How to save by spending more: A money-saving strategy for an opticianPublished on 1st November 2018 2018-11-01T14:04:14+00:00 - Last update on 5th November 2018 2018-11-05T12:23:44+00:00
Running a high street opticians has become a highly competitive business. A generation ago, it was possible to set up your shop and consulting room when you bought or opened your practice and still be using the same equipment when the time came to retire.
Technology, more demanding clients - and the competitive pressures from the big franchise chains - has changed all that. Today, your opticians business needs a constant round of reinvestment to bring in new customers and stay profitable.
It is easy to get funding - but is it the right funding?
Of course, as a professional with your own practice, it is relatively simple to get funding. Lenders, from traditional banks to the new breed of ‘alternative’ lenders, recognise your status and see you as an excellent credit risk. This means that lending to you will be safe and therefore highly profitable. They will even compete for the chance to lend to you by offering attractive rates.
But although you may find that you are spoilt for choice when it comes to lenders, there are some pitfalls when it comes to arranging funding, as one of our clients - an ophthalmologist who had built up a business with a number of shops in the North London area - discovered.
“I’ve never had any trouble getting funding. My bank actually seems to want to lend me money most of the time. It was only when I started planning the funding to refurbish my newest branch that I realised I had a problem.”
Creating the right impression
With a number of successful branches already operating, our client was keen to update his latest acquisition, which had been a family-owned business operating in the same premises for more than 50 years.
There was a good list of clients but the premises were tired, which had helped our client acquire the business at a good price.
“The son had taken over from his father, and some of the fixtures and fittings had served both of them. There was some newer equipment in the consulting room - the last owner had never cut corners when it came to patient care - but the retail area was horribly dated.”
Our client drew up a list of work required. A new shop front and reception, together with lighting, would be a big step forward in bringing the business up to modern standards. Building work would make better use of the available space and allow a modern interior to be provided.
A new Autorefractor and a retinal imaging system would be needed in the consulting room. The cost of providing these and other instruments could be reduced by the careful use of Asset Finance. However, smaller pieces of equipment such as a Smart Mirror, together with refurbishments and other smaller costs added up fast.
“I needed to find around £100,000. That would not be a problem - my bank would be happy to extend my existing lending. But then I started looking at the figures, and saw I had a problem.”
The problem came from the optician’s bank, which had always provided an excellent service and had been one of the factors that had allowed him to build up his business.
With his chain of shops and a highly profitable business, his bank had been happy to lend him a total of £750,000. Thanks to his professional status and high turnover, this had been arranged at just 3.5%.
However, although the bank would be happy to lend him the additional sum, its lending policy was clear. The extra loan would take him across a key threshold under the bank’s lending rules. This would mean that his existing lending would have to be reviewed, and the entire loan of £850,000 would be at a new rate of 4.9%.
In other words, the extra cost of borrowing £100,000 would be an extra 1.3% - but across his entire £850,000 loan - making it an expensive way to raise the extra funds.
He approached Rangewell to find an alternative.
We saw that the bank’s existing rate would be almost impossible to beat. Other lenders would be unlikely to provide a better rate for the larger loan.
We discussed the problem with the optician and suggested a strategy which would reduce his overall costs - by taking a more expensive loan.
Realising that the bank loan for £750,000 would be impossible to beat, we set about finding the most cost-effective funding for the additional £100,000 from another supplier.
Because of his existing bank loan commitment, lenders would see his application as a risk - if something was to go wrong, the bank would be repaid first. This would mean that, despite his excellent creditworthiness and status, costs might be rather higher.
We found a lender who was happy to offer the additional loan at 6.9%.
“I’d be paying more for the extra cash - but much less overall”
This was, of course, a considerably higher rate than his existing loan, and higher even than the rate his bank was happy to provide for the new, larger loan. However, because it only applied to the new £100,000 and allowed him to leave his existing £750,000 at 3.5% it meant that his monthly repayments were substantially cheaper overall.
“The rate seemed much higher than what I was used to paying, but when I sat down to look at the figures, I realised that this strategy was actually saving me money.”
A strategic approach for your business
Getting the funding you need to refresh your business - or for any other purpose - can sometimes require a strategic approach. It needs an expert to look at your circumstances, and to see the possibilities and the pitfalls.
Fortunately, it is easy to find an expert to help you, simply by calling us at Rangewell. Our team is made up of experts in every area of business lending, and our service is unbiased and independent.
That means we can work with you to find a funding strategy that works for your business, and search more than 300 UK lenders to ensure you get the most appropriate deal along with the most competitive rates.
If you need a strategic approach to funding for your optician business, contact us now.
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