Don't Let Tumbling Banks Hold You Back!
In today's newsletter:
- Tumbling Banks and Goodwill Hunting
- Alistairs Limp Budget
Tumbling Banks and Goodwill Hunting!
The recent purchase of Bear Stearns Investment Bank by JP Morgan for $2 on Monday as compared to its price on Friday of $30 highlights that we are most definitely in the throes of a major credit crunch. Northern Rock was the first casualty in the UK, now has come Bear Stearns in the US, who will be next is the big question in the city? UK bank stocks have tumbled significantly in the last few days, so we have to wonder where is it all going to end?
My experience has taught me that there will always be a correction in the markets when there has been too much of good thing going on- a basic cyclical effect. What goes up will come down, it just depends how much?
House prices, shares, dental practice values? Yes dental practice values. As with all other markets, values of dental practices certainly have reached high values...the question is what happens next? Certainly there is a restricted supply of dental practices available on the market as opposed to the property market, but one must consider over the long term is the practice a great long term investment.
Are you buying a potential nest egg?
Many dentists buy a practice to build a nest egg for their future retirement on the premise that the goodwill will grow in value. But what if you are buying at the top end of the cycle? Will you still be able to grow the capital asset value of your business? Does the business you are buying provide you scope to build a bigger asset, or is the asset you are buying fully bloated with no room for expansion?
I fear many dentists in the last year or so have paid too much for goodwill, which is not necessarily a good long term investment.
Some questions to ask
If you are looking to buy a practice I would always advise clients, before making that offer on a practice,
- Work out whether after making the repayments (interest only) what the future profitability of the practice will be.
- Work out how much time does it require you, the principal, to achieve the desired profit margin. Does it require you to work seven days a week, or just one day a week?
- Work out whether you can grow the size of the business so that the price you paid for goodwill is an irrelevance in the long term. In other words, does the practice you are buying offer considerable potential to grow its value for when you sell it.
Build your practice for the long term
Buying or setting up for the long term, although it may not be a quick buck (they are very rare indeed) usually yields the best results, as in the case of any market cycle.
But Don't Despair - Real opportunities are out there!
The fear that emanates in any market is just that, fear. When everyone is worrying, this is the EXACT time to TAKE ACTION and take some calculated risks. During these times of fear and change, the real business opportunities present themselves.
When all the world is in economic panic mode, and talking about negativity in the markets, one would believe that it would be impossible to build and create a successful business. My view is very different.
My view is be aware of the issues, and plan your route accordingly, this way you will make a success of your goals. Just look at everyone's favourite company, Google. They emerged from the Internet boom/bust frenzy, can you create a "google" dental business?
If you want some help to create your dream practice without necessarily paying for goodwill then come to our Setting Up In Practice seminar on the 12th April at The Neem Tree, Canary Wharf. I promise you, you won't regret it!
Please click here to find out more or call Barbara on 0207 100 8788 to make your booking.
Darling's Limp Budget - 2008
Alistair Darlings budget proved to be real damp squib, nothing particularly exciting for business, just the raising of duties. He confirmed his position on the various proposals he had made previously, so all in all from my perspective a real disappointment, particularly the lack of encouragement for business enterprise, something the economy really needs in these economic times.
If you want to read our summary of tax implications from the budget please click here.
But if you want to create a dental practice that you always dreamed, without worrying about what any chancellor will ever do then perhaps you should click here. Don't worry about tax, that will always be there in some shape or form, worry about NOT TAKING ACTION during this opportunistic time to make your dream practice a reality!
Watch out for our Marketing Guide which will be coming out in the next week or so!
Have a fantastic day!
Arun Mehra ACA
"Helping Dentists Build Better Businesses"