This is the seventh of a 9-part series of articles intended to walk you through all the ins-and-outs of purchasing capital equipment for a veterinary practice. Far too often important steps/factors are glossed over during the sales process, items that may not be clearly defined on product literature. Missed information can lead to confusion prior to purchase, other information gaps can lead to more serious issues down the line, when there is no turning back.
In this series, we cover the details and importance of:
- Evaluating Your Practice
- Assessing Your Needs
- Evaluating the Market
- Pre-Demo Homework
- Scheduling a Demo
- Post Demo
- Final Decision Time
- The Waiting Game
- Post-Install Support
It’s decision time!!! You did all your homework in evaluating your practice’s current capacity and future goals. You sought out the top vendors in the market (and weeded out the not-so-good ones) and gave them a chance to show you what they got. At this point you should have all the info you need from “the finalists” and If you don’t (beyond some small clarifications, perhaps) then its probably best to cross them off your list.
Before you move forward, it is always good to confirm that nothing has substantially changed in your needs and/or the market. Often this equipment purchase cycle can be months-long, so make sure your headcount (veterinarians, specialists, techs) hasn’t changed significantly. Also check to see if there have been any big trade shows since you began your journey; that’s when equipment companies like to schedule their new product launches.
And of course, there is bound to be the last minute “but if you buy in the next 60 seconds” offers to consider. Equipment specialist often care about the difference between the 31st of this month and the 1st of next month, even though you probably don’t, so you can leverage that to your advantage. Beware (just have you’ve been cautioned at every step along the way) of any sales tricks, bait-and-switch attempts, or “demo” deals; stick to the plan and all the homework you’ve done to guide you through to the end.
Beyond that, you should have what you need to make the best decision for your practice. And by now you should be convinced that the best equipment for your practice may not be the least expensive. Still, it’s time to talk brass-tax.
What is your all-in cost?
Now is the time to focus on the fine print. Things like:
- Shipping costs
- Sales tax
- Trade-in value
- Total years of warranty/extended service included
- Diagnostic laboratory contracts
Earlier in your journey when you were fact-finding and price-comparing, it is possible that the equipment specialists provided you with “price sheets” or even quotes that included pricing for the “main components” of your purchase. Now it’s time to get all the line items accounted for.
Most equipment companies invoice the entire order after the system has been delivered or installed. Make no mistake, these invoices WILL be for the TOTAL amount that you owe. So it would behoove you to have that final number BEFORE you sign on the dotted line. The last thing you want is to see that charge for those extra couple-thousand dollars a month later.
What are your finance options?
If you want the points/miles, then by all means “put it on the gold card”. But you have other options. If this purchase incorporates a new modality for your practice, then you may want some flexibility in the early months to give yourself time to build up your marketing and your staff’s buy-in. In today’s “climate” you may also have some uncertainties about caseload and business logistics and state-wide policy timelines.
Some equipment companies offer internal financing, but this is rare, and usually only limited to something like 2-3 equal payments over the short term (~90 days).
Some distribution companies offer their own financing, either in partnership with a lending institution or through adding additional payments onto your monthly bill with them. These can be quite appealing, but be sure to check what the interest rate on the total amount will be AND if there are any stipulations about monthly minimum business on the other products you buy from them.
More conventional financing options come through professional lending services, like banks and leasing companies. You will find that there are many options, both leases and loans (for some explanations on the differences, here are two articles you may find useful: https://www.smarterfinanceusa.com/equipment-loan-vs-lease and https://www.fundera.com/blog/difference-between-equipment-leasing-and-equipment-loans). They each have advantages in interest rates, payment amounts, pre-payment penalties, date of ownership, tax deductibility of interest payments, and so on.
But there is always “the cost of money”, so anything that looks too good to be true, probably is. That said, there are some 90-day to 6-month deferred payment plans that make incorporating new equipment much less stressful so that you concentrate on the important aspects of building your practice. For some more information on some popular veterinary equipment financing options, visit these links: https://soundvet.oneplacecapital.com and https://www.tiaabank.com/commercial/financing/vendor-equipment?market-specialties=healthcare.
What are the tax implications of purchasing “this year”?
While most of the articles in this series have focused on the clinical needs of your practice, there are also the financial needs, and equipment can have an immediate impact on both. Beyond the ability to expand your standard level of care, competitive advantage, and reputation as a state-of-the-art facility, equipment purchases can provide a serious tax advantage.
Your accountant certainly knows about Section 179 of the IRS tax code, but you may be less familiar and if you didn’t consult with your accountant before, you need to before you pull the trigger.
The websites below do a much more thorough job of explaining how Section 179 works, but in a nutshell…
When you buy capital equipment, you are allowed to (and probably do already) depreciate a portion of its full value, usually as a percentage per year over several years. But if you choose, you can depreciate its FULL value in the year that you put it into use**.
The benefit to you is that if you’ve had a “pretty good year” from a revenue standpoint, and you want to offset some of those profits, you can get a rather large Section 179 deduction on your equipment purchase.
If you purchase a $50,000 piece of equipment in 2020**, and are in the 35% tax bracket, then you can depreciate that entire piece of equipment in 2020 so that your tax deduction is $17,500. Those are tax dollars you just saved yourself.
** The caveat is that you must pay for, take ownership, and put it into use (have it installed) in the calendar year in which you take the deduction. So if you sign a quote for equipment on December 30th 2020, but your order doesn’t get processed and your equipment doesn’t get shipped until mid-January, you can’t claim the deduction for 2020…it will have to be for 2021.
If this year wasn’t your best, and so you don’t need the tax offset, you can depreciate a smaller percentage (or none) this year and save that depreciation for years when you need the tax break.
This article is not written by or sanctioned by a tax accounting firm, so please consult someone with the letters CPA after their name, but these are non-trivial tax savings that should absolutely be a part of your equipment purchasing plan. Find out what your tax situation is (before April of next year when you actually file) so you can make the most impact this year.
IRS Section 179 External References
Whether it is the end-of-year rush to get the Section 179 benefits or just the excitement to get your shiny new piece of technology, there is always the desire to “get it now”. But none of the legitimate (and significant) equipment purchases are going to be e-commerce-like transactions. These are companies with dedicated Order Processing, Accounts Receivable, Production, and Warehouse departments, and it takes time for your signed quote to get processed into a shipped order, not to mention to organize whatever payment terms you’ve agreed upon.
Your signature is certainly the first step in the process, but it is far from the last. The next article in this series will dive into “the Waiting Game” and set the reasonable timeline from signature to deliver and install. But depending on the complexity of your payment terms, the price-point of your system (a CT will take longer to coordinate than a therapy laser), and “in stock” availability of your equipment, plan on 1-2 weeks for the delivery of your system, and then about another 1-2 weeks for coordination of installation/training.
Take Home Message
This is it: the culmination of all your patience and hard work. Stay focused on the goal of building your practice. Get the best deal on the best piece of equipment. Know your all-in cost including all the bells, whistles, tax, and fees. Shop your finance options as rigorously as you did your equipment choice. Understand the full financial impact (and advantages) of your purchase. And be comfortable with the next steps as you wait for your practice to get this much-needed and much-anticipated boost for a solid equipment purchase.