Leasing vs. Buying

Leasing vs. Buying


Financial Guidelines:

Opening Your New Practice

By Larry Markson

Although the amount of money required to open an office may vary greatly with the type of office, its location, the number of square feet, and whetheror not you plan to open with new or used equipment, there are some guidelinesto follow.

A 1000 square foot office will require between sixty and seventy-five thousand dollars, if you need to pay for the partitioning. This amount includes all opening costs and adequate reserve capital. If no partitioning is necessary,you should only require between thirty-five and fifty thousand dollars. Construction costs can vary greatly state to state and even from city to city.

Regardless of location, one of the most important negotiations of all, in addition to dollars per square foot, is to attempt to have the landlord pay for the build out (partitioning). It is your greatest expense and one that you cannot recapture when you move. If that fails, ask the landlord to pay for the build-out and have him/her prorate the cost and add it to your monthly rent. In essence, you have just negotiated an interest-free construction loan.

The figures stated above are based on averages of offices that use new furniture, new x-ray and all new equipment; but there is no doubt that it can be done less expensively. Many new practitioners are severely under-capitalized and need to be cautioned that everything just seems to cost more than expected. Planning for hidden costs and contingencies is essential when opening a new office.

Buying vs. Leasing Your Equipment:

The Advantages Of Buying

If you have the necessary capital, BUY for cash! It has been, and always will be, the best and most inexpensive way in the long run.

The next best way, believe it or not, is to borrow the money from family. Relatives will give you far better terms over a longer period of time, and the "mental pressure" placed on new practitioners, faced with having to repay a significant amount of money will be reduced. It is our belief that all monies borrowed from parents or relatives should be paid back and that a legal document should be executed by both parties.

Another way to borrow the money is from a bank. We have enclosed a "LoanApplication Proposal" as a sample of what you need to present to your bank loan officer. Try to negotiate a five to seven year payment plan at a fixed percentage rate. Currently, most banks are lending money at two to three points above the prime rate. You can deduct the interest on the loan and also depreciate the assets of the equipment you purchase.

The bank will usually require that YOU have sufficient collateral to back up the loan, or, at least, a strong co-signer with enough assets to cover the amount of the loan, in case of default. Generally, the co-signer must live in the state where the loan is being made, unless negotiable securities are pledged as collateral.

The Advantages Of Leasing

If you have no choice, then it is okay to lease your equipment. Remember though, that regardless of how the leasing salesperson or company talks, leasing IS more expensive in the long run. The leasing company is an intermediary between you and a product. They buy from a manufacturer and mark up the price or finance charge (points), creating the need for a higher interest rate and the necessity for a "buy-back" at the end of the lease. Depending on your credit, it is generally easier to lease, therefore, more expensive in the long run. The leasing company can sell your x-ray unit more easily than a bank, so they accept the equipment as collateral more readily than a bank does. Recently though, even leasing companies are asking for collateral and/or a co-signer. Lastly, be sure to shop for the best rates and be very sure that whoever sells you the product and refers the leasing company is not receiving three to four points (percent) back as a referral incentive.

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