Cash flow matters
By Lynne Testoni. Image of Dr Nitin Dhanani (Photography: Supplied).
Business growth is never straightforward. Sometimes it is about taking the opportunities when they arise and finding the right funding partner afterwards.
For Dr Nitin Dhanani, who has recently opened his third dental clinic in the Illawarra area of New South Wales, it was Avant Finance, whom he ultimately turned to for support. Dr Dhanani says that he had just completed establishing his second clinic when he was approached by a colleague offering him the opportunity to buy him out of his clinic. And, while he had not planned to open a third clinic so soon after his second, it was an opportunity he didn’t want to pass up.
He feels there is a lot of potential in the Illawarra region with strong growth and a young population.
“I had opened my first one in Figtree and then a second in Dapto, and then a colleague was opening a nearby clinic in Wollongong,” he explains. “I went to his practice to congratulate him, but he could not get the funding for the premises, so he said he wanted to sell.
“I told him that if I got the funding, then I would jump in, because I had two dentists coming from overseas and I knew I could staff another clinic. The biggest challenge was that there was a tight timeline because of his arrangement, and I only had a couple of months to get it all sorted.” Dr Dhanani successfully secured funding for the premises through another lender. However, when Avant Finance was later engaged for fitout and equipment funding, they identified an opportunity to refinance to an Avant Finance commercial property loan that delivered more favourable terms.
Cash crunch
While Dr Dhanani had existing funding for his first two clinics through a large bank, the speed of this transaction and the fact that the second clinic was still in its early days, meant that he struggled to get the necessary finance through his previous lender because cash flow was still building and the capital costs were large.
“The cash flow is where everyone struggles,” he says. “This is because any profit is going in taxes and paying your principal at the beginning. You have to put the money back into the business until your assets are paid off.”
At this point, Dr Dhanani turned to Avant Finance. After reviewing his situation, loans were structured to reimburse Dr Dhanani for fitout and equipment expenses he had paid out of pocket. They also identified an opportunity to refinance the existing commercial property loan for the third practice to improve cash flow, and has since assisted with financing further equipment purchases.
“I believe in quality instruments and equipment when it comes to my clinics,” he explains.
"I don't go slow when I set up them up, upgrading as I go. I would rather do it once and do it well. I want it right from the beginning, so I never need to look into changing any equipment or instruments after the practise established."
“I always have quality sets of instruments and equipment—and I want to have everything identical in all three practices. This means that it doesn’t matter which staff member goes into which clinic. They all know how to operate the instruments, and they’re all integrated with each other well as well.”
I don't go slow when I set up them up, upgrading as I go. I would rather do it once and do it well. I want it right from the beginning, so I never need to look into changing any equipment or instruments after the practise established
"People power
This policy has given him flexibility in staffing, he adds, allowing staff to easily move from clinic to clinic depending on demand, holidays and sick leave.
“I’ve had a good collection of people who have worked for me for years, so I want to help them and make it easier for everyone,” he says.
Dr Dhanani said that when he bought his practice in Dapto, just outside Wollongong, he was horrified at the state of the equipment and took immediate action.
“The practice was older, between 15 and 20 years old, and everything was in poor condition,” he says. “I said, ‘I can’t work in these conditions’, and neither did I want to see my patients there.
“So, we demolished the whole practice—we got a skip and threw every single instrument and material out. It was dramatic, but it was needed.”
The long haul
It’s been a year since the purchase of the third clinic, and Dr Dhanani says that while the financial pain was tough at the time, he feels it was all worth it and he is already seeing some of the benefits.
“There is a lot of reward in starting a practice from scratch,” he says. “And it keeps getting better.”
While more expansion is on the horizon, he is content to consolidate at the moment.
He is also a big believer in the idea that success doesn’t happen before its time.
“My definition of success is not about being an immediate success,” he says. “You scale your success over a period of at least five years. Whether your decision is right or wrong at a time, it’ll always feel wrong, but you will always find it worthwhile over five years—or even seven years.
“I am in it for the long haul.”
Josh Behn says that when it comes to expanding a successful practice, sometimes you need to partner with a lender that understands the unique challenges of healthcare businesses. “Essentially Dr Dhanani had set up a third practice, funding a lot of the fitout and equipment out of his own pocket as he couldn’t find funding,’ Josh explains. “It is a common situation where you get a lender to reimburse you, but he was finding it difficult with his bank. Sometimes more traditional banks don’t understand the way these businesses work. He obviously had the cash to pay for them, and the practices were doing well. However, when it comes to a third practice, you are relying on cash flow projections to support servicing the debt, and you may struggle to get the lending for a third practice. And he opened this third one pretty quickly, not long after the second one was finalised, which made it tricky. We were able to take a step back and not apply a bank lens to it as we have our own lending options. We obviously completed our due diligence and made sure it still made sense. But that’s where sometimes at Avant Finance, we can do things a bit better, in my opinion, than some traditional lenders due to our knowledge about medical, dental and veterinary practices.”
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