5 questions to ask before buying new equipment for your practice.
1. What are your goals for purchasing?Get clear on your business objectives. Are you hoping to expand the services you provide, make your practice more competitive or increase the size of your practice? Knowing your goals will help as you evaluate how much the equipment will earn you once it pays for itself – also known as the potential return on investment (ROI).
2. Is the investment worth it?This is when you calculate, based on your goals, how much you’ll get back from your investment. Some equipment is essential to your practice, and you don’t have a choice but to buy or replace an item that’s getting costly to repair. But, for other equipment that isn’t central to your practice, it’s important to ensure the ROI will make it worth it. Will you be able to generate enough revenue to cover the cost – and before the piece of equipment reaches the end of its life?
For example, if you’re considering buying special equipment to start offering a niche service, figure out how many sessions you’d need to book – and at what price – to start generating revenue. Do you have enough patients that would be interested and able to afford it? It’s a good idea to sit down – preferably with a financial advisor – and crunch the numbers.
3. How long will it take for the equipment to begin paying for itself?When figuring the ROI on a potential purchase, keep in mind that most equipment does not begin generating revenue right away. It can take months to build the business and collect the patient payments needed to start covering the cost. Try to estimate, based on your goals and ROI calculations, how long it will be before you start to see a return.
Whether you’re paying with cash or leasing the equipment, you’ll need to anticipate this lag time. If you’re seeking a loan, work with your lender to create a payment schedule that factors in lower first-year revenues and keeps your cash flow strong.
4. Is it better to lease or purchase?There are advantages to both approaches. When you lease, the equipment company may allow you to trade in a piece of equipment for a newer model before the lease ends. But interest rates on a lease can trend higher, so be sure to ask up front as some equipment companies may not disclose them.
If you are interested in owning equipment outright, you may be expecting to pay out of pocket. But paying with cash can put a strain on daily operations. You might consider applying for a loan from a bank, which can also offer a better interest rate and potentially save you money in the long run. A bank may also offer payment options not available in equipment leases, such as interest-only payments at the onset.
5. What if I need to act quickly?Dentists often plan expansions or exam room upgrades years in advance. But sometimes, a need or an opportunity presents itself when it is least expected.
It’s good to get pre-approved for financing before starting an equipment search. If you haven’t already been pre-approved, you might look for financing options designed specifically for independent practices. Commerce Bank, for example, offers loan programs tailored to the unique situations of optometrists, dentists and veterinarians. The process results in a pre-approved, guidance line of credit that converts into a term loan when you make a purchase.
The bottom line? The decision to expand or upgrade your office can be an expensive one, but it might be just the thing you need to grow your practice. Selecting and timing your expenses based on your goals – and with the right financing – is key to building a successful practice. Learn more about financing options available and tailored for dental, veterinarian, optometry and healthcare practices through Commerce Bank.