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Keeping the lights on - working capital for vets 

Published on 26th June 2019 - Last update on 29th June 2020

Working capital is the money available to a business to fund its day-to-day operations. Your accountant could explain that working capital measures your practices liquidity, efficiency, and overall health, and includes cash, inventory, accounts receivable, accounts payable, the portion of debt due within one year, and various other measures.

But for you, as a working vet, the real definition is much simpler - working capital is the money you need to keep in business.

Working capital is the cash you need to keep the lights on, pay your receptionist, put fuel in the tank of your practice vehicle and, generally, pay the bills. It is the lifeblood of your veterinary practice, and if it runs out, you may need a transfusion, fast. 

Why does working capital run out?

In the real world, business costs and business income rarely fit together perfectly. You may be faced with a big cost - an annual tax bill, or the need to invest in a junior to help move your practice forward. The chances are you will not have a big uptake in business at the same time - and even if you do, slow-paying customers might still make it hard to secure the cash you need to cover the extra costs.

So if you have a business to run, you need a reserve of working capital to avoid the danger of trading while technically insolvent. This can easily happen even if your practice is busy and successful - especially if you are owed large sums by clients such as farmers who expect to settle their bills on a quarterly basis. 

Help to fill the gap 

Fortunately, if you run a successful veterinary practice, it should be more than possible to borrow the funds you need. But it is no longer simply a matter of going to your bank and requesting an overdraft. There are several types of funding available, and getting the right type, and the right source of the funds you need, can be essential - because it can mean significant savings in interest and charges for you.

Seasonal business downturns, slow paying clients and planned growth can all make working capital finance essential.

Revolving credit facilities

Revolving credit - or overdraft replacement - is a versatile way to provide a reserve of cash to call on as you need it, and ideal for the ups and downs of working finance. Like an old-style bank overdraft, it is a pre-agreed facility or reserve of cash that you can call on as you need it. The funds earmarked can be drawn down and repaid as and when you choose.

You are offered a pre-agreed funding limit upfront, based on the strength and trading history of your business. However, this limit cannot be exceeded without punitive extra costs.

Again, similar to overdrafts, the facility will sometimes be partially drawn down or partially repaid. 

What makes Revolving Credit Facilities different from your bank overdraft is that they are a loan provided independently of your bank. This can be a big advantage. Your bank may have strict credit limits, which it will not let you exceed. Arranging credit from a third party can mean getting access to a higher level of funding than your bank could offer.

Facilities can be arranged for almost any amount depending on the scale of your practice and, used judiciously, costs can be moderate. Interest is usually charged daily depending on the balance used. This means you are not charged interest when your working capital is strong, assuming you are not using the facility. However, the difference in cost between providers can be substantial. Interest rates can range from 10% to 70% annually - so getting the most competitive solution is vital to keep costs under control 

Business cash advances

Another way to raise working capital for your veterinary practice is the Business Cash Advance or Merchant Cash Advance.

This type of finance can be ideal if your business deals mainly with companion animals and takes a large proportion of payments by card.

They are simply cash advances provided by a lender against your future credit card takings. But what makes them particularly innovative is the fact that they make no repayment schedules - and, in fact, do not require you to make any repayment whatsoever.

Instead, repayments are made automatically as a set percentage of each future card payment you receive. This means that your customers are making the repayments for you - and the more business you do, and the more card payments you take, the faster your advance will be paid off.  

Instead of paying a set interest rate, you repay a set amount. For example, a £10,000 facility may require a total repayment of £12,000, and there is no set time for repayments to take. 

The overall cost of borrowing is difficult to compare to other products - but costs can be relatively high unless you have expert help in finding the most competitive provider

Unsecured Business Loans

Unsecured Business Loans can also provide solutions for working capital needs. These are loans from a bank, specialist lender or peer-to-peer platform and can be easy and quick to arrange.

They are also versatile. They can be used to raise funding for your practice for almost any reason, and there is no need to provide security, such as property, to arrange the loan you need. Most unsecured business loan providers will only lend to businesses that have been trading for at least 24 months and can demonstrate profitability with full audited accounts.

Lenders may offer loans from £5,000 to £500,000 and interest rates can start from as low as 3%, but rates of 8% to 12% may be closer to the average for veterinary practices. A call to Rangewell could help you get the most competitive funding available. 

Need help taking your veterinary practice to the next level? Find out more about the financial solutions you need or apply here

Another alternative might be Goodwill Loans for vets, which are in effect a loan secured on the future turnover of your existing business. These can be used for any purpose, including buying another business - but could provide a substantial cash input to help you through a challenging period. 

Finance designed around your practice

As a veterinary professional with an existing practice, you may be in a very good position to raise the working capital you need - especially if it is to support a period of planned growth.

Many lenders will be happy to provide the funding you need, and may even compete to offer you the deal you want. It helps to have an independent expert on your side to help identify the funding that really is most appropriate for your needs. 

At Rangewell, we can provide the expertise you need - and help you cut the cost of the finance - at whatever stage of your growth plans you have reached. You can find more information about how we can help vets find the funding they need here.

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Richard Mitchell

Richard Mitchell

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