Prosperity’s Matthew Guy named state finalist at MFAA’s Excellence Awards

The Mortgage & Finance Association of Australia (MFAA) has announced Matthew Guy as a finalist in the Newcomer and Young Professional categories at the annual MFAA Excellence Awards. 

This is Matthew’s first year as a finalist in the Excellence Awards.

The MFAA Excellence Awards are the most rigorous in the Australian mortgage and finance industry and are judged by an independent panel of business professionals and experts.

“I am honoured to have been recognised by my industry peers and to have been selected from all the entrants across the country and named as a finalist for two categories,” said Matthew Guy of Prosperity.

The last year has been full of industry change and increasing challenges for the finance broking market, but Matthew has been delivering better consumer outcomes than ever due to his commitment to his clients and expertise in the lending market.

Prosperity Head of Lending, Alex Warian, said “Our team at Prosperity is very proud of Matthew and his dedication to client service. The ability to provide practical lending options in concert with a team of like minded professionals is fuelling strong growth in our lending business and boosting client satisfaction.”

“The MFAA has acknowledged Matthew Guy as a state finalist out of more than 650 total national awards submissions which have been judged and rewarded for consistently demonstrating their professionalism, integrity, ethical conduct and innovation,” the MFAA stated.

“To be recognised as a finalist speaks volumes of their exceptional practice and professionalism in the mortgage and finance industry,” the MFAA added.

All finalists, including Matthew Guy have an opportunity to be recognised as their state’s winner. State winners will then have the opportunity to win the prestigious national title at the national awards ceremony, which will be held on 26 July in Melbourne.

Shout out to the girls


Meet Helen. Helen is Executive Assistant to our CEO and has recently contributed to an exciting new book published by the Executive Assistant Network.

Introducing Tatiana. She is an Associate Financial Advisor and takes inspiration from being able to compete and succeed within a predominantly male-dominated industry.

Say hello to Siobhan. Siobhan is a Director in our Sydney office, she is a Mother of three children, and she is a Pioneer for working mothers.

Today is International Women’s Day, and this week we have been celebrating and showcasing some of the amazing women we are fortunate to work with at Prosperity. We salute IWD and acknowledge the tremendous contribution of our female team to the growth and success of the firm.

We all know there is a large gender gap in the finance and accounting sector; a recent report showed that in financial institutions women are holding only 19% of senior positions, 14% of board seats, and a shocking 2% of CEO roles.

Prosperity is proud to support a majority female workforce with a combination of flexible working practices, a supportive team-based environment and excellent role models to advance their careers. We are also proud that more than 40% of our Director team are women who have established themselves as leaders in their fields and who have been recognized individually for their contribution and success in their profession.

To hear more about some of the motivated and inspirational women we are fortunate to work with at Prosperity, head over to our Facebook page where we have been sharing their stories all week.

Happy #IWD2018 !

Property market in Australia: how much do you know?

From capital growth, or snagging the best mortgage rate, to managing household debt, research indicates that most Australians don’t really understand the property market or their individual circumstances as well as they should.

Property investment is about long-term results

While Sydney has recorded strong capital growth over the past five years, its long-term performance pales in comparison to smaller capitals, according to the latest analysis by the Property Investment Professionals of Australia (PIPA).

PIPA — which analysed data from the 2002-2017 Australia Bureau of Statistics Established House Price Index — showed that in terms of capital city house price growth, Sydney finished dead last.

The Harbour City’s house price index has increased a mere 142% over the past 15 years, compared to first-place Hobart, which recorded growth of 220% over the same period. Melbourne came in second (208%), Darwin third (161%), and Brisbane fourth (160%).

This research reinforces the notion that successful property investment is all about long-term results, rather than short-term gains. Educated investors understand the importance of time in the market, not trying to time the market, which is essentially just speculation by another name.

The majority of Australians are unaware of their mortgage rate

An overwhelming majority of borrowers do not know their home loan rate, with 86 per cent of Australians also unaware of their monthly expenses, a new study has revealed.

The Know Your Number Index, commissioned by digital bank UBank, examined Australians’ knowledge of their household and entertainment expenses. According to the data, NSW and ACT residents were least likely to know their mortgage rates (15%),

While there was a slight improvement on last year, there are still too many Aussies out there who don’t know their mortgage rate. Further, 59% of Australians claimed that their current financial situation has caused them stress or loss of sleep, with 44% noting that they’re “constantly worried” about their financial future.

We encourage borrowers to do their research and stay on top of their mortgage rate; this is one of the great benefits of using a mortgage broker who can ensure you get a deal that best suits your needs and takes into account your circumstances. With only 28% of Australians stating that they use budgeting tools, the importance of household budgeting must be noted for its role in minimising stress and supporting a balanced lifestyle.

With the latest data from the Bureau of Statistics uncovering that the cost of living in Australia rose by 2% last year and is the strongest pace growth we’ve experienced in three and a half, it’s never been more important to know your numbers.

Having your finances sorted is an important part of maintaining a balanced lifestyle, and unfortunately too many Australians are experiencing the effects of not truly understanding their finances.

The Reserve Bank of Australia keeps calm on debt, but is closely watching Interest Only loans

The average household mortgage debt-to-income ratio rose to around 140% at the end of 2017 from around 120% in 2012. Despite that figure, the RBA doesn’t appear to be ringing any alarm bells.

“While debt levels are relatively high, and there are owner-occupier households that are experiencing some financial stress, this group is not currently growing rapidly,” said RBA Assistant Governor, Michele Bullock, during a speech at Informa’s Responsible Lending and Borrowing Summit in Sydney on Tuesday the 20th of  February.

“This suggests that the risks to financial institutions and financial stability more broadly from household mortgage stress are not particularly acute at the moment.”

Bullock said the rise in mortgage debt-to-income is “not really surprising” given historically low interest rates that have allowed households to service higher levels of debt. One area Bullock highlighted was the potential for investor lending to raise macro-financial risks.

In 2014/15, around 11% of the adult population, or just over two million people, had at least one investment property and around 80% of those were geared, according to ATO data. Most of those investors own just one investment property but an increasing number own multiple properties. There has also been a marked increase in the share of geared housing investors who are over 60.

“These factors do not necessarily increase the risk of financial stress but they bear watching,” Bullock said.

In conclusion, Bullock states that while there are some pockets of financial stress, the overall level of stress among mortgaged households remains relatively low.


To ensure your mortgage best suits your needs and takes into account your personal circumstances, please get in touch.

Matthew Guy has recently been recognised by Mortgage Professionals Australia as one of the industry’s best and brightest, being included in the national ‘young gun’ list. The list of 30 includes emerging mortgage and finance broking elite professionals that are aged under 35, with less than 2 years as a broker and completing more than $15m in loans during the year.


Matthew Guy is an Authorised Representative of Prosperity Finance Advisers Pty Ltd ABN 69 143 861 303, 309 Kent Street Sydney, NSW 2000 is a Credit Representative (No 479852) of Hillross Financial Services Pty Ltd Licence 232705 ABN 77 003 323 055 and is one entity within the Prosperity Advisers Group Ph. 1800 445 767. Any advice contained in this document is of a general nature only and does not take into account the objectives, financial situation or needs of any particular person.

Prosperity Lender recognised as National “Young Gun”

Prosperity Lending Adviser Matthew Guy has today been recognised by Mortgage Professionals Australia as one of the industry’s best and brightest.

The list of Australia’s emerging mortgage and finance broking elite included 30 young professionals who were aged under 35, with less than 2 years as a broker and completing more than $15m in loans during the year.

Matthew was a standout settling $35m in loans with a very impressive conversion rate of 92%.

Matthew said he was “Thrilled with being included on the 2018 list. Working hand in hand with accountants and financial planners at Prosperity to deliver holistic advice provided very positive outcomes and strengthened client relationships”.

Prosperity Head of Lending, Alex Warian, said “Our team at Prosperity is very proud of Matthew and his dedication to client service. The ability to provide practical lending options in concert with a team of like minded professionals is fuelling strong growth in our lending business and boosting client satisfaction.”

Prosperity wins Advisory Firm of the Year Award

Prosperity is delighted to advise that the firm has secured the prestigious Hillross Financial Services award for Advisory Firm of the Year. Highly sought after, this award recognises the firm’s overall professionalism, operational excellence, superior client service, advice delivery and implementation.

Allan McKeown, CEO and Founder of Prosperity Advisers Group said, “To win the Advisory Firm of the Year is wonderful recognition for the tremendous effort our team has demonstrated showing ongoing excellence in providing personal financial advice as well as a clear passion for clients. We are very proud of the collective efforts of our people across our Newcastle, Sydney and Brisbane offices.”

Independent client research through the Beddoes Institute was instrumental in deciding the award winner as was demonstrating a commitment to ongoing excellence in providing personal financial advice, robust and high quality advice processes and a clear and demonstrable passion for clients.

In accepting the award on behalf of the firm, Director Gavin Fernando acknowledged the contribution of the whole Financial Services team and the broader Prosperity group in ensuring wealth management was an integral part in helping the team achieve success for our clients. He said, “Our aim is to create happy and secure futures for clients and in turn create advocates for our firm, our people and the value of advice. We are thrilled to gain this recognition from Hillross.”

At the ceremony the firm was also recognised again as a leading advice practice securing its status as a member of the Elite Strategist Group among Hillross licenced financial advice firms.

Growth creates opportunity at Prosperity

Double digit growth has been the catalyst for the announcement of six internal promotions.

Alex Hardy from the Corporate Assurance team has been promoted to the senior role of Associate Director. Alex has progressed through the ranks since he started with the firm in 2006 when he commenced as a Trainee Accountant. The Directors of Prosperity are delighted to have him as a member of our Director Group.

Alex is also the Treasurer of the Hunter Young Professionals group and was recently appointed to the inaugural Youth Leadership Committee with the Institute of Internal Auditors – Australia.  He was recognised at the NSW Business Chamber Regional awards this year as Young Business Executive of the Year and was a finalist in the State Awards for the Chamber.  In 2016 Alex was also recognised as Rising Star at the Australian Accounting Awards.

Sascha Kass from the Marketing team has been promoted to Manager. Sascha has been a strong contributor to Prosperity working across the divisions to build the firms profile through various marketing and communication strategies.

Harry Charalambous and Zoe Wright from our Business Services and Tax team have been promoted to Supervisor. Ben Hailstone has also been promoted to Senior Accountant.

Sally Wilson from the firms internal Finance team, has been promoted to Assistant Accountant where changes in the team have allowed her to participate in more analytical style work.

Chief Executive, Allan McKeown said, “Our goal at Prosperity has always been to foster an environment that supports the growth and development of our people. We provide challenging professional experience and deliver the right tools and support to assist our people to drive their careers forward.”

Research reveals critical risk concerns for SME business owners

Understanding and managing risks sits squarely at the centre of this year’s annual SME Research Report covering the attitudes, practices, ideas and concerns of more than 500 SMEs operating across Australia.

Now in its third year, the Report provides a comprehensive picture on the core concerns for SME owners with Business Planning (#1), Protecting the business and family assets (#2) and Stress and lifestyle (#3) as the standout areas of greatest concern.

Click here to access the 2017/18 SME Research Report provided by Prosperity Advisers Group.

98% of business owners believe there are opportunities to grow their business however many cite barriers to growth which make realising this opportunity highly stressful.

Only 20% of those researched have any form of business plan and perhaps more concerning is that 73% of SME owners believe that their business could not continue to operate without them. So while business owners haven’t labelled succession planning as a core concern (perhaps due to a lack of understanding about what it means), the fact they don’t believe their business can exist without them is stressful, affects their lifestyle and importantly presents problems for protecting the sustainability of their business as well as their family assets.

All three of the top concerns in this year’s Report are strategic issues which are intrinsically linked and are associated with identifying and managing risk. This is in stark contrast to the issues identified by the research three years earlier where SMEs cited cashflow and profitability among their top business concerns.

CEO and Founding Partner of Prosperity Advisers Group, Allan McKeown says, “We should all be concerned about the future of SMEs in this country. At Prosperity we are helping hundreds of business owners to address their risks – whether financial or strategic – so they can shore up the sustainability of their business and reduce their stress. As the largest employer in Australia, SMEs are the lifeblood of this country so if we don’t help this sector to succeed for future generations then the flow on will directly affect the economy as a whole.”

Unsurprisingly business disruption through technology, the changing buying practices and preferences of consumers, and access and retention of the right resources are all factors which have contributed to the changing needs and issues for SME business owners.

Providing the ‘how’ for SMEs is a key feature of this year’s Report with ideas for what business owners can do to gain greater control, and to grow and improve their business so they can transition and exit on their terms.

Strategic business adviser for SMEs and Director of Prosperity Advisers Group, Siobhan Sellick says, “Embarking on a ‘better business program’ immediately eases the pressure on business owners and their families because it deals with the top three issues raised by the SME Research Report. When I work through strategic planning with my clients there is a sense of relief and a new found enthusiasm for the business and for their future. Not only this, but my clients experience far better financial outcomes too – so it works on many levels!”

For more information please contact:

Siobhan Sellick, Director Prosperity Advisers Group, 02 8262 8700

Allan McKeown, CEO Prosperity Advisers Group, 02 4907 7222


About Prosperity Advisers Group
Prosperity Advisers Group is an award winning chartered accounting, business advisory and wealth management practice. Clients partner with Prosperity for strategies and techniques to minimise taxes, maximise profit, drive growth and build or protect their personal wealth.

About the 2017/18 SME Research Report
Businesses valued at between $500k and $10 million are classified as SMEs for the 2017/18 SME Research Report. The Report draws on insights from face to face interviews and surveys with SME business owners across Australia.

Making debt structuring work for you in your Medical Practice

Debt structuring is something that’s easy to do but often not done well. If it’s done correctly it can add significant advantages for you and your practice.

Given the Medicare freeze, many practices are finding that top line growth isn’t where they’d like it to be this year and in the future, so they’re looking more towards reducing their expenses to increase their profit. Sometimes we need to think outside the box; can increasing an expense increase your overall profits? It can if a side effect is creating a tax deduction, but not reducing your cash flow.

What interest is tax deductible?

Interest can be deductible for a number of reasons; it might be borrowing to buy an investment property, it could be borrowing to buy shares or borrowing for business expenses. For this article we will focus on borrowing in relation to business expenses.

Interest is deductible under Section 8.1 of the Income Tax Assessment Act 1997:

General deductions

(1) You can deduct from your assessable income any loss or outgoing to the extent that:

(a) it is incurred in gaining or producing your assessable income; or
(b) it is necessarily incurred in carrying on a * business for the purpose of gaining or producing your assessable income.

Note: Division 35 prevents losses from non-commercial business activities that may contribute to a tax loss being offset against other assessable income.

As you can see, (b) refers to interest being deductible as it’s necessarily incurred in carrying on a business gaining or producing assessable income. Therefore, if the debt relates to a business loan, then it will be deductible under the second limb of Section 8.1.

For an Associate Doctor, borrowing for their business can be a variety of things; it might be borrowing for staff superannuation, for staff wages, for service fees, or just to pay normal business expenses. If that’s the case, and if they’re genuine expenses for the business, then that interest will be tax deductible.

What is the purpose of borrowing?

This is something that should be asked more regularly, because it’s the purpose of the borrowing that makes the interest tax deductible. If you were to borrow $10,000 to pay some of those business expenses mentioned earlier, then that interest would be tax deductible. It’s important to understand the purpose of the borrowing to make sure you are borrowing for business expenses and that it’s done correctly.


If Dr A is running a business and borrows $10,000 to pay service fees, then the interest on that borrowing would be tax deductible.

Dr B works at the same practice, in a very similar situation. He spends all his money on paying his business expenses, finds he is a little short on funds for that month and borrows $10,000 to top up, which he then transfers out through drawings, or through the trust account, down to his personal funds.

Where Dr A borrowed $10,000 specifically to pay for business expenses, Dr B already paid his business expenses, so when Dr B borrowed his $10,000 it was essentially for private use, because he transferred it to himself for personal purposes. Therefore, Dr B wouldn’t get a tax deduction for his borrowing.

As you can see, they are very similar examples and both of them are in the same situation, but Dr A has structured his debt better and he has borrowed for the right purpose. Neither of these doctors have higher debt than the other, but Dr A has deductible interest, and Dr B unfortunately does not have deductible interest.

How big a difference can debt structuring make in your situation?

It might not sound like much, however it does make a big difference that can build up over time.


Dr A is a contracting doctor, running a business and working at a practice. Dr A borrows $50,000 over the year to pay for his service fees. The borrowing for those service fees would then be for business purposes and therefore the interest would be tax deductible.

The same doctor has a reasonably aggressive strategy in relation to trying to pay down his home loan, so when he gets his income from the practice, he’s paying down as much as he can, through trust drawings (and structuring to get that right is important) to his personal account, to pay off his home loan as quickly as he can. Coincidentally, that might be a similar amount that he’s paid off his home loan ($50,000) and he therefore doesn’t have any higher debt exposure, he just has some debt as tax deductible.

In this situation, his borrowings for a year would be $50,000 (assuming 5% interest). If his home loan is at a similar rate, he’s probably reduced the interest in his home loan by about $2,500 for the year, but he’s also got interest in his business loan of about $2,500. In this situation, the business borrowing is tax deductible, and therefore he is getting a tax deduction on that loan. Now, that might not sound like a lot of money, but if we extrapolate that over five years, all of a sudden the numbers start building up and it works out to be a bit over $18,000 over five years (in this example).

Please note, the above example was fabricated for this article, is very specific and has controlled variables. It is important to make sure the structuring is right, the personal affairs are right and the tax advice is right, not only with the business loan but the personal borrowing as well. Make sure you seek professional advice in relation to this, to make sure you have it done correctly. It can make a significant difference, but you have to make sure you are borrowing for the right purpose and doing it for the right reasons and that it is part of a genuine strategy for your business. Please seek advice when you can regarding this.

Crowd sourced equity funding

In 2017 we are seeing the introduction of major changes to crowd-sourced funding and the ability for companies to raise capital from “the crowd”. The following is an overview of recent changes to legislation for Crowd Sourced Equity Funding (CSEF) and a look at what this could mean for private companies.

Crowdfunding has been around for nearly a decade with IndieGoGo launching in 2008. In 2015 it was estimated that approximately US$34billion was raised globally through crowdfunding. The World Bank predicts that crowdfunding investments will be a US$96billion a year market in developing countries alone by 2025, while Goldman Sachs describe it as “potentially the most disruptive of all the new models of finance”.

So what is it and how will it benefit SMEs?

To date, Australia has somewhat lagged behind the rest of the world, partly due to the inability for start-ups to provide equity in their venture with only rewards based crowdfunding available. Recent developments for how companies can use crowd sourcing will mean a dramatic change to how businesses finance growth, new product development and other strategic initiatives.

What is Crowd Sourced Equity Funding (CSEF)?

It’s essentially a financial service where SME’s and start-ups can raise money from a large number of people for a specific project or venture and in return provide equity in the company.

Local developments

A national Crowd Sourced Funding bill was passed into law recently and has provided start-ups and small businesses with an opportunity to be able to raise capital directly with investors.

It allows for unlisted public companies, with annual turnover or gross assets of up to $25million, to utilise CSEF to raise capital up to $5million a year from retail investors.

Retail investors include ‘unsophisticated investors’ who will be able to invest up to $10,000 each and every 12 months in whatever ventures they choose.

There is no restriction on the amount of investment from a ‘sophisticated investor’. This type of investor is one which is deemed to have sufficient investing experience and knowledge to weigh the risks and merits of an investment opportunity.

As part of the 2017/18 Federal Budget, draft legislation was released allowing SME private companies – a structure used by the vast majority of Australian businesses – the opportunity to participate in CSEF.

This means proprietary companies will no longer need to become a public company (reducing cost and compliance burdens) to access CSEF. The legislation seeks to protect investors through additional obligations of CSEF proprietary companies including a mandatory 5-day cooling off period.

CSEF offerings must be made through eligible CSF intermediaries, who hold an Australian Financial Services Licence and are responsible for publishing a CSF offer document that complies with regulations.

When will CSEF be available?

The Federal Government has already passed legislation that will establish a CSEF regime for public companies and this will start on 29 September 2017.

The draft legislation, extending the regime to proprietary companies, is now being reviewed in light of comments provided to government. No date has been set for when the bill will be before Parliament. The current draft legislation sets the commencement date as six months after the legislation receives royal assent.

What does it mean for SMEs?

Capital raising for SMEs has been challenging, often tying up personal assets as security with banks, and for some it has involved going down the road of a costly and time consuming IPO.

CSEF allows SMEs and start-ups to by-pass the traditional methods of raising capital and to source funding from the public in exchange for an equity share in the business.

Before companies move down this path there are a number of aspects that will need to be considered and prepared, including:

  • Market Research to ensure your offer is attractive
  • Marketing Plan to validate your offer to potential investors
  • Corporate Structuring to ensure you have the most tax effective structure in place
  • Intellectual Property assessment to ensure your ideas and business is well protected
  • R&D strategies covering how you will invest the funds raised to the benefit of investors
  • Business plan which is robust and long term
  • Budgeting and Cashflow forecasts to demonstrate that the business or product is sustainable
  • Information Memorandum to set out the key elements of the offer
  • Corporate Governance requirements are in place and the business is well prepared to satisfy its obligations.

While there may be substantial upside to sourcing capital in this way, there are also a number of compliance obligations which will need to be considered:

  • An annual financial audit if more than $1million in CSEF is raised
  • A minimum of two directors of the proprietary entity
  • Financial reporting in accordance with accounting standards
  • Restrictions on related party transactions
  • Minimum shareholder rights to participate in exit events (such as an IPO or similar).

What else can SMEs do to raise capital?

Although it sounds attractive, CSEF may not be the best option for your product or company – it really depends on individual circumstances and timing.  Other forms of raising capital can provide attractive benefits too, such as:

  • Early Stage Innovation Company (ESIC) set up which provides for a 20% tax offset to certain investors that can be used with or without the CSEF concessions regarding regulation of raising capital.
  • Section 708 of the Corporations Act Capital Raising’ which provides for long-standing exemption from capital raising reporting requirements when capital is raised from ‘sophisticated investors’.

Depending on whether your product is at the exploration, validation, demonstration or launching stage, there are numerous government grants available through The Department of Industry, Innovation and Science, Austrade, Australian Taxation Office, CSIRO and other Government organisations.

Help is at hand

Navigating the opportunities for funding that are right for your business or product can be a time consuming task. To discover more about CSEF or other capital raising methods available, including government grants, contact Prosperity Advisers on 1800 855 844 or

What is your practice worth?

There are many variables to look at when valuing a practice and if you are looking to sell you need to start planning earlier than you think. This article discusses the important factors that are considered in a valuation as well as what you can do to improve it before you are ready to sell.

Do GP practices actually have a value in the market independent of a payment for the plant and equipment and the structural aspects of a practice?

There is room for a practice to have a value, however there is a threshold. Often we find a smaller practice may only be a worth a small amount of money if anything at all, while a larger, well-run practice can be worth a significant amount of money.

A very simple way to calculate the value of your practice is if you remove your owner Doctor billings from the Profit and Loss Statement, then consider your billing the same as you would a contractor (say 35% for the practice), would there be anything left? Effectively, are you subsidizing the practice, because if you took 65% as a contracting doctor, there would be nothing left? If that is the case, then it is a good indication that at the moment your practice isn’t really worth anything.

What should we keep in mind when valuing a practice?

The value of a practice is subjective; it’s important to keep in mind that the value is what someone in a free market is willing to pay for it, and what you’re willing to take for it. As the vendor, your value may be higher than the value of buyer. Essentially the value of your practice is somewhere in the middle.

Another thing to consider is if corporates become involved, that metric can change. A trap to be aware of is, if a corporate or large entity comes in, they will often offer big numbers, higher than most GPs would be expecting. However, the devil is in the detail of the contract, so it is important to understand it and talk to a specialist about it. For example, there may be big numbers offered up front, but restraints put on you as part of the contract. This could include requiring you to work in the practice for 5 years, at a contracting rate of 50% instead of 65%, meaning essentially they haven’t bought the business per se and have tied you up generating profit for them at the same time. While there may be some big money out there, it may not always be the best option and it is always best to talk to someone who can break it down for you, so you understand the long term effect.

What is a common approach to valuations?

There are a number of different valuation methods, but to keep it simple from a GP perspective, the business cap rate (also known as an EBIT multiple) is the most common. This method is where you work out the future maintainable earnings by looking at the adjusted profit for the last number of years, then apply this multiple by that number to work out what it’s worth. That is, how many years’ genuine profits or regular profits would you be willing to pay to take over the practice? Is that 1 years’ worth of Profit or 5 years’ worth of Profit?

Profitability: what are the principals involved in working out the adjusted profit of a practice?

I would recommend looking at your profit and loss over a number of years, say 3 as a benchmark. From that profit, add back any non-genuine wages you or your family have drawn and any expenses for you personally (eg motor vehicles, superannuation, etc). Likewise, take out any fringe benefits tax reimbursements you have contributed. Once you have this core business figure, apply the contracting rate for any owner Doctors (say 65%) to the owner Doctor billings, and this profit is the adjusted profit for the year.

In addition, you might also want to add back any abnormal expenditure over the 3 year period (eg large pieces of equipment or any other expenses you don’t consider “regular”). This will “annualise” a true profit of the business over the 3 years. You then also need to “weight” each of the years. This means that you will not look at the profit made each individual year, or the average of the profit over the 3 years, rather you would consider which years were more “regular” income years and give them a higher weighting than any years which were less “regular”. This gives you the weighted average EBIT.

How does a valuer work out what multiple to use in arriving at a valuation?

This is the harder bit; it’s not something you can just come up with or guess at. As a rough guide, a multiple of 1 to 5 years profit, however it depends on a number of factors. You should speak with someone who knows the medical industry and will also get to know your practice well. Once you have a rate, you will effectively multiply it by the weighted average profit figure.

There are a number of industry factors to consider in working out the multiple, for example:

  • Changes in Government policy will not only affect the industry, but your practice specifically;
  • Changes in healthcare, for example changes to the way public hospitals are run. If it were to become an option for patients to visit their public hospital as opposed to a GP clinic, that would affect your profit;
  • External environmental factors, for example practice location. Practices on busy roads are easily accessible, ample car parking and proximity to a train station will see a positive impact on the multiple. Practices which are difficult to access, don’t have street frontage or difficult car parking will see a negative effect on the multiple;
  • Demographics, for example areas with young families who are inclined to visit the doctor regularly versus areas with more elderly patients who may be bulk billed this will affect your practice performance;
  • Socioeconomic status, for example affluent areas where patients are happy to pay more to see their doctor, versus low socioeconomic areas which may be traditionally bulk billing areas.

It’s important the process is undertaken thoroughly to get an indication of what your business is worth.

Is that the final number?

This Cap rate approach will help determine the goodwill (or value) of the business, however don’t forget that the value of any plant and equipment should also then be added to this number if a sale does occur.   This could be minimal value or it could be considerable if there was a recent fit out. The value of this equipment should always be considered at market value, not the price it was purchased for.

Is market competition important?

Most definitely. If you’re a small practice and a multi-clinic opens up a couple of streets away, that will affect your value. This may not be fully reflected in the numbers, which is why it’s important for the person making the assessment to understand the business.

What are some of the factors inside the practice that are relevant?

Growth is an important factor to consider; is there any room for growth within the practice? If you’re running a small practice with, for example, four rooms, and they’re at capacity, not much can really be done with the practice as there really isn’t a lot of room to grow.

If someone is coming in to buy that practice, they’re not going to want to pay a higher multiple for the profit of the practice if they can’t really grow it or do much more with it. Whereas if a practice is not at full capacity, has space for more rooms or opening hours, there’s room to expand.

Fit out is also something to consider; is the practice fit out current and modern, or does it need to be updated, which could cost money in the future?

Is the staff and contracting team relevant?

The team is very relevant. A practice who has doctors on contracts who are happy working in the practice, who have regular patients who visit the practice to see them specifically, will be more appealing to someone coming in to buy the practice compared with a practice where the doctors aren’t on contracts and are not tied to the practice. For someone coming in to buy a practice where the doctors aren’t on contracts, they have to consider whether the patients will follow if the doctors leave.

Likewise, with nursing and admin staff; perhaps the practice has a great receptionist who knows all of the patients by name and the reason the patients visit that practice is because they feel at home there. These types of things will affect the value of the practice, and that isn’t something which can be seen in the financials.

Is there anything Prosperity Health can do to help our clients work out where they sit in that spectrum?

A good starting point for practices is to see how they compare to other practices. Prosperity Health run an annual GP Benchmark Report which is a useful tool for practices to gauge where they sit on the spectrum in terms of how they operate, whether their expenses are high and their income low.

The next step is to work out why you want to know what the practice is worth; whether it is for your own peace of mind, or because you want to sell the practice or for some other purpose. There are rules and guidelines that are followed when determining the value of the practice and how much detail goes into it will depend on the reason you want to know your practice’s worth. Valuing a practice is not something that should be done for the sake of it.

How long before wanting to sell your practice, should you start that conversation?

Practices should start the conversation several years out because once they get to the point where they want to sell and are trying to work out what their practice is worth, the first step is looking at the last 3 years. If the last 3 years aren’t great, the practice isn’t going to be worth much. If you start planning 5-7 years away from selling the practice, you have time to implement some changes and improve the practice, and ultimately its value. Again, our GP Benchmark Report is a good place to start to see what changes and improvements can be made.

The positive side of the multiple factor is that if the practice is making more money each year, the multiple will increase, meaning the practice will be worth exponentially more. If the worst case is practices are making more money each year by starting early, then that’s not a bad downside!