal with non-banked applications, as their credit teams are still dealing with the Covid issues. This will change over the next few weeks and business will be returned to normal.

What are the challenges going forward?

So, what will be the challenges going forward? Will lenders have the same appetite for the healthcare sector that they had pre-Covid 19? Will the impact of social distancing, the need for new equipment and the constraints put on time bring a big change to the market?

The sector will always be needed, demand will be high and over the past few years has been growing substantially. New entrants to the market due to the demand and profitability of the sector will always be there. Once businesses adapt to the new way of working, they will again be successful. 

Review your business

What is needed is a review of how you work in healthcare and what you need to go forward. Do you need to borrow to buy new equipment, fund changes to your business premises, whichever part of the sector you work in? Businesses need to work with their accountants and advisors to gauge the impact on their business and act now to ensure they can deal with those changes. 

Brokers have the contacts within the banking industry to assist businesses and ensure that they get the right finance in the right structure. Use the experience of the brokers, especially those with extensive banking experience, as they know how the lenders think and what they need.

Click here to read our article on How to finance a healthcare business.

In this webinar Arun discusses the valuation of UK dental practices and how he believes they have fallen by up to 40% due to the current COVID 19 crisis.

On the 17^th March, 2020, my wife Smita closed her private dental practices, like many, due to COVID 19. Just before she left her Wandsworth practice, the telephone rang, and it was somebody wanting to buy her successful private dental practices.

Metaphorically, the paint had not even dried, yet someone had the gall to say “I know dental practices are struggling right now, would you like to sell yours?” – Unbelievable.

Smita being Smita, was shrewd enough to find out who the buyers were and understand their cunning plan, and once she had gathered enough information, she let rip.

It’s safe to say they won’t be calling soon again.

Since then, I have heard from other clients experiencing similar stories too.

Why?

Well there are well financed investors, sitting on cash, ready to invest into dentistry, during COVID 19. They are seeking fearful scared dentists wanting to make a rushed exit during these troubled times.

Some of you may be tempted, but before you do, hold fire.

If your practice was struggling, or you were planning to retire soon pre COVID 19, fair enough, it may be an opportunity to exit, but if your practice was growing and flourishing it’s pretty likely you will be taken to the cleaners.

Post COVID 19

The very recent survey carried out by the BDA highlights the concerns of dentists of the financial viability of their dental practices post COVID 19. Many feel they may not be financially viable by the time the lockdown has ended.

In contrast, in the last few years, investors have been piling into the Dental market (globally) and its pretty likely this will continue, even in a new era of dentistry.

No doubt, infection control procedures will change, and funding will be required to make the necessary changes, but once the lockdown ends, I expect it’s going to be busy in dental practice. People still need dentists, not cruise holidays, so whilst the type of dentistry you may be doing will differ, there will be a need and expect demand to be strong.

So why would you sell a successful business, just because of a 3-6 month sabbatical? You wouldn’t unless you were getting top dollar.

I would urge you to resist the temptation to sell at a discounted price, just to get out of dentistry. The vultures are out to try and obtain a deal, but it’s important you hold your ground, and come back strong once you re-open, as you will re-open.

Working Together

As someone who has been entrenched in dentistry for almost 20 years, as an advisor, but also co-owner of clinics, the goal for me has been to help dentists improve their businesses through offering a better patient experience. 

Whilst selling your successful practice maybe a short-term fix, I propose an alternative arrangement whereby independent dentists work in collaboration to overcome the challenges they face.

You don’t need to sell the practice you have worked at for many years, just because this temporary though significant break in business has occurred. 

You can maintain your autonomy, brand, team culture while collaborating with others and outsource the parts of your dental practice that would benefit from scaling. 

For example, a dental collaborative could be formed whereby all the owners retain ownership of their practice and they outsource certain services for a fee including:

• Supplies at reduced rates due to economies of scale
• Accountancy and payroll services at reduced rates due to economies of scale
• Marketing support (including websites) at reduced rates due to economies of scale
• Continuing education

Then in the future, when it does come to selling your practice, if all of  the owners have opted in to a collaborative sale , the exit multiple they achieve on sale would be considerably higher than if they sold now, or alone in the future.

Such an approach ensures dentists retain control of their own businesses, develop them the way you want to, and ensure the team culture is protected and the level of patient care you have created is maintained – all very valuable. We want you to retain your autonomy and stay in the driving seat.  Right now, it might seem like an easy option to just sell and drive off into the sunset . But at what price ?

Collaboration

Today’s changing Dental landscape requires independent practice owners to evolve. By working together, not in competition, in such a scenario outlined, allows such practices to offer the services they desire, whilst creating real value in their business.

Now is NOT the time to exit, now is the time to come together.

The Numbers ALWAYS Tell The Story – Safety In Numbers

An alternative way to look at this is through the numbers. In the current market, an opportunistic buyer may offer a low-ball price, say 3x EBITDA (cash profit), whilst prior to the crisis this may have been nearer 5-6x.

Translated into hard numbers, for example. A dental practice with an EBITDA of £200,000 may now be achieving a price of say £600,000 (3x EBITDA), but if they can ride out this period of uncertainty and rebuild, the value can go higher maybe up to nearer £1.2m (6x EBITDA).

However, by collaborating in such an arrangement I have detailed above, prior to COVID 19 a group of dental practices would routinely sell for multiples in excess of 10X EBITDA (£2m for a £200,000 EBITDA practice), so the question has to be, do you sell yourself short now, or ride out the wave and build your business to achieve a much higher multiple in the future? Groups of practices will always attract a much higher multiple!

The larger the collaboration (the number of practices), the higher the value. 

HMRC has recently released warnings to returning NHS workers regarding tax schemes currently being offered to some. 

Workers returning to the NHS to assist with the current COVID-19 crisis are, in some cases, being offered access to tax avoidance schemes, and HMRC is strongly warning against joining any such scheme.

How to tell if you have been offered a tax scam

There are several ways for you to tell if a scheme you have been offered is a tax avoidance scam. 

Contact Samera directly and we can advise on whether a tax scheme you have been offered is legitimate, or an avoidance scam. 

HMRC have guidance on their website to help you understand what these scams look like: https://www.gov.uk/guidance/tax-avoidance-promoters-targeting-returning-nhs-workers-spotlight-54

Citizens Advice also have information on their website on how to spot a scam: https://www.citizensadvice.org.uk/consumer/scams/check-if-something-might-be-a-scam/

In this webinar I discuss the current situation for Dentists regarding COVID 19 plus the Essential Leadership Skills required!

Click here to read our blog on How to finance a healthcare business.

In this webinar recording, Arun discusses 7 Actions all Dental Practice Owners must now do in this downtime.

Click here to read our article on How to finance a healthcare business.

I refer to “The Infinite Game” by Simon Sinek which is available on Amazon.

Remember, team loyalty goes both ways.