by Rick Willeford, MBA, CPA/CFP
You've carried your wish list around at the dental meetings. You've seen the latest in equipment and material demos. But have you noticed that you keep carrying around the same wish list year after year? Being a perceptive and cautious dentist, you obviously don't want to make a mistake; but at some point "paralysis by analysis" sets in. So, nothing happens for another year ...
For the rest of the year, we will focus this column on tools and techniques you can use to help you with your "go/no-go" purchasing decisions. Either justify your decision and get the equipment and systems you need, or quit pining over your wish list. Put yourself out of your misery of indecision!
As you consider a major purchase, critically analyze its purpose. Other than the fact that your buddy has one, there are three general reasons to consider a new major purchase:
- Improve the clinical quality of an existing procedure
- Allow you to do an existing procedure more efficiently or effectively
- Allow you to do new procedures or offer services you don't provide now.
Obviously, the benefits could be a combination of the above.
The underlying purpose for the purchase affects the next step: the cost-benefit analysis. If the purchase allows you to deliver new services, then you can anticipate new revenues — an obvious benefit. But if you are primarily improving an existing service, the benefits may not come in the form of significant new revenues. Although increased efficiency may allow you to do more procedures in a given time period, your benefits may be more in the form of reduced costs, time, and stress. Although such results may be harder to quantify, they are still valid considerations.
One pundit wondered about the popularity of kitchen trash compactors. "After all," he said, "all they do is turn 50 pounds of trash into 50 pounds of trash!" While that may be true, his comment ignores the intangible advantages of better handling of the trash, decreased frequency of visits to the trash receptacle, etc. His comment also shows that he probably was not in charge of taking out the trash in his house!
Other intangible benefits include presenting a more modern image to patients. This could be a literal image as well as making a statement about the doctor's mindset and commitment to staying clinically up-to-date. Such a modern image could serve to enhance the value of your practice and its "curb appeal" to a potential purchaser someday, too. Also, certain purchases may give you a visible marketing advantage you can actively capitalize on (air abrasion, lasers, conscious sedation, CEREC, etc.)
The "cost" side of the equation may not be as easy to clearly identify or quantify as you think. As you probably realize, the initial purchase price is typically but a small part of the total cost. The costs may be either immediate, direct costs or intangible, indirect costs. Examples include:
Direct costs:
- Purchase price
- Installation
- New wiring/plumbing
- Additional space
- Financing cost
Indirect costs:
- More staff
- Additional materials and supplies
- Service
- Training
- Time to master learning curve
Needless to say, there may be some tax benefits that reduce the cost (See "The Best Time To Buy Equipment," September, 2001 Dental Economics). However, don't buy something just to get a tax deduction.
Of course, if the analysis works out and the purchase makes sense, there is one more benefit: You get to tell your buddy!
Raymond "Rick" Willeford MBA, CPA, CFP, is president of Willeford & Associates, CPA, PC, a fee-only firm specializing in financial, tax, and practice-transition strategies for dentists since 1975. Mr. Willeford is president of the Academy of Dental CPAs, a member of the national Practice Valuation Study Group, and numerous dental study clubs. Contact him by phone at (770) 552-8500 or by email at [email protected].
