Medical and Professional Finance

A buy-in is a different transaction to a straight purchase, and the structure has consequences that reach well beyond the loan.

Your accountant and a solicitor with health or professional services experience should set the structure. Buy-in agreements, restraint clauses, exit mechanisms and the treatment of goodwill on departure are not finance questions, and getting them wrong is expensive in ways a loan cannot fix.

Buy-in

Acquiring a share of an existing practice rather than the whole of it. The security is a share in a private entity, which lenders treat cautiously.

Service entity

A separate entity providing premises, staff and administration to the clinical practice for a fee. Common in medical, and a lender needs the whole structure explained rather than one half of it.

Goodwill

The value of the practice beyond its physical assets: patients, records, referral sources, reputation. Fundable for recognised professions, and rarely accepted as standalone security.

Restraint clause

The limit on where and when a departing practitioner may practise again. It protects the goodwill you are buying, which is why a lender reads it and why your solicitor should read it first.

Lenders look through the headline price to the sustainable earnings of the practice, adjusted for what the owner actually takes out and what a replacement practitioner would need to be paid.

1. 01Start with reported profit, then add back owner remuneration, one-off items and any personal expenses run through the practice.
2. 02Deduct a market rate of pay for the clinical work the outgoing owner performed. This is the adjustment buyers most often miss, and it can change the picture substantially.
3. 03Consider revenue concentration. A practice where one practitioner generates most of the billings carries obvious risk if that practitioner is leaving.
4. 04Assess patient or client retention. Records, referral sources, location and the length of any handover period all matter.
5. 05Check the lease. A practice with a fit-out and a short remaining lease is worth less than the same practice with a secure tenure.
6. 06Review the equipment. Age, service history and what will need replacing in the next two years.

Where the profession is recognised and the numbers support it, lenders will fund goodwill more generously than they would for a general business. Where the profession is not recognised, or the earnings are concentrated in the departing owner, expect a more conservative view and a larger contribution.

Splitting the package this way usually produces a lower blended cost than a single large loan, because each component is secured by something appropriate and priced accordingly.

1. 01

   Confirm the structure with your accountant first

   Entity, service arrangement, who owns what, and how the goodwill is being treated. Lenders decline structures they do not understand, so the structure has to be settled before the submission is written.

2. 02

   Assemble the practice numbers

   Two to three years of practice financials, billings by practitioner, the lease, the equipment schedule and the sale or buy-in agreement.

3. 03

   Establish adjusted earnings

   Add-backs in, market clinical salary out. This is the figure lenders assess, and presenting it properly is most of the work.

4. 04

   Check profession-based policy at the current time

   Which lenders recognise your profession today, and what that changes on this particular transaction.

5. 05

   Structure and submit

   Split the facilities appropriately, write the credit case, and take it to lenders with genuine appetite for practice lending rather than to the whole panel.

6. 06

   Look at the personal side too

   Practitioners frequently discover that a profession-based concession changes what is available on their home loan as well. It is worth checking both at once.

A practice that has grown into its rooms is often better off owning them. The rent becomes a loan repayment against an asset the principals hold, and the tenure risk disappears.

• Owner-occupied commercial lending often attracts a more favourable loan-to-value ratio than investment lending on the same building, because vacancy risk is removed.
• The premises can sometimes be held inside a self-managed super fund as business real property and leased back to the practice at market rent on arm’s length terms. That route requires licensed financial advice and careful structuring.
• Owning the premises removes the risk of a fit-out becoming stranded at the end of a lease, which is a genuine cost for practices with expensive clinical installations.
• It also concentrates your wealth in one place. That is a legitimate trade-off to discuss with your financial adviser, not a decision to make on the finance alone.

We read the whole situation, then build a plan for what comes next.