Jan
4
2017

Upgrading your practice with the latest equipment and technology is an important way to stay competitive. But how do you know when it’s time to expand your physical space and whether your practice can afford to invest in additional growth? It all comes down to the flow of your practice. Traffic flow tells you when it’s time to expand, and cash flow is the key to getting you there.

Traffic flow: Knowing when it’s time to expand

If your facility is limiting your potential for production, then it’s time to consider expanding your hospital. There are typically two key factors that lead to the need for an expansion of your physical space:

  • Increased client base: A successful marketing program, positive word of mouth, or growth in your local population can all lead to an influx of clients. It’s a problem many would like to have—so many new clients they are straining both your facility and staff. If clients are consistently waiting at least four weeks for an appointment, then it’s time to consider expanding your hospital.
  • Expanded service portfolio: Perhaps you need to add a groomer or vision care specialist to your team to stay competitive, but don’t have adequate space to incorporate these new services. Then it is clearly time to expand your facility so you can meet client demand and potentially improve your overall profitability as well.  

Cash flow: Key to securing expansion financing

You will likely need a practice loan to complete your expansion project, and cash flow can be the key to attaining a flexible financing package. With a history of good practice cash flow, you can potentially obtain a loan from a specialty practice lender that is based on past performance. These lenders are known as cash flow lenders and they tend to use practice income alone as collateral, not your business or personal assets.

How do you know if you can afford an expansion loan?  Here’s a sample cost projection for building a 2,000 square foot expansion. Your project may be larger or smaller, and actual costs will vary accordingly.

  • Leasehold improvements: $150,000
  • Soft costs: $25,000
  • 10% contingency: $40,000
  • Working capital: $25,000
  • Equipment/furnishings: $200,000
  • Total business loan: $440,000
  • Monthly payment: $5,338 (8% fixed over 10 years) + additional monthly rent

Calculating debt service

Can your practice manage the debt you are considering? To calculate debt service:

  • Determine the adjusted net income for the practice
  • Determine your personal debt requirements
  • Divide your income by the amount of your debts (including the practice debt service)
  • If the result is at least 1.25, your practice is likely to be able to absorb the additional amount of debt

Selecting the appropriate financing program

To give yourself maximum flexibility in repaying your debt, look for a longer-term loan with fixed rates and a graduated repayment program. For example:

  • If you have been in your practice for a period of time, a practice equity loan may be ideal for financing your hospital expansion. By tapping into the equity you’ve already built into your practice, you can secure ongoing access to a significant amount of funding for the build out of your physical space.
  • Also consider an equipment loan for your technology purchases. With competitive fixed rates and a predictable payment plan, this type of loan can help you manage your cash flow to ensure repayment of your practice investment.

To learn more about our practice financing programs, call your Wells Fargo financing specialist at 1-866-4MY-PAWS (1-866-469-7297) or visit wellsfargo.com/veterinarians. We’re ready to talk with you about our specialized practice expansion financing. As an AAHA member, you automatically qualify for preferred rates on competitive fixed rate loans.

Gavin Shea is the senior director of sales and marketing at Wells Fargo Practice Finance. Shea has over 18 years of financial experience helping practitioners start, grow, and transition their practices through a diverse array of financial products and services.

All financing is subject to credit approval. 

© 2017 Wells Fargo Bank, N.A. All rights reserved. Wells Fargo Practice Finance is a division of Wells Fargo Bank, N.A.

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