Question: I am ready to set up my own practice but don’t have the money I need to do it just yet. I believe there are some financing options available. What are they?
Answer
The good news is that you can finance most of your practice requirements – from your practice premises to the fit-out and equipment, to the working capital to pay your staff. You could even finance the motor vehicle you need to get to your new office. There are different financing options available for each of these requirements, and the best choices will depend on your personal circumstances. To get you started, we will take a look at the financing of your practice assets.
Practice Assets
There are various financing options available for your practice assets, which include fit-out, equipment and motor vehicles, and the best finance structure will depend on factors such as tax, how quickly you pay off the loan, the interest rate, GST and fees. Some of the more popular financing methods are commercial hire purchase, or chattel loan, finance lease or secured mortgage loan (with property). Be aware that the total cost of financing may be influenced by several factors other than the interest rate, so it’s important to get specialist finance to achieve the best structure.
Fit-out and equipment
The finance structure you choose can affect the total cost of your transaction in after-tax dollars. Some features of the available finance structures are included in Table 1.
Motor vehicles
Motor vehicles can be financed using a lease, hire purchase or chattel mortgage. Some features of each include:
Finance Lease
- Vehicle to be used for business purposes
- Lease rentals are tax deductible
- Lessee responsible for the running costs and residual risk of the vehicle
- Taxation guidelines apply to terms and residuals
- The amount leased is the purchase price of the vehicle less the GST component which is claimed by the lessor
- Repayments and the residual attract GST
Hire purchase
- Vehicle to be used for business purposes
- Deposit may be paid upfront to reduce the amount that you borrow
- No GST on the repayments
- Interest and depreciation claimable as an expense for accounting and taxation purposes
Chattel mortgage
- Suits businesses that account for their operations on a cash basis as they can claim the GST on the purchase
- Similar tax benefits to a hire purchase agreement
- The Australian Taxation Office has ruled that a chattel mortgage allows a cash business to claim the GST in a single lump sum
Project Finance
Another way to fund your practice assets is by leasing them in one facility with a single easy repayment structure. A practice fit-out can be a complex task which often unveils unforeseen costs such as design as you progress – or even changes in personal preference.
Using project finance, your financier will look after all progress payments and drawdowns required over the life of your project, rolling the final amount into one easy finance arrangement for you. This provides you with the flexibility to be covered for any unforeseen costs and peace of mind by giving you a pre-approved limit to work with.
Cash Flow Management
While we have outlined some finance considerations, it’s also important that you keep an eye on your cash flow. An overdraft is an essential cash flow management tool for a practice, providing a safety net for unexpected expenses. It can be used for working capital needs, advance bill payments and other cash flow requirements. In the set-up process, an overdraft can be used to subsidise costs that are not asset based, such as telephone set-up costs, staffing costs and stationary.
Find the Right Finance For You
To get the best deal for you, discuss your needs with a specialist in the industry who has already assisted many practitioners to set up, and who understands your profession and your financial circumstances.
Table:
|
Tax |
Payments Deductible | Fees | Additional Security | Residual | Fixed Repayment | |
| Lease | Financer | Yes | Set-up | no | Yes | Yes |
| CHP or Ccattel | Borrower | No, interest and depreciation | Set-up | no | Optional | Yes |
| Mortgage | Borrower | No, interest and depreciation | Usually ongoing | Your Property | Optional | Usually No |
