In the medical equipment market, the typical lease term is between 3-5 years. At the end of the initial term, you have the option to purchase, renew, extend, or return the equipment. As a technologically-driven field, leasing medical equipment often proves to be one of the most financially efficient ways to ensure your practice has up-to-date equipment without tying up significant capital.
The capital you conserve can then be allocated to other areas of your practice. Many practice owners utilize a lease to efficiently manage their cash flow.
Compared to traditional financing or a one-time purchase, a lease maximizes the cash flow produced by the asset during the initial term of the lease. Equipment leasing allows for items which may be nearing the end of their operational life to be readily replaced as the normal course of business. A potential downside to leasing medical equipment is that, over a prolonged period, the continued lease payments may exceed the cost of a direct purchase. To mitigate this, make sure to exercise the end-of-term option that best fits your practice’s requirements.
Equipment financing refers to the practice of taking out a loan to pay for equipment over time. By choosing to finance medical equipment purchases, you will eventually own the asset outright. This works well for practice owners with strong credit and for mature technologies, or for assets with a long life expectancy.
Another aspect of financing is the additional interest cost. Debt source and your credit will determine the interest rate, which should be factored into the total cost of ownership.
MARK SANNA, DC, ACRB Level II, FICC, is a member of the Chiropractic Summit and a board member of the Foundation for Chiropractic Progress. He is the president and CEO of Breakthrough Coaching and can be reached at mybreakthrough.com or 800-723-8423.
End-of-year equipment purchase? This is a tough one! I am never a fan of making moves only for tax implications. If you were not going to buy the piece of equipment anytime soon, I don’t recommend buying it just because the year is ending.
However, if you are thinking about buying the new laser, or shock-wave machine, chiropractic table, etc., and are thinking of doing it soon, now is maybe the right time. I am certainly no accountant and I do not play one on TV. But based on the type of corporation you file as, excess profit at the end of the year may be taxed. We should be planning ahead during the year to avoid this, but if it happens, it may be a good time to make some medical equipment purchases. Make sure to consult with your accountant before making moves.
Buying vs. leasing is a tough question and depends on your situation. I am only 40, but kinda old school with this. I have never leased a piece of chiropractic equipment for my office — I like paying for things with cash; I don’t like having a lot of debt or payments and enjoy being debt-free.
That said, Mark Sanna brings up some very good points about cash flow and equipment being outdated. Truly, it depends on your position in practice, years in practice, cash flow and purchase price. But I would rather see a doctor save up money beforehand and pay cash for equipment purchases. Having low debt payments and being in a good position is critical. This is especially important in this day and age with high student loan payments.
If I can, I like to buy with cash and have a separate savings fund for cash medical equipment purchases. I am not a big fan of making moves just to avoid or change tax situations. Although depending on several circumstances, it may be the best time to purchase equipment at the end of the year.
JAMES R. FEDICH, DC, owns a large multidisciplinary practice in Northern New Jersey. He is also the author of “Secrets of A Million Dollar Practice” and host of the popular chiropractic podcast, Dr. J’s Path to Success. To find out more or to contact Dr. J, visit drjamesfedich.com.