A clearer look at buying your practice, and the types of funding you needPublished on 21st November 2018 2018-11-21T12:00:00+00:00 - Last update on 24th August 2019 2019-08-24T09:36:46+00:00
Starting your own practice – or buying into an existing practice – can be the best way to enjoy real rewards from your profession.
At Rangewell, we recently worked with an ophthalmologist ready to buy his first business, and helped find the most effective way to provide the funding he needed.
“I’ve been in practice for nearly five years now, but working for somebody else means somebody else enjoys the results of my hard work. I realised it was time to get a business of my own.”
Our client was looking at setting up a new practice to serve a growing commuter town in the South of England. There was a growing population and, after discussing the prospects with experienced practice owners, he was sure there would be plenty of demand.
“I started looking at suitable premises. I knew I needed something central, and ideally close to the station – there are plenty of people passing every day to catch the train into London. But although there were some properties available, the costs were high. Everybody else with a business to run could see that they provided the potential for passing trade.
Finding a suitable shop would mean committing to a high rental – I was worried about the costs involved.”
Our client had some money to invest in his business but, although he could afford to take a small shop, his real worry would be the cost of refurbishing and equipping it. He knew that he also needed to provide working finance – enough to keep his fledgeling business open until he had established regular custom.
There are solutions available but, as a new business start-up, there would be some challenges - many lenders will only work with established businesses where they can make their lending decisions based on accounts that demonstrate the business is profitable and sound.
However, at Rangewell, we know those lenders who may be able to take a broader view.
Our client listed the equipment he would need. Together with the cost of taking on a long-term lease and providing working capital, it came to more than £500,000.
This is a substantial sum, but it often possible to arrange it as a loan secured on the value of the borrowers home. However, our client lived in a small flat, and it looked as though it could not provide the level of collateral needed.
Our client was also wary of risking his home and committing to the level of repayments that would be required.
An alternative solution
Then he discovered that there was already a small opticians business serving the town - and that the owner was retiring. The practice had a long customer list and premises, which it owned outright, close to the high street.
“It was not in the ideal location, but it was a good second best. I wondered if I could buy the business as a going concern - it seemed it would be less of a risk than starting from scratch. And it would avoid the risk of another optician coming along.”
It can be easier to borrow money to buy an existing business than to set one up - even if the sums involved are higher. This is because there is less risk for the lender to take on with an established business. It also means that the rates the lender will charge may be lower.
After an initial discussion, he recognised that acquiring the practice as a going concern could be the solution he needed. However, the consulting room equipment, although still working well, was showing signs of age, and the shopfront would be in need of refurbishment.
He would need to find financial solutions to acquire the business with equipment, stock and goodwill, buy the premises themselves and replace several key instruments.
The costs, therefore, would be higher than starting from scratch. He estimated that he would need a minimum of £750,000 to acquire the business and its premises, and do the necessary work. However, by buying an existing business along with premises, he could take advantage of far more affordable lending.
Our finance experts considered that the best approach was a ‘Jigsaw’ finance package made up of a number of types of loan.
Our first step was to find a Commercial Mortgage as the most appropriate solution to help him buy the practice premises. These work much like a residential mortgage, and mean that repayments can be spread out over 20 years or more. Owner-occupied businesses, such as offices, shops or even opticians, can usually get a maximum loan-to-value (LTV) of around 80%.
We found that the most attractive rates for the Commercial Mortgage would be secured if the optician could offer a 40% deposit.
He could provide this level of investment from his own resources, but it would mean leaving him without the cash to replace equipment.
We suggested that Asset Finance could help with the equipment. This spread the costs, transferring them from a capital expense to an operating expense, along with predictable monthly repayments. Asset Finance covers a range of funding solutions, allowing a practice to use all kinds of assets - equipment, IT and even shopfittings - without capital investment.
Hire Purchase may be ideal for items with a high cost and a relatively long life but will require a deposit to be paid. Leasing avoids the need for any upfront payment and works like a rental agreement. Not only does it avoid an initial capital cost, but it can be ideal for technical equipment which could become outdated quickly, as it can be easy to swap it when a better model becomes available. Leasing can also include maintenance agreements.
Our client was able to secure the equipment he needed to update his consulting room. He then realised that he could use Asset Finance to refresh the shop area, and we helped him arrange funding for new merchandising displays and a smart mirror.
“I found that with Rangewell’s help I could afford to take over an existing practice more easily than set up a new business. The repayments were lower, and I was buying a property as well - which would be a big asset for the future. But best of all, I was dealing with profitable customers from the moment I opened the door.”
To find out more about Rangewell’s financial solutions, whether you are setting up or buying a second site for your opticians', call us today or find out more about the types of funding available to opticians.
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