Management Essentials
Luck of the Draw for Buying Equipment
By Farrell “Toby” Tyson, MD, FACS
The ancient Greek philosopher, Seneca, said “Luck is what happens when preparation meets opportunity.” Opportunity is now upon us, but only those with the foresight to prepare will be lucky. This year has been a perfect storm for equipment purchasing with low interest rates low, tax advantages, aggressive sales techniques and competitive pricing. Now may be the most opportune time to acquire equipment for your practice.
Willing Investors abundant
Tough economic times have tightened the budgets of most practices, with every purchase undergoing extreme scrutiny and often postponement. Yet, from tough times come great opportunities. The cost of borrowing money is at an all-time low. Most banks will now offer equipment loans on five-year terms at fixed rates of 3.5% interest or less.
Physicians are one of the few groups banks view as good lending risks. The Federal Reserve has stated that it plans to keep interest rates low with no plans to raise rates until 2015. At these alltime-low rates, a practice may never have the opportunity to equip or upgrade so affordably again.
Stimulus You Can Use
In addition, the Federal Reserve has instituted quantitative easing, or QE3, effectively printing money. QE3 has the effect of stimulating the stock market and raising property values but devalues the dollar and raises the costs of doing business. By devaluing the dollar, the cost of imports will increase. Because much ophthalmic equipment is manufactured in Asia or Europe, the cost of equipment is sure to rise in the coming year. The window to purchase ophthalmic equipment at today's prices with a dollar that is quickly going to depreciate is collapsing.
To stimulate the economy, the government has raised the Section 179 equipment deduction limit to $500,000 for 2012. It is scheduled to revert to $25,000 in 2013. The current deficit and spending fights in Congress show no signs of reverting the scheduled change in the Section 179 deduction.
So, any practice equipment purchases scheduled for the next five years would be best accelerated to be placed in service in 2012. New large ticket items such as femto-phaco systems, EMR systems or lasers benefit the most from the current deductions, as anyone of these items easily eclipses $25,000 and are usually long-term acquisitions. Now may also be the time to consider acquiring other practices, as the equipment can be carved out of the deal and benefit from this year's deduction.
Taking Advantage of the Market
Ophthalmic equipment companies have been dealing with lower sales volumes through the recession. This has led to very aggressive pricing and bundling of services. Deals that were unheard of before have become commonplace, especially for high-ticket items. Careful negotiation can lead to favorable terms and attractive pricing that will disappear as rising costs get passed on to the end user.
As this may be a once-in-a-lifetime buying opportunity for an ophthalmic practice, purchases must be viewed with the long term in mind. Now is the time to pay a little extra and buy quality instruments and furniture that will last. In the past, we might have bought cheaper, almost disposable equipment. Since the price of everything is sure to rise, it is best to lock in your price and purchase equipment that is built to last. The up-front cost can be deferred with appropriate financing with longer terms.
Stay Liquid
In times of economic turmoil it is always good to stay liquid with your finances. The use of short-term low-interest financing allows a practice to acquire needed equipment without tying up working capital. If the economy improves, these loans can usually be paid off early without penalty. Always consult your accountant for advice on the best way to structure your equipment financing. OM
Farrell C. Tyson, MD, FACS, is a refractive cataract/glaucoma eye surgeon at the Cape Coral Eye Center in Florida. He may be reached at tysonfc@hotmail.com. |