The cost-of-living crisis triggered by recent political turmoil and events in Ukraine has seen high levels of inflation and rising interest rates. Few businesses have not been impacted by these changes in some form, and veterinary practices are no exception.
Some of the key threats and ways to mitigate such threats are summarised in this article.
1) Rising interest rates and impact on practice property costs
If your veterinary practice owns its own property and has a commercial mortgage, consider when the existing loan expires. If the loan is on a variable rate of interest, you should also consider whether a fixed rate may be available from the current lender or whether it’s worth exploring a refinance to secure a better rate with a different lender.
High street banks can generally offer lower rates of interest than the many new challenger and non-bank funders that have emerged in recent years
Remember that high street banks can generally offer lower rates of interest than the many new challenger and non-bank funders that have emerged in recent years. However, take care and get good professional advice when entering any fixed-rate loan as breakage costs can be considerably higher.
2) Maximise cash in the business by not spending it on large items of equipment
Don’t dismiss equipment finance or asset finance as a cost-effective way of purchasing expensive items of equipment, such as X-ray machines or ultrasound scanners. Most lenders will look to advance 80 to 90 percent of the purchase price of the equipment with the loan advance being serviced or repaid over a fixed term with interest. Depending on the precise type of asset finance used (see below), ownership of the equipment will pass to you once the original cash advance is repaid in full.
For a veterinary practice, asset finance is usually a far better option than a traditional bank loan. The fixed monthly repayments make cash flow and budgeting easier, while repayments may also be offset against taxable profits
There are three main types of asset finance: finance leases, hire purchase (sometimes known as lease purchase) and contract hire. Finance leasing, or simply “leasing”, is essentially the renting of equipment in return for fixed monthly payments. Hire purchase is similar to finance leasing except that instead of handing back the equipment, you will own it outright at the end of the contractual term, provided all payments have been made. Contract hire is frequently used for vehicles, with payments spread over the agreed term of the contract.
For a veterinary practice, asset finance is usually a far better option than a traditional bank loan. The fixed monthly repayments make cash flow and budgeting easier, while repayments may also be offset against taxable profits. Depending on the type of asset finance used, a veterinary practice may also be able to benefit from various capital allowance tax relief schemes.
3) Get some tangible benefit from those clients who pay by credit card
Merchant card advances (also known as business cash advances) are worth considering if a veterinary practice takes credit card payments from clients. Essentially, this is an arrangement with a funder where the practice receives a lump sum in return for a small percentage of the practice’s future debit and credit card sales. The funding is unsecured, therefore the practice’s business assets are not at risk.
This track is potentially a good funding solution as repayments remain in sync with the practice’s cash flow. To be eligible, most lenders will specify a minimum average monthly card sales figure.
4) Importance of keeping on top of financial administration
The dramatic increase in workload post-COVID and the need to increase fees to offset the impact of inflation has inevitably led to higher levels of stress among vets. This, in turn, makes it harder to cope with the day-to-day financial administration of running a veterinary practice.
It can be cost-effective in the long run to ensure that help is sought at an early stage so that the practice keeps on top of its finances
Notwithstanding the additional cost to the business, it can be cost-effective in the long run to ensure that help is sought at an early stage so that the practice keeps on top of its finances.
