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Megan Walker: Hello and welcome to Market Savvy Conversations. My name is Megan Walker and today our very special guest is none other than my husband, Ian Walker, who is the Executive Chairman of Archer Gowland Redshaw. Hi Ian. How are you?

Ian Walker: Yeah, I’m good. Thank you, Megan.

Megan Walker: That's good. Now Ian has the other side of the brain to me, which is a good thing and works as an accounting and financial planning practice owner who works a lot with health and medical practices in the private practice space. So what I thought would be really helpful today is for us to go through some of the considerations when you are thinking about adding an online course to your current structure. Of course, Ian can't give individual advice because you're not in front of him. So we're just going to have a broad brush conversation about those different topics and things that you can be thinking about. So Ian, tell us a bit of the background. Many of our private practices when they get started, it might be five, 10, even some of them listening will be 20 years ago. What are some of the different structures that they might have set up their business under?

Ian Walker: Well, I suppose there's been probably four most common ones around for a very long time. Probably some are more common than others depending on what type of health professional your customers are and what services they provide to the general public. Probably in the medical and the specialised area spaces, a company is probably the most common one that we see and that is an easy one for a lot of people to get their heads around as well from an accounting perspective and a day-to-day functioning perspective. So we probably on our client list is are predominantly company structures as well, and that could very well be just due to size and also the type of medical practitioners we work with. But the company is quite common, therefore all the income goes into the company, expenses are paid from the company, profits are retained in the company. It gets taxed at a flat rate depending on its turnover, whether that's 25% or 30%.

And the practitioners and the allied health professionals will be paid a salary in some cases or they will be paid contract payments, which is something that's under a little bit of fire at the moment across Australia with various state revenue people trying to grab those contract payments as employees. But we won't touch on that today. That's a whole different webinar in itself. But at this point, commonality probably leans towards the company structure. There's also trusts, some may have service trust attached to that company. Some may just operate as a trust themselves. Two very common trusts are the discretionary trust and the other type is a fixed trust or a unit trust. So the differences between the two is in the name. The discretionary trust is where the trustee has the right to distribute according to their choice. So it is a discretionary obligation to pay beneficiaries.

So there's a little bit of toing and froing among beneficiaries to get the right amount of income out to them. And then of course, the unit trust is similar to a company and the fact that there is a unit holder with a fixed entitlement to the profit of those unit trusts. So it operates similar on a day-to-day basis to a company structure and the fact that the income will go in to the unit trust or the discretionary trust expenses are paid from it. There is a profit at the end of the day and that profit must be distributed out to the beneficiaries. So whether it's discretionary or whether it's a fixed entitlement will depend on the type of trust.

And I suppose the other common one that has popped up over the years, of course, is the sole trader where the health professional may very well just go out, get an ABN, register for GST if their turnover is above $75,000 and run their business that way. All of them have their pros and cons, all of them have their different costs in setup. All of them have different legal obligations, asset exposures, et cetera. So when you're looking at whether the structure is worthwhile or not, it will all come down to your individual circumstances, family, whether your partners or spouses are working, not working, there are other businesses involved, other partners, et cetera. So quite a checklist to go through to see which structure works best for each circumstance.

Megan Walker: Okay, fantastic. So if we are thinking about those three different structures - company trusts, or sole trader, when a private practice owner is looking at setting up an online course as we know they've got their traditional usually hourly rate or their program rate that they're running for their clients or their patients, then when we go to look at adding on an online course, that practice is starting to think nationally. What are some of the pros and cons in that scenario? For a company structure, a trust set up or a sole trader?

Ian Walker: I suppose what you're trying to quarantine is the value of the IP in an online course, and that's regardless of industry. So I might flip between a normal industry, health, it doesn't really matter in this case, an online course is an online course and whether it's Australia or overseas is then another discussion. But whether you're trying to protect it for personal reasons or there are retirement issues, succession planning, all that sort of stuff comes into it. So it's a passive income stream to a certain degree depending on a few other bits and pieces. But what you are trying to do is separate, I suppose the risk component, which can be seeing the patients versus the passive component, which is the online course that may be developed. Now, whether that involves training or processes, YouTube channels, whatever that part is, you're just trying to separate it if you can from the risk component of you give some advice to someone or you are operating, you're a specialist, you do surgery, whatever it is, you're just trying to de-risk as much of that as you can, which is your starting point. 

So your structure of your business will take into consideration whether or not your online course or your digital course or whatever falls into it or outside of it. It's hard for a sole trader because the sole trader is the person. So if they operate their business as a sole trader and they're doing their course as a sole trader, there is no separation. Whereas legal entity being a company or a trust, you have that ability to separate and that's probably what you should consider depending, I suppose too on circumstances, how big you want it to be, how many people are involved in your business stage, where you live, all that sort of stuff comes into it. But you're really trying to identify what's your IP, can I protect the IP? Is our ability to on-sell license, et cetera, the IP. So let's not forget that in some circumstances, course creation can lead to other people wanting to actually implement and execute your courses as well.

You have that consideration where you might have someone in New Zealand that wants to do your course over there, that you might be based in New South Wales and someone in Queensland wants to do it, and you don't necessarily want to figure all that out. You might have people underneath you wanting to be part of it, affiliates, et cetera. So if there's that licensing ability as well, that's a consideration because that becomes a separate asset that can be sold off in the future. So I think the considerations are pretty important and a lot cheaper to do it at the start rather than halfway through and go, I'll wait until I see how it goes, how I get bigger, et cetera. And then you're having to shift IP around for consideration, which can be expensive. So yeah, better to work with what you've got to start with and then say, can I separate if you can? And you've got good IP, it's important to do.

Megan Walker: That brings up three scenarios for me that I'm hearing people talk about quite regularly, and one of them is that situation where we've got two sole traders who each own their practice. Let's say they're both psychologists, they might work in different parts of Australia, but they've known each other, met at uni, love each other's company, et cetera, and they want to bring their different perspectives in together and create an online course jointly. What are some of the considerations in that scenario? And I know again, you can't give specific advice, but what should that little partnership be thinking about?

Ian Walker: I suppose the biggest consideration, and there's some probably legal questions that arise from your example, but who actually owns the course becomes your biggest concern. It's IP from both sides. How do you split revenue? How do you split expenses? So in that case, it's definitely consideration around a structure component. Now, whether that's a company or a trust, and both of them have 50% entitlements is up to the individuals, and as I said, all their other personal circumstances, but very difficult for two sole traders. I mean, they're then running a partnership. You've got to see whether it's a partnership, a common law, is it a partnership at tax law? And then what happens if someone doesn't quite do what they're supposed to do? Is there an agreement in place? How do you exit? How do you price it? Someone wants to charge twice as much as the other person, et cetera.

So very difficult in that circumstance other than a structure in place. Put everything in writing in an agreement upfront in that agreement. Work out who makes decisions. If there's two people and both are on a yes and no, how do you decide? How do you keep moving forward? And the big thing is how you exit. If someone wants to leave, what is it that needs to be paid? What consideration goes across to the other party? And in all circumstances too, you have to consider what happens if one of the parties die? What happens to the cause? Does the family have entitlement to a revenue stream or not? So those all have to be written down. Everyone's friends to start with, everyone as you mentioned in your example, might've known each other for 20 years, probably takes about six months to blow up. So you don't want to destroy a 20 year friendship over three or four dot points that could have been written down and in the heat of the moment someone says something they shouldn't, et cetera, et cetera. So very important to have it all in writing upfront. And then it's plain sailing. If there's an argument or a disagreement or a change of opinion, it's all there for both parties to reconcile.

Megan Walker: You've already got your rule book. And the other scenario that I'm hearing is someone who might be in a five director company situation that all partners are renting space in one medical center. Some might be GPs, some might be Allied Health, one of those particular members of that company wants to create their own online course. What should they be? And often the conversation is, I'm doing my day job, I'm building this on the side. With a view to owning that and continuing the online course component into retirement or beyond, what's your thoughts? Any red flags that come up for you in that type of model that people should be considering?

Ian Walker: Well, I suppose once again, there are, and there should be in that example then that there be a shareholder's agreement or a unit holders agreement floating around saying what people, directors and owners of the business can and cannot do. Usually within those agreements, and this is a legal question again, I suppose is the do's and don'ts, who owns what when you're working on company time, et cetera. So if someone wants to keep something off to the side and side hustles, as we know, since Covid is quite popular, so it's not something that's going to go away anytime soon. In your example, you're probably separate. You're going to go to your directors and say, I'm going to develop this online course. I want to keep it forever. At some point I'll retire from here. So as long as all parties understand that you would have it in a separate structure, absolutely.

And make sure there's a carve out within your shareholders' agreement or your unit holders' agreement or your partnership agreement that says, this is solely and wholly my work, my entitlement, my IP. The difficult part in your example, which you may not have touched on, is if you need some IP from another director to actually get your course, or over the time period you've been educated by three or four other members of that organisation, is their IP being used and have they given you that? Right. So once again, you're back to your shareholders agreement saying, making sure that all that's pretty clear. You might in those circumstances, pay a royalty back into the operating entity just to save face, et cetera. But certainly it would have to be separate.

Megan Walker: Yeah. Yeah. Great. Thank you. And then the other one that's coming up a bit more regularly is the individual who owns a practice, works traditionally, has either contractors or full-time staff. They are wanting to sell off that business and then in some ways, quite similar to the previous example, keep their online course business for themselves. I know there's legal elements to that, which is not fair for you to comment on, but any considerations from the accounting side again that people should be thinking about? I know already coming up for people is who owns the contacts of that practice? Might be more of a legal discussion, but what are your thoughts from that accounting and planning side?

Ian Walker: Yeah, I mean the sole trader is a difficult one, and you touched on something that is pretty important when you're trying to structure, and that is who owns the database? As we all know, IP can mean a lot of things and databases which help fuel and funnel the online course is very important. Now, if a sole trader sells that off, there'd be nine times out of 10, I'd say the contract would have the databases being owned by the purchaser in that case. And then you're kind of stuffed because you really have to hand that over. And if you keep it and use it and you've got to restrain a trade, et cetera in place, you could carve out in your contract. And that once again would be a legal discussion. How you'd work it is that you can keep the database for your online course marketing.

But yeah, it would be a discussion, certainly be a risk to the purchaser saying, okay, perhaps the database is okay because they're just not allowed to trade in the area of professional components that they were. But what would happen in three years time when that restraint finishes, the client's got the database still. So yeah, personally it'd be very risky to take on a contract like that, but yes, you would have to go, oh, hang on, do I just stop? Is my business saleable? You have those questions as well, probably is, especially if you've got wages and contractors in place. But the biggest thing is selling people or your database and still wanting to contract and keep all their contact details. So you can do your course. Probably one of the biggest things is yeah, you would have to separate that and have also that database contained somewhere else.

But once again, it'd be a legal question whether someone's buying the database to your patients, but not necessarily the database to your online course. So yeah, a minefield, but doable. But that's anyone, that's anyone that's no different to your example of your six directors in a practice and that one director suddenly is sitting out there with an online course going, hang on, I might just tap the database of the company. So once again, what benefit is there? So it's a consideration that needs to be taken quite seriously because probably as you know and we teach your students that database is gold.

Megan Walker: Absolutely. Thank you so much for sharing all of those considerations with us. I know many health professionals and people who own medical practices as well and are working in them so intensely, it's hard to find the time mentally to cast our minds to some of these topics. But as you've highlighted, it's so important to get this right early and upfront. Ian and I are both professional service providers. We've got a combined experience of over 50 years and are huge believers in if you don't know and if you don't have that area of expertise, then you go and get it. You get legal advice, you get accounting advice, you get marketing advice, you pay for it, you get good insurances in place because these are the things that protect you and protect your business and give you the right advice and set up going forward. So we are always big believers in everyone has their patch, don't DIY this information, don't go to Google and try and work it out yourselves. So Ian, you work with health practices typically in that seven figure space plus. Is there anything else that you wanted to add? And then also let us know, what do you typically provide for a health or medical practice with that size turnover?

Ian Walker: Well, I think everybody needs, I think to now come to grips with the online world, whether that's from a website showing the existing practice services to, okay, what are the new things that come from it? As we all know, database is now is the new oil, so to speak. And gathering as much information off that as you can is probably what your businesses need to do to maintain relevance going forward, whether that is grabbing new clients and where are they coming from, et cetera. So the arms and legs of the health system in Australia too means people are limited to what they can do on a daily basis to grow their income. So passive income in our experience is becoming more and more of a discussion point, I think, from anyone that is going out in a practice by themselves or with a mate, as you mentioned.

Now, one of the considerations is understand your IP. So not only are you there going, okay, well I've got patients I'm going to look after. What else is there? What is my IP that's going to be developed from me sitting at my desk in my office, developing revenue over the next 10, 15, 20 years? I mean, we all have the exit strategy in mind, well we should, and you work backwards from there. So I think the structure is becoming more and more important. I think the online world is becoming more and more important, not just Australia, but overseas as well. So when we're talking with people, it's how far can you go? Are you just really a niche market in Australia because that's the type of services you're providing, or will you go across the blue yonder into other countries and then that has its own issues around GST, et cetera.

So there's a lot of planning that will go into it, even though you won't see any benefit of it because it hasn't happened yet, per se. The setup is really important, the day-to-day compliance, the BASS, the GST, all that sort of stuff we provide to clients as a given with our accountants in here. But getting the structure right now is, especially for succession planning as well, because a lot of corporates want to acquire a few other clinics around the place as well. So how do you structure a sale into there if you've got online courses in there, they don't want that. They just want your radiology or they just want your pathology or your experience in physio, whatever that is, and suddenly you've got two or three courses tucked in your structure that they don't want and they're not going to pay for.

So the exiting is a very important part. I would say. Even if you've got stuff set up everywhere, review it now. Take the time and energy to go, okay, do we have to separate? Do we have to have separate license agreements, et cetera, because the risk of whatever is happening in their particular profession is a lot higher than it once was. You certainly don't want IP tucked into a structure that's got employees just because of the amount of litigation that may or may not happen. And also with patients, something can go wrong, someone can say the wrong thing, et cetera. So you don't want to then have a course that's quite valuable tucked in there, which gets thrown into the valuation component of a payout. So there's sort of the things that we're coming across and reviewing. The other bit that we're doing some work in as well is actually working out the viability of courses.

I mean, we've all heard about the old, it's good to have a niche. You've got to work out is there a market in that niche? So we spend a bit of time talking about revenue lines, costing projects, conversion rates, what do you actually have to achieve better than I do? The conversion theory that's floating around as to percentages of funnels of people coming through to actually someone that's buying. And those percentages, whether they're 2%, 5%, 10%, do you have enough is in your pricing, correct, et cetera. Do I have to charge GST to have to pay GST? Is it overseas so therefore it's ex-GST. So they're all the things that we're looking at. If it is viable and it's growing, then it's going to have a value to someone or it's in passive income stream that you want to separate from your business. So that's the sort of structuring we do. And then of course, with the type of businesses we look after, you have all the tax planning, the super advices, the investment advices, et cetera that go along with it. We kind of get involved, know what's going on, which is why we can do some of these ratios and analysis for our clients.

Megan Walker: Fantastic. I will put your web address and email inquiry below where everyone's watching this video. Ian, thank you so much for your time. We've got the accounting considerations. There's also the insurance considerations, which we'll follow up with a separate interview, making sure that you're working within your jurisdiction, within your online course or allowing for that within your insurance coverage. And also your legal frameworks will be separate follow-up sessions as well. All of these things are doable and are possible. We go through some of the doom and gloom in these conversations, and it's not meant to hand-brake anyone in their plans and in their excitement for launching and growing. It's just doing it in a careful and practical and measured and thoughtful way. So Ian, I certainly appreciate your help in sharing some of those insights. Ian and I worked together on a lot of clients and have done for many, many years. And if you'd like to get in touch with him or ask either of us any questions, please follow the prompts below where you're watching this video. So Ian, thank you so much and can't wait to see how this space unfolds. And yeah, we're all very involved in the digital healthcare space, so thank you for the work that you do.

Ian Walker: Thank you, and I hope your clients get some value out of what we've talked about.

Megan Walker: Thanks, Ian. See you at home later. Bye for now.

Links and further information

Find out more at: https://agredshaw.com.au/ or email: [email protected] for more information on how Ian and his team can assist your practice.