To help vets navigate the process of owning their own practice, BOQ Specialist has recently developed a Guide to Practice Ownership (available online at: www.boqspecialist.com.au/guideme). In the second part of the series, CEO Dr Brett Robinson draws on the guide to assess the pros and cons, on both a practical and financial level, when deciding whether to rent or purchase a practice premises.
When looking at your veterinary practice, deciding whether to buy or rent the premises for your business might be one of the most important decisions you face in your professional career. In this low interest rate environment, the prospect of buying a practice premise could make more commercial sense than you think. Of course, practice ownership is a major, multi-faceted decision that requires careful business and financial planning—but you don’t have to go it alone; our team assists clients who are purchasing practices on a daily basis. So what are the pros and cons to weigh up when considering the practice purchase conundrum?
In control of your own destiny
Renting gives you some additional flexibility such as getting to understand a specific area or neighbourhood. There may be benefit in assessing if the location is exactly right for your practice, and it gives you the flexibility to re-assess your decision without the long-term commitment associated with buying.
However, with renting, you are likely to have limitations on the improvements you can make and the property owner may not be as prompt as you would like on maintenance and repairs. It’s also sensible not to make significant improvements on an asset you don’t own. There is also a risk that the owner may decide to increase the rent beyond your means or sell the property. This could mean moving at a less convenient time and leaving tens of thousands of dollars of investment behind in your rented practice.
Owning your own practice premises gives you the freedom to model your treatment rooms and layout to reflect your own taste, without the risk of potentially losing the investment in setting up in your preferred layout through a forced move.
Ownership also means you can invest with confidence in fit-out improvements and equipment, knowing the improvements will add to the value of your practice, assisting both with any potential exit strategy and the appeal to prospective clients and future buyers.
Continuity is key
While it may sound simple, continuity can be a major crunch factor for both clients and staff. Practice premises ownership gives you a long-term address, allowing you to have security of tenure and most importantly, a familiar environment.
In a competitive market with an increasing number of veterinary professionals, vets need to be doing all they can to build and maintain their client base in their communities. By purchasing your own practice and by staying put in the same location, you are making it easier for your clients to repay you with their loyalty.
On the surface, renting might appear to make more sense for an early stage business, with flexibility to easily relocate when your practice grows. Plus it is often associated with low barriers to entry.
Renting might also give you access to capital that you may need elsewhere in the business, as you will spend less of your monthly earnings on financial responsibilities that come with owning. These include items such as building insurance, maintenance and repairs.
On the flip side, buying your own practice can be as financially practical as renting. With the right financier, the deposit you need for your original loan may be close to the bond required for a rental property, and loan repayments on your mortgage are often no higher than rent.
Mortgage repayments are a direct investment in your business and any upward changes in price can result in increasing equity you can borrow against.
Thinking for the long-term
Buying your own practice premises is certainly a significant capital investment and means you will have a long-term financial commitment.
Renting is often preferable, to enable veterinarians to operate in a more agile fashion, moving away from the competition if needs be, and relocating to reflect changes in the local demographic.
The prospect of tax, building insurance and maintenance can seem pretty daunting, especially if you have not owned your own practice property previously.
However, there are plenty of financial specialists on hand to help you navigate some of these considerations as you decide what the right thing is for you.
BOQ Specialist has spent over 25 years helping professionals build and run their practices with a range of tailored financial products and services. BOQ Specialist’s Practice Purchase Guide is designed to help you navigate the process of owning a practice that’s right for your future plans and to help you understand the financial options available. Download a copy from the website or call 1300 131 141 to speak with a financial specialist.