Maximising your practice efficiency: a finance angle

August 2019

Finance structuring may not be top of mind when it comes to maximising your practice efficiency however beneficial finance options can provide efficiencies not only for your practice but also your personal finances.

Once recommendations have been provided by your accountant and clarity is achieved around the type of ownership entity to be established or to be joined, it is at this point (with plenty of documents in tow) that bank approval in principle for the funding can be arranged. 

Let’s look at a practice buy-in scenario and how some thought to the structure can potentially be of benefit. 

Practice Buy-in

Cutcher & Neale Finance can procure finance from specialised lenders that can provide options to borrow up to 100% of the practice purchase price or 100% of the share you are acquiring.

 These specialised funders can provide quick turnarounds albeit with higher interest rates, and shorter loan terms. 

Alternatively, your personal financial situation may provide scope to achieve accelerated reduction of your non-deductible (bad) debt and the ability to maintain deductible (good) debt for longer periods.

As an example, could part of the cash-flow required to pay-off the practice finance over a ten or fifteen-year period be re-allocated to pay-off your residential home loan faster, allowing the practice finance to provide deductible benefit over a longer period?  The answer lies in the equity you currently hold in your residential property.

Provided you do have available equity in your property, it is possible to carve out a separate loan account against your residence at home loan interest rates which can be specifically tailored for your practice funding requirement. 

This includes a clear line of sight for your accountant for tax and deductibility purposes.

Recent Example of a Practice Buy-in using a Residential Property valued at $1,200,000:

  • Current residential owner-occupied variable home loan $500,000 @ 3.50% principle and interest.

  • New loan required to buy a percentage of the practice $580,000 @ 3.89% principle and interest over a maximum 30-year term.

  • 90% funding against the residential property with no mortgage insurance premiums.

  • If the $580,000 practice funding was secured against the value of the share in the practice, an interest rate of around 5.00% over 15 years was quoted.

  • The cash flow difference between the direct practice funding and the funding being residentially secured is $1855 per month.

  • If the cash flow difference of $1855 is reallocated to the $500,000 home loan it could take 17 years off this loan and save $190k in interest on bad debt.

This rapid repayment of non-deductible debt, while still repaying deductible debt over a longer period can provide you with immediate fiscal benefits and provide a lot of flexibility for the future.

However, care must be taken when mixing private assets and practice assets for loan security.

Finance Graph

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Topics: Operations, Practice, Dental Services

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