Running a health practice comes with a lot of costs that most don’t realise. Fit-outs and the latest equipment can end up costing hundreds of thousands of dollars, and require replacement over time to ensure you’re providing the best results for your clients. To cover these large capital expenses, there’s a few options for providers that they can consider. Here’s a breakdown which can help you better understand the pathways available and how you can better plan for funding your medical equipment over the life of your health practice.
Self Funding – Cash
What might be considered the ‘cheapest’ option is via self-funding through cash savings. This allows the practice to forgo any ongoing interest commitments or potential setup/financing fees. There is an opportunity cost that you have to factor in however, as these funds can otherwise be used elsewhere. A good way to consider whether using cash funds for your equipment purchases is to consider whether you can receive a higher return on investment (a return on those funds) that is greater than the overall cost of borrowing funds.
From a practicality perspective, you will also need to factor in whether you can sustainably come up with sufficient funds for the purchase at the time, as well as capital purchases in the future sustainably – so developing a consistent savings for depreciable equipment which requires future replacement is prudent.
Local Adelaide Chiropractor Shane Hennig notes that where possible he has self-funded equipment purchases for his practice, which can include X-Ray imaging equipment and substantial computer systems.
Medical Equipment Finance – Self Financed
Some practice owners will opt to self-fund through personal funds being injected into the business. This could be cash funds or funds borrowed from other assets they control and then on-lent into the business. Similar to the cash funding pathway, as a practice you need to determine whether the funds could otherwise be used elsewhere for a higher return on investment. If you are going down this pathway, ensure you get advice from your accountant on the best way to structure and document any internal lending structures. If you are drawing from a financed asset in your personal name (ie a home mortgage) to on-lend into the business, compare the cost of funds in your personal name vs. otherwise borrowing these funds directly within the business, as well as compare the potential risks of self funding vs external funding.
Medical Equipment Finance – Lender Financed
The most common option used by practices in Australia, medical equipment finance through specialist lenders in Australia represent some of the lowest cost funding for businesses, due to the relative larger dollar values of borrowing and higher levels of stability and security that health based businesses offer lenders compared to most other industries. Finance product features can vary significantly, from revolving line of credit facilities, equipment term loans, leasing, fixed or variable rates.
With the flexibility of finance in this space, it’s often possible to structure products to have terms and repayments which fit your businesses asset cycle to help manage your cash flow and ensure you can maintain replacement of capital equipment as needed.
If you’re looking looking for advice on what the right finance option is for your next medical equipment purchase, contact the Adelaide Broker team today.