CURRENT CIRCULATION: DATE: ISSUE NO:
7491 16th December 2008 161
Welcome to Health & Life’s free email newsletter service. Tell a friend that we would be happy to add their email address to the distribution list. This service is to provide Health and Life’s clients and those who attended our presentations with up to date information on key financial and practice management issues that may affect your practice. Please do not use this as a substitute to seeking professional advice. Writer in charge: Mr David Dahm BA.Acc, FCPA, FTIA, Ffin, FAAPM, GLFG.
The 2009 Survival Guide Introduction Seasons greetings to you all. The credit boom has thankfully ended and it is back to basics where real people do real work like make food, build houses and look after others. No longer we hope, we have bankers and companies engaged in dubiously financially engineered products on spreadsheets that they themselves don’t even understand and then have them flog off to mums and dads for millions with no real substance or basis. Furthermore we hope it is the end of celebrity sports stars and politicians who are directors of these companies, who don’t have the experience to run a chook raffle let alone a major listed company. Hopefully more normal people like hard nosed experienced no name lawyers and accountants and people who have built their businesses from the ground up help companies through their governance and business woes and we can avoid the sense of entitlement, naivety and largesse that the past boards have enjoyed at the expense of the investor and taxpayer. Anybody can make money in a rising market, you don’t have to be terribly smart or a Wall Street guru. The world sharemarket has operated a game like pass the parcel with a hand grenade. The really smart investors perform well in doom and gloom and this is the real test. Unfortunately many of these high flying bankers and directors will not be in a job to show us their real talents. I am always concerned when financial advisers who bullishly advise people with rhetorical advice to invest in the sharemarket because it is at or near the bottom. All the governments around the world cannot bail out the worlds economic problems overnight, this is a bit naive. The bottom line is a painful purge has to occur before the real problems can be fixed and sustainable companies and company returns resurface in 3 years time from the lessons learnt. I will explain why later. Many financial advisers only make a living from commissions from buying and selling your shares (whether it is up or down) which may not always be a good idea. I am always wary when people are pressured to invest in a downward market which is like catching knives! Below are some ideas that might see you through 2009 and some issues or questions you should raise with your advisers. A crisis is a good thing if it can lead to change for the better so I don’t share the same pessimism that most have. My only rule is invest in things you understand and if not stay
away from it. Having said that those that have been following our advice carefully would not have lost any money on the sharemarket after receiving our repeated warnings of the th subprime crisis since our 29 November 2007 news alert. In this edition I will explain why I have just sold my beautiful 1992 old SAAB (88,000km no mechanical troubles at all) and moved to a small Nissan and how this affects you and the things your practice and you need to think about next year. We will cover What is Hot and what’s Not in 2009 and some take home lessons in this edition. We also wish to congratulate one of our rural general practice clients that made the BRW Fast 100 list of private companies, including new seminar series updates and some other important public announcements for 2009.
1. What’s Not Hot in 2009! 1.1 Financial and now a real world economy crisis – The worst is yet to come! 1. Unemployment set to significantly rise 2. Expect huge bank bad debt write offs 3. Commodity prices to dramatically to fall – March 2009 deadline 4. Deflation – things are getting cheaper
2. What’s Is Hot in 2009! 2.1 Your Opportunities 2.2 Investments - Getting In & Getting Out 2.3 Borrowing - Getting In & Getting Out 2.4 Practice Opportunities 2.4.1 2.4.2 2.4.3 2.4.4 2.4.5 2.4.6
Build or Renovate Your Practice Medical practices are recession proof Workplace Weigh Ins and increases in patient demand Investment Allowance 10% - immediate tax write off Do It Yourself super funds to negatively gear the practices premises Patient Friendly Safety Net Scheme – Capping Fees
3.0 The Geraldton Medical Group named BRW Fast 100 List! 4.0 Netball SA Director Appointment 5.0 New Practice Grants and More Seminar and Catch Up Dates 6.0 Merry Xmas & Shut Down Information 7.0 Where to from here?
The 2009 Survival Guide
1. What’s Not Hot in 2009! 1.1 Financial and now a real world economy crisis – The worst is yet to come! Some of you maybe wondering why this weekend I suddenly sold my beloved SAAB (may be not ☺). I have been watching the news last week General Motors Holden (which owns SAAB) in the US seeking a $14bn bail out which got rejected by the US Congress. By the way this money would only last them a few months! GMH has indicated it wanted to get rid of SAAB and a number of other brands if it avoids bankruptcy. Without a bail out it has weeks to live. For me I wanted peace of mind and owning a car where there is a good chance it may breakdown and there will be nobody to repair it was slightly worrying. We live in extraordinary times and people say the US govt. will not let it fall over, however they said this about some major banks and icon companies such as Pan Am, Lehman Brothers, Fannie Mae and Freddie Mac and they are no longer with us. For those of you who are not aware I started my career as a corporate auditor at the last boom bust in the late eighties with KPMG. After watching all the news reports since August 2007 when the US courts said to home owners who could not afford to pay their loans they did not have to pay them back I knew this was the 80’s all over again, however it is much worse this time. This is because it is a global economy and China and India cannot protect us and we are more exposed to global economic shocks than we were in the 80’s because we have “globalised” our economy and have built capacity for an export market that is significantly contracting where supply far exceeds our domestic demand. The reality is Australia is 12 months behind the rest of the world and is still living off the commodity sales largesse from the last 12 months. The US went officially into recession in November 2007 and so did a number of the major OECD countries (it took them a year to work it out!). China and India always relied and always will rely on the Western economies for its growth. The arguments of “decoupling” and we are safe from a recession because China wants our minerals are simply not true because China and India rely on the US and the Western world to sell its goods and services. Not surprisingly we see Rio Tinto sacking 14,000 workers and BHP and other major miners who are supposed to save our economy are retrenching staff and scaling back major projects. The banks are also doing the same as overseas banks pull out of Australia. The domino and shockwave effect this has on other businesses will be dramatic and we have not seen the full impact yet. It is not surprising that the Reserve Bank Rate may drop up to 2% by mid June 2009 and the Rudd government has also expressed concern and announced a 10% investment allowance which is an immediate tax deduction write-off on capital expenditure. The last time I saw this was at the last two recessions. Something is going on out there we have not seen yet what the government knows. The worst is yet to come, this will not be fully understood until mid 2009 for the following reasons:
3. Unemployment set to significantly rise Most big corporations will be letting go of their staff before Xmas this is normal, so new unemployment figures will not be known then. Already unemployment is on the rise to 4% and it is expected to go to 6 to 7% in 3 years. These days’ people are less concerned about keeping interest and petrol prices low and are more concerned about keeping their jobs. Thankfully most of healthcare is recession proof and more money is being spent on healthcare. 4. Expect huge bank bad debt write offs Typically in a recession, businesses that have borrowed too much money will be desperate to refinance and or reduce debt by raising money on the sharemarket. The problem is people are reluctant to invest money on the sharemarket, so heavily geared companies will need to let go of staff and significantly cut back capital and operational expenditure or go broke. The bigger problem is there is possibly a second debt tsunami on its way. Like there were “N.I.N.J.A” .i.e. no income, no jobs and no assets (known as “sub-prime loans) loans made to consumers to buy their homes totaling $40 trillion, similarly there are loans that have been made to corporates. The loans that are under suspect are in the “credit swap” market totaling $400 trillion. This is where the really big problems start. Unfortunately governments are playing a game of blindman’s “Kaplunk” (this was a 70’s kids game I played where sticks are pulled from a cylinder that holds up a lot of marbles – the winner is the person with most sticks without the last marble falling to the ground) where every bank is wanting to pull out their loans and do not want to be the last bank left standing if the company goes into bankruptcy. Companies under severe distress will start rearing their heads by March. The real damage will be reported by August/September 2009 when auditors will be forced to qualify their audit reports and take more conservative view. 3. Commodity prices to dramatically to fall – March 2009 deadline As mentioned earlier the mining companies are hurting and it will be painful. The real problem is China has been mooting significant price falls of up to 82% for our iron ore in March 2009. This together with falling interest rates and the Australian dollar getting hammered means we are not going to get much bang for our buck from mining exports. It is important to realize many mining contracts fix prices for 12 months only and renewed by the end of February each year. China’s slowing economy (they are currently closing factories and fear civil unrest due to their own unemployment problems and people having to return to their villages empty handed) means it already has enough commodity stock piles as it cuts and stall big capital spending projects which is the primary reason for delayed deliveries and lower demand for commodities. 4. Deflation – things are getting cheaper As prices are going down for goods and services this is called deflation and this is the opposite of inflation. The last Consumer Price Index reported a fall and a stalling economy GDP grew 0.1% in the last quarter. In particularly discretionary goods and services such as luxury items are first to suffer. It is interesting to note the luxury men’s retailer Herringbone has gone broke. Accordingly interest rates are more than likely to remain low and go lower because consumer confidence is the only way to revive the economy. Together with the Government spending money on a $4 billion infrastructure projects, and “sugar fix” cash payments to low income earners and pensioners and the 10% investment allowance, these are clear examples there is a real problem out there. You will find that as prices fall this is a good indication that we are headed for a recession and good opportunity to build or renovate your home or practice if you can afford to.
2. What Is Hot in 2009! 2.1 Your Opportunities
2.2 Investments Getting In Timing is everything for investments – wait 6 months! Wait six months as a minimum and then reassess the situation. A lot is going to happen and there is no point playing a hero now, no matter how poor yields are. It is tempting to get into the property and share market now. Remember there are already a lot of margin calls leading to investors dumping their shares and the same applies to the property market. Without sounding mercenary the best deals with property and investment sales are when an investor is in trouble with a bank (the same applies to cars). The golden rule is to invest in distress sales and stay cashed up until then. When it comes to property, how do you know if somebody is selling under distress, simply ask them the reason for selling. Remember keep it interest only the borrowings and the capital appreciation in the next 7 years if you have bought well will result a 100% pay payback on the capital of the loan, plus you can maximize your tax deductible debt on geared investments such as property and shares. When we are going through a period of deflation expect property prices to remain flat or reduce by 10% from their December 2007 highs. Getting Out Hang in there for the long term if you can, it will take 5- to 7 years If you hold existing shares hang in there for the long term, stop worrying about it if you can. Look out if your companies are highly geared (high borrowings) and you think your company may collapse because it cannot refinance its affairs, people won’t continue to buy their goods and services, and it is not a recession proof stock like staple stocks e.g. healthcare and grocery companies. Clearly if you are reliant on the dividend income this may be another reason to switch to fixed interest term investments if your company is not likely to pay any future dividends. The highest fixed term rate is 6.25%. Anything above 5% to 6% for 12 months is pretty good with a reputable company. Remember risk and return. The higher the return the higher the risk, don’t be greedy, unless you can afford to lose your money.
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2.3 Borrowing - Don’t fix loans down by up to 2% by 30 June 2009. Interest rates are set to hit there lowest level in decades. You can expect by up to 2% reduction in the Reserve Bank rates so long as the banks pass them on. Why? The RBA has a rate around 4% where the reset of the world rates are near 0% to 1%. There is a lot of room to move for the Reserve Bank. Getting In Don’t allow banks to entice you into a fixed rate facility. They only do this because they know rates are going lower. Keep your loans variable where possible. Search the web; consider credit cards that offer low and no interest rate facilities if your transfer your outstanding credit card balance. This is a cheap form of debt, but don’t forget to pay it off in time.
Getting Out If you can get out of any fixed cost borrowings without suffering the heavy exit fees go for a variable rate loan and enjoy the lower rates. This might be a good idea if you have a lot
of personal credit card debt. Increase your practice borrowings by establishing a variable overdraft facility and pay out any non-deductible personal debt that usually incurs interest rates between 18% to 20% by paying yourself a trust profit distribution or wage.
2.4 Practice Opportunities 2.4.1 Build or Renovate Your Practice Where there is certainty there is opportunity. General Practices in particular by merging or increasing their doctor numbers have significant opportunities to integrate the care and improve services they offer and earn a solid passive income from specialist and allied health rents. More importantly the new Tsunami of newly trained doctors (including ones extending their working lives, coming out of corporate contracts and retirement) makes owning practice infrastructure more attractive in the medium and long term. The short term opportunity is to merge with existing competing practices where principles are seeking to reduce their workloads to a more sustainable level and where they share the same vision. The main reasons for practices to build or significantly renovate existing practices are: 1. Tsunami of doctors in training from 2010 ($1.1bn to be spent on new doctor and allied health training positions announced in 2008); 2. Deflation – prices are falling and it will be much cheaper to build/renovate a practice in the new year as normal businesses will find it hard to borrow to invest unlike the medical profession which is perceived as recession proof by the banks; 3. Federal Govt. will be paying workplaces to encourage staff to keep fit and healthy; 4. 10% Investment Allowance immediate tax write off for capital expenditure – see below for more information; and 5. Using Do It Yourself Super Funds to negatively gear the practices premises; 2.4.2 Medical practices are recession proof Medical practices are recession proof and is it not better to invest in something you understand and control than someone else? The Government is planning additional funding of general practice. There are doctors out there but they are picky, they want well run practices that have good infrastructure as well as good clinical standards. We have noted quite a number or retiring doctors returning to the workforce after losing money on the stock market. Furthermore many more are extending their retirement plans. Banks are still aggressively lending to practices. 2.4.3 Workplace Weigh Ins and increases in patient demand Chronic Disease Management is the healthcare industries golden buzzword in 2009. The Federal Government will pay for health and exercise programs in workplaces including examine food canteens and encouraging lunchtime work outs to ensure workers remain healthy and productive and to lower rates of diabetes, obesity and cardiovascular disease. This provides plenty of opportunities for practices to better use and position their allied health teams to tap into these programs. Also note, in a time of recession mental health problems will increase as unemployment and uncertainty increases, also consider using a practice nurse for psychiatric issues. This frees a lot of GP time. 2.4.4 Investment Allowance 10% - immediate tax write off th
From 13 December 2008 The 10% investment allowance will be in the form of an additional tax deduction equal to 10 per cent of the cost of an eligible asset. The allowance will be applicable to most new tangible depreciating assets - which includes most items of plant and equipment - over $10,000 which are acquired or ordered by the end of the current
financial year. This also includes cars! Make sure you have a high business purpose. Employee or contract doctors may not be eligible, only associate doctors that are self employed and have their own ABN and directly bills the patient will be eligible. This means a business can receive an additional 10 per cent tax deduction - available immediately - for investment brought forward and in place by 30 June 2010. th
Make sure your invoices are dated no earlier than 13 December 2008 and no later than th the 30 June 2009. 2.4.5 Do It Yourself Super Funds to negatively gear the practices premises Negatively gear on property using your super fund under the new rules. Structure leases so the doctors and not the landlords profit from any property development. The premises can be pre-leased and a sale lease back arrangement can create an instant gain for the doctors if structured correctly. This will ensure the practice infrastructure is properly funded and developed so efficient work flows and integrated multi-disciplinary practice designs are being achieved. Note pharmacist are worried about deregulation and shopping centre’s taking over their turf in 2010 so there is much interest by pharmacists to co-locate their premises onto large group practices and they are prepared to pay a premium for it. This co-located model can significantly reduce overheads such as staffing, energy and operational requirements and significantly improve the quality and access to patient services. 2.4.6 Patient Friendly Safety Net Scheme – Capping Fees It is important to appreciate patients due to become unemployment and/or lower investment returns have less money available to spend. To help them along the way, practices should think about introducing an in house patient safety net scheme. On average a patient will visit your practice 5.2 times a year. So if you charge a $10 gap on every consult up to a maximum ceiling of ten consults this means if the average full time GP sees 7500 patients a year then an additional $75,000 of revenue is generated at no extra cost if the fee is collected on the day. One practice we are aware charged the full amount upfront on the first consult and bulk billed for the rest of the year. At least this gives patients certainty about out of pocket costs and maintains continuity of care. This should avoid any future fee resistance from patients as you are meeting them half way.
3.0 The Geraldton Medical Group named in BRW Fast 100 List! We wish to congratulate our client the WA rural general practice ‘Geraldton Medical Group’ who was announced in October 2009, in the BRW Fast 100 list of private companies in Australia after record growth. Over three years they have increased the number of their GP's from 3 doctors to 17, breaking all the myths from doctors are not interested in general practice to GP’s are not interested in buying a practice and/or general practice is not viable. Congratulations to them and all our clients who are on a similar road to success. See the attached Medical Observer articles on the Secrets of their Success or visit our web site at www.healthandlife.com.au, we will also be sharing some of their secrets in our 2009 seminar series detailed below.
4.0 Netball SA Director Appointment
We are pleased to announce David Dahm has been selected to become a State Director of Netball SA commencing in February 2009. Netball SA has over 27,000 members and 35 clubs in the competition and is responsible for the national Thunderbirds team who came third in last years national competition. See www.netballsa.asn.au for further information.
5.0 New Practice Grants and More Seminar and Catch Up Dates Australia’s most successful practices will have some of their trade secrets presented at our Practice Sustainability Series detailed below except for the Staff Development Day. Below is a summary of the dates of our seminars all across Australia. At each of these seminars there is an opportunity to meet with us face to face to discuss any practice issues you may have at no obligation. Email us at pa@healthandlife.com.au to pre-book. All the Victorian Divisional meetings have received grant funding support from the Rural Workforce of Victoria for seminars and one on one practice business coaching. If you are a local Division of General Practice in Victoria or a practice you are eligible to receive funding for our seminars and/or one on one practice business coaching grant. If you would like your local medical organisation to host a seminar, send them the attachment with our seminar details and copy us at pa@healthandlife.com.au into your email and we will contact them directly about doing a presentation in your local area. We thank you in advance for your interest and support, you would be surprised how it only takes one person to make things happen! New programs confirmed for 2009 are detailed below. Please contact the organisations directly for details about the course program, content and costs. More seminars will be announced during the year. TBC = to be confirmed
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Host and Where
Date
Australian Association of Practice Managers (AAPM) SA – Darwin Venue TBC Eastern Ranges GP Association Karralyka Centre, Mines Road, East Ringwood.
Thursday th 29 January 2009
Murray Plains Division of General Practice - Borer Inn, 13 Meninya Street, Moama
Contact Name Amalie Fiege
Contact Details (08) 8948 4333 Amalie.nmc@ mac.com
Saturday th 7 February 2009
RWAV Sustainable Practices Project
(03) 9349 7800 sue.torwick@r wav.com.au
Confirmed - Division Members only
Time 9.30 – 2pm Topics Wednesd th ay 18 February 2009
Sue Torwick or your local Division RWAV Sustainable Practices Project
(03) 9349 7800 sue.torwick@rw av.com.au
Confirmed - Division Members only
Sue Torwick or your local Division
Status Practice Sustainability Series
One on one practice business coaching grant available with Health and Life – pre-booking early is recommended.
One on one practice business coaching grant available with Health and Life – pre-booking early is recommended.
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Geraldton WA
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Australian Association of Practice Managers (AAPM) SA Adelaide – Adelaide Convention Centre
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Saturday th 20 February 2009 Saturday th 28 February 2009
David Dahm
pa@healthandl ife.com.au
TBC
Kim Monu
(08) 8342 4548
AAPM Staff Development Day
sa@aapm.org. au
Open to all practices Featuring the Metro Fire Service (part proceeds to the Women and Children’s Burns Unit) and Health and Life Oakdale Netball players will be modelling next seasons practice uniform wear. For more info about the netball club see www.oakdalenetballclub.com.au
Central Highlands, West Victoria and Ballarat Divisions are combining to meet at Novotel Forest Resort, Creswick
Saturday th 28 March 2009
AAPM Tasmania TBC
Friday 24 April 2009
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RWAV Sustainable Practices Project Sue Torwick or your local Division James Walker
(03) 9349 7800 sue.torwick@rw av.com.au
Confirmed - Division Members only
(03) 6229 8583
Practice Sustainability Series TBC
One on one practice business coaching grant available with Health and Life – pre-booking early is recommended.
jameswalkerho bart@hotmail.c om 8
TBC
April/May 2009
David Dahm
pa@healthandl ife.com.au
Medicare Audits – Are they legally enforceable? To be confirmed – open to all practices
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Australian Association of Practice Managers (AAPM) WA Perth Venue TBC
Friday 26 June 2009
Goulburn Valley Division
Thursday rd 23 July 2009
Australian
Wednesd
AAPM WA Susan Stark
RWAV Sustainable Practices Project Sue Torwick or your local Division Kim Monu
(08) 9346 9325
Benchmarking Presentation TBC
sues@western cardiology.co m.au
David will be available for face to face meetings at no obligation on th Thursday June 25 between 11am and 4pm. Pre bookings are recommended. Please email us pa@healthanldife.com.au to secure an appointment. Limited places available. Confirmed - Division Members only
(03) 9349 7800 sue.torwick@r wav.com.au
One on one practice business coaching grant available with Health and Life – pre-booking early is recommended.
(08) 8373 0888
Best Practice Principles
Association of Practice Managers (AAPM) SA at Memorial Hospital
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ay 29 July 2009
sa@aapm.org. au
6.0 Merry Xmas & Shut Down Information
Merry Christmas
Dear All Thank you for your support throughout this year. On behalf of all the staff at Health & Life we wish you all a Merry Christmas and a happy & safe New Year. A special thank you to our clients and organisations whose financial support is appreciated – we would not be here without you. Amongst all the doom and gloom remember there are people worse off than ourselves and let us not forget them. We look forward to being of assistance to you all in 2009. From the staff at Health & Life th
Please be advised that our office will be shut on Friday 19 December from 12pm and we will be returning th Monday, 5 January 2009.
7.0 Where to from here? Time is the only thing holding you back. The best thing a group of doctors can do is unite together to provide certainty in an uncertain world. This is your single biggest opportunity! If you are not sure about any issues raised in this broadcast contact David Dahm on 1800 077 222 for an initial free no obligation chat, or email us at pa@healthandlife.com.au. Health and Life provides comprehensive practice consulting, accounting, taxation and financial planning advice for group practices and individuals. Which topics would you like to be covered? If there is a particular topic that you would like covered in one of our future News Alerts, please email pa@healthandlife.com.au and let us know what it is. We will then endeavour to cover your requested topic. Do we have your email address? It is apparent in feedback we are receiving that there are persons receiving this regular email who are not on our email list. If you are receiving this email ‘second-hand’ from another source, we would be delighted to receive your email address and we will add you to our list so that you can receive it first-hand on the day that it is sent. This invitation is open to all medical practices. Please send your email address to pa@healthandlife.com.au
Do you wish to unsubscribe from our list? Please email pa@healthandlife.com.au if you wish to be removed from our distribution list Copyright Notice This email, including any attachments, is for the personal use of the recipient(s) only. Republication and redissemination, including posting to news groups or web pages, is strictly prohibited without the express prior consent of Health & Life Pty Ltd. Disclaimer Notice Health & Life Pty Ltd’s Best Practice News Alert is designed as a comprehensive and up-to-date Accounting and Practice Management news service to alert readers to the latest in practice and related developments affecting the medical, dental and allied profession as they happen. It is published when there is news to report. No responsibility can be accepted for those who act on its content without first consulting us or obtaining specific advice. Health and Life Pty Ltd Accounting & Practice Management Services. “Looking after your future” PO Box 8145 Station Arcade, ADELAIDE SA 5000 Telephone
(08) 8415 5400
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