The call of a new piece of equipment can be alluring. It could be that it opens up new procedures to your practice, or just that the other dentist in town has something and you feel the need to keep up. But splashing the cash on that new equipment may not be the best financial decision for you – at least right now. There are three things you should ask before making the purchase.
Where am I currently financially?
Before making a large purchase you need to know how much money you have. That seems like common sense, but many times the whole picture doesn’t come into play. Are you making what you want right now, in terms of take-home pay, or are raises needed? Is the practice running efficiently enough to be able to afford the purchase? Will there be any other significant outflows of cash in the next few months? This all needs to be determined.
Unless there’s an obvious dire situation, you should think about a hierarchy of needs before making a major purchase. Prioritize between yourself, your staff, your practice, your patients – every expense you can think of needs to be considered. Is the new equipment still at the top? If not, the time isn’t right. Eventually it will work its way up as other expenses are taken care of.
Why am I buying it?
There are good reasons and bad reasons to make a major purchase. Is it to increase the efficiency of your practice, and boost your earning potential? If so, you’re probably in good shape. But what if you’re buying something just because it’s newer than what you already have? Are you just trying to keep up with the Joneses, or to be the first dentist in town with the newest technology? Your pride is not enough to make a purchase worthwhile.
Even if you think it will boost efficiency, you need to ask yourself if it’s worth it now, rather than another time. What’s the payback? When will you break even? And how long will it be useful to you before it’s outdated? How much time and effort will be needed for training on this new piece of equipment for it to be utilized efficiently, and are you willing to legitimately put in the appropriate level of time and effort needed for the training process?
Finally, if the primary reasoning is to get tax benefits – which is often touted by salespeople – you’re making a horrible business decision. The tax benefits do not outweigh the cost, and unless you actually need the equipment you will lose money on the deal.
How do I get it?
Depending on the answers to your other questions, different methods of getting your hands on your new equipment may be better. Should you purchase it in a lump sum, finance it, or lease it? You need to make an educated choice here based on knowledge of your practice’s unique cashflow situation, where your cash accounts stand, and where your debt currently lies.
If you choose to finance, you need to choose the length of term and interest rate combination that’s most cost-effective for you. If a lease is your best option, it’s more complicated. The end of the agreement needs to fit your situation, and you need to know whether you can get out early. Are there penalties for paying off the lease early? What’s the interest rate? All of this should go into your decision.
In short, a smart dentist does the legwork to figure out which option – purchase, financing, or lease – is the most cost-effective over the long term.
Consider all of your options and all of the implications of your purchase decision before you buy (or finance, or lease) and you’ll be less likely to ruin your cashflow by adding equipment you don’t need, or equipment you’re not ready for. You’ll be sure to make the best possible decision for your practice.