It is not wise to buy more medical equipment for your hospital due to the high costs, long term commitment, high loan interest and tax treatment. Leasing is a better option.
Running a hospital can be a rewarding yet challenging experience. This is because you have people’s lives to think about. It is rewarding to see patients get well and leave the hospital in good health. However, you have the challenge of ensuring that you provide excellent care. In order to do so, you need to acquire proper medical equipment for your hospital.
You have two options when seeking new diagnostic or treatment devices. You can buy the equipment by getting a loan or using your own capital. The other option is getting a lease for the machinery you need. There are a number of reasons why it’s not a good idea to purchase more medical equipment for your hospital.
Why It’s Not A Good Idea To Purchase More Medical Equipment
High Costs Of Equipment
There are medical associations and government mandates that require use of certain caliber of medical equipment. These are always the latest and the best in the market and are quite expensive. If you have to buy these, then most likely you will end up using a lot of your money and thus stifling your profits. Some hospital operators may not even have sufficient money for such purchases.
Equipment leasing is the best alternative since it requires less money to start. The payments are made in installments and therefore spread over a period of time. In addition, there is little risk since one can always end the lease and get better equipment. When the federal mandate requires upgrade in line with current technological advances, you can easily go for new equipment.
Long Term Commitment
When you buy a piece of medical equipment, it is owned by your hospital forever. In case you want to upgrade, the only way to relieve yourself of it is by selling or simply discarding it. Selling is a lot difficult since it is not easy to get other health care centers willing to buy outdated equipment. Discarding the equipment is not only a complicated process but also a great waste of your investment. Therefore, it is not advisable to buy more equipment for your hospital due to this dilemma.
However, on a lease, there are flexible options for you once the lease ends. These options include returning the equipment, extending the lease or purchasing it. If you want to get better technology or realize you have no need for the machinery, you can end the lease. You will not have to continue paying for something you no longer use.
Conversely, if there is a high demand for the instruments, you can extend the lease. All you have to do is inform the company that provided it and you will get a new extended contract. Nonetheless, you should only do this after using it for long enough to be sure that it is what you will need long term.
High Interest Rates on Loans
If you choose to buy medical equipment for your clinic, you might need to get a loan. This is not a good idea since you will tie up all your revenue to repaying the loan. In addition, there are high interest rates to contend with from most financial lenders. In the end, the amount you pay for the equipment will be a lot higher than its original cost. You might also end up paying high amounts for it without getting sufficient revenue to recover the expenses.
When you lease, it is like getting full financing without the exaggerated interest rates. There is no need for a down payment so you save that money for other use. You can choose a lease that only requires you to start paying once you get solid returns from the equipment. Therefore, you get the equipment and pay for it later while reinvesting your money into the hospital in other sectors.
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When you lease equipment, the payments are always considered as operating costs. Therefore, they are treated as expenses when calculating the income. This means they will not be considered as a purchase but an overhead expense that earns you a tax deduction. This is welcome news for any hospital owner who would like to cut down on taxes.
This not only means your get more out of your business but also reduces the net cost of taking the lease. It is an excellent way to conserve the cash you have. When you are liquid, you can do more in terms of improving the hospital and the services offered.
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