Dental Business Guide Podcast Episode | 8th February
Arun Mehra & Nigel Crossman
Arun Mehra: Hello, everyone. I’m Arun Mehra here today on the Samera Dental Business Guide podcast and today I’ve got Nigel, out there talking to us, how you doing?
Nigel Crossman: Yeah, I’m fine, Arun, Thanks.
Arun Mehra: Good, good. So, Nigel is the Head of Commercial Finance here at Samera and he has a wealth of experience. That means he’s not old, really, honest, but he’s got a wealth of experience in finance and he can help you set up clinic by clinic, all those types of things in terms of raising the funds. But today, in particular, we’re gonna talk about squat finance. So, Nigel, what’s going on in the market?
Nigel Crossman: Well, the market, pre-COVID was pretty good for squat practices, in that we were able to secure finance over 15 years for people for both equipment and for refurbishment, which was quite a nice deal for people.
Putting in about 30% deposit themselves and as long as their calculations were reasonable, and the projections were sensible, and well thought through with good explanations, then lenders were quite willing to lend.
And the issue has obviously been COVID, which closed practices for a short period, obviously, with the first lockdown. And then obviously, the banks got a little bit nervous and so some of those banks have withdrawn from the market, which makes it a lot harder now to finance these. And it means that you’ve got to look more carefully at your costs, and make sure you keep your costs as low as possible.
Arun Mehra: So these banks have gotten nervous. Are we right in saying that whenever we have a problem out there in historic recessions, that type of thing, banks always kind of close up shop, worry for a bit and then eventually come back to market? Is that gonna repeat here you think?
Nigel Crossman: I think, perhaps there is a little bit of that on this one. I think the other issue for the banks this time around has been several things that have passed by to make a perfect storm, in effect. They’ve been reducing staff over the last, well I left RBS five years ago, and they were reducing staff before that, so probably over 10 years, they’ve been reducing staff numbers – they haven’t got the number of staff they had previously.
With COVID, obviously, they brought in the things like CBILS and Bounce Back Loans, which were a great intervention by the government, but forms a huge amount of work for banks. There was a lot of work involved in them and a lot of staff were pulled off to do that. So, therefore, a lot of people who would normally deal with day-to-day funding now have jobs elsewhere.
Yeah, I think it’s a little bit of that. And I think also the two or three banks that did this sort of funding were very badly hit by those circumstances, because they’ve got large numbers of business customers.
I suppose it’s a bit like an illness that shuts down one part of your body that deals with the other. So that’s exactly what the banks have done, they’ve shut down part of their function to deal with the issues that have been caused by the COVID-19.
We’re very hopeful that they will start to reopen again but with all these things, people keep saying to me; ‘what date will they reopen?’ Well it’s how long is a piece of string, isn’t it? COVID is carrying on, vaccinations are happening and hopefully, when we come out of lockdown, the banks will start to open up again and life will become a little bit easier for people looking to borrow money.
Arun Mehra: Okay, fair point. But I suppose what we’ve also seen in the dental market in the last 12 months is a huge demand amongst dentists who may have been affected by COVID in their existing practices as associates, and they’re thinking ‘I’ve had enough of this, I want to go out and have my own practice’.
So there’s such a demand by dentists out there wanting their own practices, whether it’s buying or setting up. What do you say to those people who want to set up but the banks aren’t willing to lend? How are we going to get around that kind of conundrum?
Nigel Crossman: Well, there’s ways around it. I mean, there are lenders in the market and they’re probably not as good as the lenders that were in the market previously. We’re talking about the length of the loan period and perhaps the interest rate. And what we perhaps have to look at is funding some of the equipment through an asset finance company, instead of through a bank.
Now, the strange thing there is that the rate the asset finance company will give you is probably less than the bank would give, because of the risky nature of the business at the outset. Unfortunately, the term is shorter. So once you get a lower rate, you get a much shorter term, pushing your repayments out. So it can be done and the repayments are higher and, therefore, it’s more important to look at the costs more carefully, when you’re doing that sort of practice to start.
Arun Mehra: I spoke to someone yesterday who wants to do a start up, and they’ve got some savings. Kind of quite green and excited, but not really fully aware of what they need to do and how they need to do it, especially on the finance side. So I know banks have a particular way they want to see things, and Dentists have another way and the dentist invariably have a big list of equipment and kit and caboodle they want to buy. Whereas the bank says ‘well, you don’t need half of these things’. So how do we marry that up? What do we do in this situation?
Nigel Crossman: When in that sort of situation, unfortunately, if you’re trying to borrow the money from a bank, you have to play the game their way, in fact. And it’s quite a sensible view because obviously, I got these when I worked in a bank for when I ran the banking team. They will look at you only setting up one practice, one surgery in that practice. You might have room for 4, 5 or 6 surgeries. But there’s no point in setting them up with lots of expensive equipment to become what is basically an expensive store room.
In the first few months, and possibly the first year or two, you wouldn’t be using more than one surgery as you build up your patient numbers. So they will look at that quite carefully, they will also look at what you’re putting into the practice. You know, at the end of the day, your costings have got to be sensible, you have to provide a nice environment for people to come to the dentist, you have to provide a nice environment to work in.
You’ve got to be careful that you don’t spend ridiculous sums of money on items that you don’t really need, or you could cost for less, because they will look at this very, very carefully. We prepare a spreadsheet for squat practices, which is probably eight or nine pages and it breaks down everything from the costs of the fitout, the equipment, the staffing, what income you’re going to get and then it puts it into a profit and loss and cash flow form.
Obviously, it’s the cash flow that the banks really care about because there’s no point in setting these up if they are going to fail. Now, I suppose we’re very proud at Samera that we’ve done probably 15 or 20 of these now and they’re all still going, including the ones that unfortunately started in January, February last year, which was the worst time to start a squat practice.
But they survived because they costed correctly and there were sensible projections. There are a lot of associates out there, you’re quite right, that probably hadn’t been particularly well treated by some of the principles in some cases, and they earnt too much to get grants and they were out of work for a period in the first lockdown. Perhaps they do feel now they’d like to be in charge. But I think it’s very important to say that it is very worthwhile doing the squat, but it is hard work.
Arun Mehra: I totally agree with you. I think one of the mistakes, because we’ve been setting up squats ourselves with Smita over a number of years, for the last almost 20 years now. She always sees me as a Scrooge type of person. I’m the accountant and she’s a dentist. She says we need this, we need that. I say yeah, of course we can have it, but does it really marry up with the business model? If it’s going to be used once every two weeks? No. So you’ve got to really be quite careful and tight with the money in the early days.
If then you’ve got volume, you’ve got capacity coming through, patients coming through, Yeah, we can invest in this extra piece of kit or this extra piece of equipment. So you’ve got to kind of get that fine balance. It’s not always that easy. But I think you’re spot on where you only kit out one surgery, and you really are careful with that.
Because the hardest thing I’ve learned in starting up squats is getting patients through the door, that’s the hardest thing. And in an increasing competitive marketplace, I think that’s going to just get harder, people will have more choice. So you need to make sure that you get that payback on that equipment that you buy as soon as possible. But if you don’t buy in the first place, you don’t need to get the payback. Remember that, so just be careful.
Nigel Crossman: Yeah, I think you hit on a good point there because whilst the initial costings are very, very important. Your business plan and your idea of the location and the detail you can provide regarding the competition is all important. Because you have to get numbers through the door, so it’s important to know if the competition is actually competition to you in the private market or is it NHS? You need to know what their accessibility is like. Are they on the first floor? How can people get into their practice, people with buggies and wheelchairs? Is it accessible because a lot of the older practices obviously aren’t.
Now there are huge advantages in that the planning laws changed recently. Therefore, it’s easier to find a premises and you don’t have to mess around talking to the council for a couple months to get change of use. In addition to that, perhaps a sad advantage, but there are a lot more retail units available because of the changes in the high street. These changes have been coming for many years and COVID-19 has just accelerated that change and premises are available. So it is possible to get a good premises, on a good High Street with parking nearby.
And possibly, you know, you start looking at things that will save you money to come to the landlord and get your rent free period, six months and actually start work. It’s about looking at your fixed costs and making sure at the beginning, your fixed costs are as low as possible.
Arun Mehra: Correct, Correct. Okay. Really useful. So I think, in summary, we’re seeing that the banks are being cautious in lending to squats. They’re still very active for buying practices, but on the squat side of things, they’ve been cautious. But we’re hopeful at some point that they’re going to come back to the market.
However, as ever, here at Samera, we always find a way. So, if you’re still wanting to do a squat, there are other avenues to pursue, not just the main general banks on the high street. Nigel, Dan and the team, we’re very privileged to have them on our team that they can have the right contacts and know how to find other sources of finance that potentially can help you. Right in saying that?
Nigel Crossman: Yeah, it’s very true, I think, yeah. It’s not just about me. I mean, I’ve had 40 years experience in the bank, but between the team there’s 150 years here, there’s the five different people we have and you know, they’ve all got experience with start-ups and squat practices, because they worked for the banks that did those.
Arun Mehra: Yeah. I think that gives us a good insight really, because you are effectively the questioner of the person putting the business plan together because you’ve been on that side of the coin, you’ve been in the bank who used to ask those types of questions.
So you know what the bank’s going to say, or what to expect the banks to say. So I think we’re quite lucky like that. Very, very interesting, Nigel, very useful. I think, if anyone’s seeking finance, in this current environment, to start up a practice, Nigel, Dan and the team are all available to help and if you’ve got any last comments, Nigel anything to add?
Nigel Crossman: Just that if people are interested in starting, then obviously, they do need some cash. It is important to make sure you’ve got a reasonable amount of cash. You will have to work elsewhere, bear that in mind. You’d have to work extra days, perhaps elsewhere. But if you have an idea of a location and something you want to do, then please give Dan or I a call and we’ll talk it through with you initially.
And then we move on to perhaps looking at the building in some detail, getting some costings. At that stage, really, you haven’t spent a lot of funds on outside suppliers, and you can get projections and those projections, really, I always say to people, until you have the projections in front of you, you haven’t got any realism. Because that’s the bit where people realise what it’s gonna cost and they start looking at things more carefully.
Arun Mehra: Yeah, totally. Brilliant. All right. Thanks Nigel for the podcast today, and I look forward to speaking to you on the next one.
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