Here at Credabl we are often asked by our clients, 'is it a good idea for me to take on debt?', 'can it help me get to where I want to go?', 'should I use my savings instead?'.
If you do decide that you want to buy a practice, upgrade your equipment or expand in some way there are three main avenues for you to do so.
Existing Cash
The first way is through your existing cash – that is, spare cash you have saved or that you have access to. The advantage of using your cash is that you don't have to take on debt – meaning you're not going to have a liability. The problem with using your cash flow is that it can take a long time to build up enough cash to actually pay for the items you need, whether that's a new patient base, equipment, fit out or just working capital.
Medical equipment can be very expensive so if you are relying on your cash flow to fund those types of assets, it can take time for you to acquire them – time that you might not have, if you want to capitalise on the momentum in your practice at a particular point in time. Using all your cash also means you'll have nothing saved for a rainy day. Any business operator knows that unexpected expenses sometimes come up, so if you are depleting your cashflow by buying equipment assets, you're potentially leaving yourself short.
Private Equity
The second way to fund your business is private equity – or finding investors that will invest in your business. The upside with this approach is that you are not taking on debt either, so your balance sheet has no liability on it. However, private investors will probably want a shareholding in your practice – a slice of the pie – so in a way you're giving up a certain amount of control over your practice and the associated profits. Whilst having investors means you won't have a 100% say on what's happening for the practice, you do get to consult with trusted advisors to guide and collaborate with for decision making.
Debt
Thirdly, we come to debt, in the form of taking on a business loan. The benefit of this option over the previous two, is that if you take on a loan, you can preserve your cashflow and you can retain 100% control of your practice. A lender normally will not want a share of your practice but will take security over the asset that is being financed (e.g. the piece of equipment). This means you'll have 100% say on the direction of your practice and how you grow it.
However, with a loan, comes a debt that you will have to repay, most likely in the form of monthly instalments. This is an obligation you'll have for usually a 3-5 year term, and you're not going to be able to walk away from it. So even when times get tough you will still need to meet this liability.
If you do decide to take on debt, there has to be a business case for it. Even though, technically, it's the lenders money, think about it like an investment. What is the return I'm going to get on that investment and what value is it adding to my business. That return has got to be greater than the cost of taking on the debt, otherwise there's no point. Also, never take on debt just to repay other debt, if you need to do this, then there is a deeper problem and you need to work with your lender to manage your existing debt rather than taking on more and just digging a hole that you might never get out of.
As an independent non-bank lender, Credabl is focused on tailoring solutions to individual needs. For instance, reducing repayments for a short term to help cash flow when you're starting a new practice or splitting loans to maximise tax deductions (if advised by your accountant of course!).
At Credabl, we understand your profession and can navigate the lending landscape intimately to help you find the best approach for you. Contact us today to find out what we can do for you.
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