Would the use of an external finance house be of help to your practice? - Veterinary Practice
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Would the use of an external finance house be of help to your practice?

DARREN SHAW of County Finance Group outlines why more and more practices are employing the support of an external finance house to aid cash flow and retain working capital

VETERINARY practices have traditionally enjoyed a healthy relationship with their principal bankers, and given the majority of work that is undertaken is paid for upon completion by the client, cash flow problems are not an issue commonly associated with the sector – up until recently.

In the current economic climate, more and more veterinary practices are employing the support of an external finance house to ensure cash flow problems are kept to a minimum and working capital is retained in order to purchase new equipment or treatments.

“Unlike healthcare practices and other care-giving agencies, veterinary practices typically receive no support whatsoever from the government. But increasingly, clients are coming to expect the same standards of care for their pets as they would receive for their own health.

However, this comes at a cost and veterinary services are unmanageable for many households, due to reductions in income and increases in general living expenses. As a result, some pet owners are now in a position where they are delaying or even avoiding altogether the most basic and essential treatments, such as worming, annual inoculations and de-fleaing – because they simply cannot afford it.

Surveys suggest that a pet owner’s most common complaint is the cost of fees and given the chance, they would move to another practice if the costs were lower. And, unlike the National Health Service, fee-paying customers are free to select the practice of their choice.

This can prove extremely problematic. The government’s office of fair trading states that consumers are best protected by competition between practices, but for those practices that simply cannot afford to lower prices, it could result in taking their business elsewhere.

Costs covered

Practices are often headed up by a sole principal or partner, and the costs are covered by the revenues of the previous working year. These serve to pay employee wages, rates and rents and then, if any is retained, a proportion is re-invested into new equipment and facilities.

Another issue faced by practices is that many vets are now qualifying with large amounts of debt, and salaries are on the increase as a result. But what if a practice cannot afford to keep in step with the rising salaries, purchase the newest equipment, or update its facilities? What impact does this have on the practice itself?

Competition is fierce, but there are options. Independent finance houses could provide a number of options that regular high-street banks simply cannot. In the past, veterinary partners have often gained access to funds from highstreet banks, but currently that is proving problematic.

Banks are looking to secure the funding through either the business or the practitioners’ personal assets, and will often disregard any goodwill element. This may be a problem for a sole principal or partner who simply does not have the assets to secure it.

Increasingly, private practice finance is being seen as a far more effective funding solution to achieving both short- and long-term goals, providing practitioners with the freedom and flexibility to purchase necessary treatments or equipment, or engage in publicity.

So what are the options on offer to ensure a practice has a fighting chance against its competition?

An unsecured loan could open a number of doors for a practice looking to promote itself in a highly competitive market. For example, non-asset investment such as marketing and advertising is often overlooked as it does not provide an immediate return, but it could in fact be the answer to ensuring the community is aware of the services available.

The use of an “arm’s length” practice loan could ensure the cost of the investment is spread over a period of time, that sees the income generated meet or exceed the outlay.

The purchase of new state-of-the-art equipment could keep a practice in tune with its competitors, but can often prove expensive, without an immediate return. Many financial lending houses offer hire purchase and finance lease which can ensure income generated from the equipment or asset can match the initial outlay, which means there is no additional strain on cash demands.

For many practices, a loan of up to 60 months can be secured, to employ new staff, training, and succession, helping practices acquire the best professionals in the industry and help buy-out partners into retirement.

Another issue faced by many veterinarians is tax liabilities. Tax obligations are often a nightmare for practices, appearing at the most inconvenient time. But short-term loans can be acquired strictly for veterinary professionals to cover these costs.

VAT or tax liabilities can be off-set over a period of time, to ultimately ease cash flow – meaning revenue can be spent on the more important aspects of running the practice.

Tough economic challenges over the past couple of years have impacted heavily on veterinary practices, leading to a reduction in customers and the basic ability to cover overhead costs. But the convenience and flexibility of external funding can allow practices to thrive and prosper, even amongst the doom and gloom.

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